Garrett Motion Inc. 10-K

Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Garrett Motion Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Garrett Motion Inc. and subsidiaries (the "Company") as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, because of the effect of the material weakness identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated February 14, 2022, expressed an unqualified opinion on those consolidated financial statements and an emphasis of matter paragraph regarding the emergence from bankruptcy. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting . Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Material Weakness A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management's assessment. 67 Management of the Company did not design and implement effective controls relating to management's review of complex and bespoke transactions. Specifically, the controls did not include an assessment of the necessity to include subject matter expertise to review the key features of such transactions for purposes of the Company's accounting analyses. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements as of and for the year ended December 31, 2021, of the Company, and this report does not affect our report on such consolidated financial statements. /s/ Deloitte SA Geneva, Switzerland February 14, 2022 68 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Garrett Motion Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Garrett Motion Inc. and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with the accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 14, 2022 expressed an adverse opinion on the Company's internal control over financial reporting because of a material weakness. Emphasis of a Matter Emergence from Bankruptcy As discussed in Notes 1 and 2 to the financial statements, on April 26, 2021, the Bankruptcy Court entered an order confirming the plan of reorganization which became effective after the close of business on April 30, 2021. Under the plan of reorganization, the Company is required to comply with certain terms and conditions as more fully described in Notes 1 and 2 to the financial statements. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 69 Income Taxes - Uncertain Tax Positions - Refer to Note 7 to the Financial Statements Critical Audit Matter Description As of December 31, 2021, the company has recorded uncertain tax positions totaling $80 million. The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions with constantly changing tax laws and regulations. The Company’s management is required to interpret and apply these tax laws and regulations in determining the amount of its income tax liability and provision. When an uncertain tax position is identified by management, the Company must evaluate whether it is more likely to be sustained than not on the basis of its technical merits. In evaluating the tax benefits associated with the various tax filing positions, the Company records a net tax benefit for uncertain tax positions using the highest cumulative tax benefit that is more likely than not to be realized. The evaluation of each uncertain tax position requires management to apply specialized skill, knowledge, and significant judgment related to the identified position. This significant judgment includes determining the appropriate value of the liability based on the selected method of measurement, data, and assumptions determined by management. Because of the numerous foreign jurisdictions in which the Company files its tax returns and the complexity of their tax laws and regulations, auditing uncertain tax positions and the determination of whether or not the more likely than not threshold was met requires a high degree of auditor judgment and increased extent of effort, including the involvement of our income tax specialists. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to uncertain tax positions included the following, among others: • We tested the effectiveness of controls over income taxes, including managements' controls over identifying uncertain tax positions and measuring liabilities • We evaluated, with the assistance of our tax specialists, a selection of underlying tax positions to evaluate the more likely than not principle as it applied to the specific underlying tax position. • We evaluated, with the assistance of our tax specialists, the Company's unrecognized tax positions by performing the following: • Evaluating management's method of measuring its liability for uncertain tax positions, including evaluation of the underlying data and assumptions • Obtaining management and third-party memoranda’s regarding the analysis of certain uncertain tax positions reserves and identifying key judgements and evaluating whether the analysis was consistent with our interpretation of the relevant laws and regulations. • Evaluating the completeness of management's identification of the uncertain tax positions. • We also evaluated the appropriateness of the related disclosures included in Note 7 to the financial statements. /s/ Deloitte SA Geneva, Switzerland February 14, 2022 We have served as the Company’s auditor since 2018. 70 GARRETT MOTION INC. CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2021 2020 2019 (Dollars in millions except per share amounts) Net sales (Note 4) $ 3,633 $ 3,034 $ 3,248 Cost of goods sold 2,926 2,495 2,555 Gross profit 707 539 693 Selling, general and administrative expenses 216 260 231 Other expense, net (Note 5) 1 46 40 Interest expense 93 79 68 Non-operating (income) expense (Note 6) ( 16 ) ( 38 ) 8 Reorganization items, net ( 125 ) 73 — Income before taxes 538 119 346 Tax expense (Note 7) 43 39 33 Net income 495 80 313 Less: preferred stock dividend (Note 21) ( 97 ) $ — $ — Net income available for distribution $ 398 $ 80 $ 313 Earnings per share (Note 24) Basic $ 1.69 $ 1.06 $ 4.20 Diluted $ 1.56 $ 1.05 $ 4.12 Weighted average common shares outstanding Basic 69,706,183 75,543,461 74,602,868 Diluted 317,503,300 76,100,509 75,934,373 The Notes to the Consolidated Financial Statements are an integral part of this statement. 71 GARRETT MOTION INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Year Ended December 31, 2021 2020 2019 (Dollars in millions) Net income $ 495 $ 80 $ 313 Foreign exchange translation adjustment 38 ( 234 ) 67 Defined benefit pension plan adjustment, net of tax (Note 26) 36 ( 18 ) ( 14 ) Changes in fair value of effective cash flow hedges, net of tax (Note 19) 10 ( 7 ) 4 Changes in fair value of net investment hedges, net of tax (Note 19) 41 — — Total other comprehensive income (loss) , net of tax 125 ( 259 ) 57 Comprehensive income (loss) $ 620 $ ( 179 ) $ 370 The Notes to the Consolidated Financial Statements are an integral part of this statement. 72 GARRETT MOTION INC. CONSOLIDATED BALANCE SHEETS December 31, 2021 2020 (Dollars in millions) ASSETS Current assets: Cash and cash equivalents $ 423 $ 592 Restricted cash (Note 3) 41 101 Accounts, notes and other receivables, net (Note 8) 747 841 Inventories, net (Note 10) 244 235 Other current assets (Note 11) 56 110 Total current assets 1,511 1,879 Investments and long-term receivables 28 30 Property, plant and equipment, net (Note 13) 485 505 Goodwill (Note 14) 193 193 Deferred income taxes (Note 7) 289 275 Other assets (Note 12) 200 135 Total assets $ 2,706 $ 3,017 LIABILITIES Current liabilities: Accounts payable $ 1,006 $ 1,019 Borrowings under revolving credit facility (Note 16) — 370 Current maturities of long-term debt (Note 16) 7 — Debtor-in-possession Term Loan (Note 16) — 200 Mandatorily redeemable Series B Preferred Stock (Note 17) 200 — Accrued liabilities (Note 15) 295 242 Total current liabilities 1,508 1,831 Long-term debt (Note 16) 1,181 1,082 Mandatorily redeemable Series B Preferred Stock (Note 17) 195 — Deferred income taxes (Note 7) 21 2 Other liabilities (Note 20) 269 120 Total liabilities not subject to compromise 3,174 3,035 Liabilities subject to compromise (Note 2) — 2,290 Total liabilities $ 3,174 $ 5,325 COMMITMENTS AND CONTINGENCIES (Note 25) EQUITY (DEFICIT) Series A Preferred Stock, par value $ 0.001 ; 245,921,617 shares issued and outstanding as of December 31, 2021 (Note 21) — — Common Stock, par value $ 0.001 ; 1,000,000,000 and 400,000,000 shares authorized, 64,570,950 and 76,229,578 issued and 64,570,950 and 75,813,634 outstanding as of December 31, 2021 and December 31, 2020, respectively — — Additional paid-in capital 1,326 28 Retained deficit ( 1,790 ) ( 2,207 ) Accumulated other comprehensive income (Note 22) ( 4 ) ( 129 ) Total deficit ( 468 ) ( 2,308 ) Total liabilities and deficit $ 2,706 $ 3,017 The Notes to the Consolidated Financial Statements are an integral part of this statement. 73 GARRETT MOTION INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2021 2020 2019 (Dollars in millions) Cash flows from operating activities: Net income $ 495 $ 80 $ 313 Adjustments to reconcile net income to net cash provided by operating activities: Reorganization items, net ( 435 ) 60 — Deferred income taxes ( 36 ) ( 34 ) ( 41 ) Depreciation 92 86 73 Amortization of deferred issuance costs 7 7 9 Accretion of debt discount, net of interest payments 19 — — Foreign exchange loss (gain) 7 ( 58 ) 19 Stock compensation expense 7 10 18 Pension (income) expense ( 2 ) 15 18 Other ( 10 ) 44 19 Changes in assets and liabilities: Accounts, notes and other receivables 18 ( 162 ) 32 Inventories ( 31 ) ( 14 ) ( 60 ) Other assets ( 32 ) ( 45 ) ( 22 ) Accounts payable ( 75 ) 41 87 Accrued liabilities ( 46 ) ( 13 ) ( 60 ) Obligations payable to Honeywell ( 375 ) 6 ( 143 ) Other liabilities 87 2 ( 20 ) Net cash (used for) provided by operating activities ( 310 ) 25 242 Cash flows from investing activities: Expenditures for property, plant and equipment ( 72 ) ( 80 ) ( 102 ) Other 1 — 16 Net cash used for investing activities ( 71 ) ( 80 ) ( 86 ) Cash flows from financing activities: Proceeds from issuance of Series A Preferred Stock 1,301 — — Proceeds from issuance of long-term debt, net of deferred financing costs 1,221 — — Proceeds from revolving credit facilities — 1,449 745 Payments of long-term debt ( 1,517 ) ( 2 ) ( 163 ) Payments of revolving credit facilities ( 370 ) ( 1,100 ) ( 745 ) (Repayments) proceeds from debtor-in-possession financing ( 200 ) 200 — Redemption of Series B Preferred stock ( 201 ) — — Payments for Cash-Out election ( 69 ) — — Repurchases of Series A Preferred Stock ( 15 ) — — Repurchases of Common Stock ( 4 ) — — Revolving facility financing costs ( 7 ) — — Debtor-in-possession financing fees — ( 13 ) — Other — ( 4 ) — Net cash provided by (used for) financing activities 139 530 ( 163 ) Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash 13 31 ( 2 ) Net (decrease) increase in cash, cash equivalents and restricted cash ( 229 ) 506 ( 9 ) Cash, cash equivalents and restricted cash at beginning of period 693 187 196 Cash, cash equivalents and restricted cash at end of period $ 464 $ 693 $ 187 Supplemental cash flow disclosures: Income taxes paid (net of refunds) $ 61 $ 44 $ 93 Interest expense paid $ 61 $ 63 $ 54 Reorganization items paid $ 350 $ 14 $ — Supplemental schedule of non-cash investing and financing activities: Issuance of Series B Preferred Stock $ 577 $ — $ — Expenditures for property, plant and equipment in accounts payable $ 32 $ 47 $ 51 The Notes to the Consolidated Financial Statements are an integral part of this statement. 74 GARRETT MOTION INC. CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) Series A Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings Other Comprehensive Income/(Loss) Total Deficit Shares Amount Shares Amount (in millions) Balance at December 31, 2018 — $ — 74 $ — $ 5 $ ( 2,595 ) $ 73 $ ( 2,517 ) Net income — — — — — 313 — 313 Other comprehensive income, net of tax — — — — — — 57 57 Stock-based compensation — — 1 — 18 — — 18 Tax withholding related to vesting of restricted stock units and other — — — — ( 4 ) — — ( 4 ) Balance at December 31, 2019 — $ — 75 $ — $ 19 $ ( 2,282 ) $ 130 $ ( 2,133 ) Net income — — — — — 80 — 80 Other comprehensive income, net of tax — — — — — — ( 259 ) ( 259 ) Stock-based compensation — — 1 — 10 — — 10 Tax withholding related to vesting of restricted stock units and other — — — — ( 1 ) — — ( 1 ) Adoption impact of ASU 2016-13 , Financial Instruments - Credit Losses — — — — — ( 5 ) — ( 5 ) Balance at December 31, 2020 — $ — 76 $ — $ 28 $ ( 2,207 ) $ ( 129 ) $ ( 2,308 ) Net income — — — — — 495 — 495 Cash-Out election — — ( 11 ) — — ( 69 ) — ( 69 ) Issuance of Series A Preferred Stock 248 — — — 1,301 — — 1,301 Repurchases of Common Stock — — ( 1 ) — — ( 4 ) — ( 4 ) Repurchases of Series A Preferred Stock ( 2 ) — — — ( 10 ) ( 5 ) — ( 15 ) Other comprehensive loss, net of tax — — — — — — 125 125 Stock-based compensation — — — — 7 — — 7 Balance at December 31, 2021 246 $ — 64 $ — $ 1,326 $ ( 1,790 ) $ ( 4 ) $ ( 468 ) The Notes to the Consolidated Financial Statements are an integral part of this statement. 75 GARRETT MOTION INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Background and Basis of Presentation Background Garrett Motion Inc. (the “Company” or “Garrett”) designs, manufactures and sells highly engineered turbocharger and electric-boosting technologies for light and commercial vehicle original equipment manufacturers (“OEMs”) and the global vehicle independent aftermarket, as well as automotive software solutions. These OEMs in turn ship to consumers globally. We are a global technology leader with significant expertise in delivering products across gasoline, diesel, natural gas and electric (hybrid and fuel cell) power trains. These products are key enablers for fuel economy and emission standards compliance. Basis of Presentation The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All amounts presented are in millions, except per share amounts. The accompanying Consolidated Financial Statements have been prepared assuming that the Company will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. Our ability to continue as a going concern was contingent upon the Company’s ability to successfully implement a Plan of Reorganization in the Chapter 11 Cases, among other factors. As a result of the Chapter 11 Cases, the realization of assets and the satisfaction of liabilities were subject to uncertainty. While the Company was operating as debtors-in-possession under under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”), we sold or otherwise disposed of or liquidated assets or settled liabilities, with the approval of the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) or as otherwise permitted in the ordinary course of business, for amounts other than those reflected in our Consolidated Financial Statements. As a result of our improved liquidity (see Note 2, Plan of Reorganization; Note 16, Long-term Debt and Credit Agreements; Note 17, Mandatorily Redeemable Series B Preferred Stock; and Note 21, Equity), and removal of the risks and uncertainties surrounding the Chapter 11 Cases, substantial doubt no longer exists that we will be able to continue as a going concern. Upon emergence from the Chapter 11 bankruptcy proceedings, the Company did not meet the requirements under Accounting Standards Codification (“ASC”) 852, Reorganizations (“ASC 852”) for fresh start accounting. Fresh start accounting is applicable if both of the following criteria are met: i) The reorganization value of the assets of the emerging entity immediately before the date of confirmation of the Plan of Reorganization is less than the total of all post-petition liabilities and allowed claims; and ii) The holders of existing voting shares immediately before confirmation of the Plan of Reorganization receive less than 50% of the voting shares of the emerging entity. Based on the Company’s analysis, the Company was not required to apply fresh start accounting based on the provisions of ASC 852 since holders of the Company’s outstanding voting shares immediately before confirmation of the Plan received more than 50 % of the Company’s outstanding voting shares upon emergence. Accordingly, a new reporting entity was not created for accounting purposes. While the Company was a debtor-in-possession, it applied ASC 852 in preparing Consolidated Financial Statements. ASC 852 required the financial statements for periods subsequent to September 20, 2020 (the “Petition Date”) to distinguish transactions and events that were directly associated with the Company's reorganization from the ongoing operations of the business. Accordingly, revenues, expenses, realized gains and losses, and provisions for losses directly resulting from the reorganization and restructuring were reported separately as Reorganization items, net in the Consolidated Statements of Operations. In addition, the balance sheet distinguished pre-petition liabilities subject to compromise from those pre-petition liabilities that were not subject to compromise and post-petition liabilities. Pre-petition liabilities that were not fully secured or those that had at least a possibility of not being repaid at the allowed claim amount were classified as liabilities subject to compromise on the Consolidated Balance Sheet at December 31, 2020. At December 31, 2021 there were no such balances. 76 The preparation of the financial statements in conformity with GAAP requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases these estimates on assumptions that it believes to be reasonable under the circumstances, including considerations for the impact of the outbreak of the novel coronavirus (“COVID-19”) pandemic on the Company's business due to various global macroeconomic, operational and supply-chain risks as a result of COVID-19. Actual results could differ from the original estimates, requiring adjustments to these balances in future periods. Note 2. Plan of Reorganization Emergence from Chapter 11 As previously reported, on the Petition Date, the Company and certain of its subsidiaries (collectively, the “Debtors”) each filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. On April 20, 2021, the Debtors filed the Plan. On April 26, 2021, the Bankruptcy Court entered the Confirmation Order among other things, confirming the Plan. On the Effective Date, April 30, 2021, the conditions to the effectiveness of the Plan were satisfied or waived and the Company emerged from bankruptcy. On the Effective Date, pursuant to the Plan: • All shares of the Common Stock of the Company outstanding prior to the Effective Date (the “Old Common Stock”) were cancelled; • The Company paid $ 69 million to holders of Old Common Stock who had made the cash-out election under the Plan (the “Cash-Out Election”) in consideration of the cancellation of the Old Common Stock held by such holders; • The Company issued 65,035,801 shares of its new Common Stock (the “Common Stock”), to holders of the Old Common Stock who had not made the Cash-Out Election under the Plan in consideration of the cancellation of the Old Common Stock held by such holders; • The Company issued 247,768,962 shares of its new convertible series A preferred stock (the “Series A Preferred Stock”) to the parties to the Plan Support Agreement, the Equity Backstop Commitment Agreement (as both defined in the Plan) and participants in the rights offering by the Company for aggregate consideration of $ 1,301 million; • The Company issued 834,800,000 shares of its new mandatorily redeemable series B preferred stock (the “Series B Preferred Stock”) to Honeywell International Inc. (“Honeywell”) in satisfaction and discharge of certain claims of Honeywell; • The Company also paid $ 375 million to Honeywell in addition to the issuance of the Series B Preferred Stock in satisfaction and discharge of certain claims of Honeywell; • The Company was authorized to grant up to 10 % of the equity in the reorganized Company (on a fully-diluted basis) from time to time to the directors, officers and other employees of the reorganized Company, for awards under the Garrett Motion Inc. 2021 Long-Term Incentive Plan adopted by the board of directors (the “Board”) on May 25, 2021; • The Company p aid in full $ 101 million of interest and principal outstanding on, and terminated, the Senior Secured Super-Priority Debtor-in-Possession Credit Agreement (the “ DIP Credit Agreement ”); • The obligations of the Debtors under the credit agreement, dated as of September 27, 2018, by and among the Company, as holdings, Garrett LX III S.à r.l., as Lux Borrower, Garrett Borrowing LLC, as U.S. Co-Borrower, Garrett Motion Sàrl (f/k/a Honeywell Technologies Sàrl), as Swiss Borrower, the lenders and issuing banks party thereto and the Pre-petition Credit Agreement Agent (as defined in the Plan), as Administrative Agent, as amended, restated, supplemented or otherwise modified from time to time in accordance with its terms (the “Pre-petition Credit Agreement”) were cancelled, the applicable agreements governing such obligations were terminated and holders of Allowed Pre-petition Credit Agreement Claims (as defined in the Plan) received 77 payment in cash in an amount equal to such holder’s Allowed Pre-petition Credit Agreement Claim. With respect to the Pre-petition Credit Agreement: ◦ The Company repaid its outstanding principal balance, accrued pre-petition and default interest of $ 307 million on its five-year term A loan facility; ◦ The Company repaid its outstanding principal balance, accrued pre-petition and default interest of (i) $ 374 million with respect to the EUR tranche and (ii) $ 422 million with respect to the USD tranche, on its seven -year term B loan facility; ◦ The Company repaid its outstanding principal balance and accrued interest of $ 374 million on its revolving credit facility (the “Old Revolving Facility”); and ◦ The Company repaid its accrued pre-petition hedge obligations of $ 20 million; • The obligations of the Debtors under that certain Indenture, dated as of September 27, 2018, among the Company, as Parent, Garrett LX I S.à r.l., as Issuer, Garrett Borrowing LLC, as Co-Issuer, the guarantors named therein, Deutsche Trustee Company Limited, as Trustee, Deutsche Bank AG, as Security Agent and Paying Agent, and Deutsche Bank Luxembourg S.A., as Registrar and Transfer Agent, as may be amended, supplemented or otherwise modified from time to time (the “Indenture”), were cancelled, the applicable agreements governing such obligations were terminated and holders of Allowed Pre-petition Credit Agreement Claims (as defined in the Plan) received payment in cash in an amount equal to such holder’s Allowed Senior Subordinated Noteholder Claims (as defined in the Plan). With respect to the Indenture and the Allowed Senior Subordinated Noteholder Claims, the Company repaid its outstanding principal balance of € 350 million, or $ 423 million, (the “Senior Notes”), accrued pre-petition interest of $ 10 million, post-petition interest of $ 13 million, and payment of $ 15 million in connection with the complaint in the Bankruptcy Court against the indenture trustee of the 5.125 % senior notes due 2026 seeking declaratory judgment on two claims for relief that the Debtors did not owe, and the holders of the Senior Notes were not entitled to, any make-whole premium under the Indenture (the “Make-Whole” and such litigation, the “Make-Whole Litigation”); • The Company and certain of its subsidiaries entered into secured debt facilities consisting of: ◦ a seven-year secured first-lien U.S. Dollar term loan facility in the amount of $ 715 million (the “Dollar Facility”); ◦ a seven-year secured first-lien Euro term loan facility in the amount of € 450 million (the “Euro Facility,” and together with the Dollar Facility, the “Term Loan Facilities”); and ◦ a five-year senior secured first-lien revolving credit facility in the amount of $ 300 million providing for multi-currency revolving loans, (the “Revolving Facility,” and together with the Term Loan Facilities, the “Credit Facilities”); • The proceeds drawn under the Credit Facilities were reduced by deferred financing costs of $ 38 million, and deferred financing costs of $ 25 million on repaid historical debt were expensed; and • The Company paid or will pay certain pre-petition claims, transaction fees, stock incentive payments and other expenses incurred in connection with the Plan. See Note 17. Mandatorily Redeemable Series B Preferred Stock for further discussion of the Series B Preferred Stock. See Note 21, Equity for further discussion of the Common Stock and the Series A Preferred Stock. See Note 16, Long-term Debt and Credit Agreements for further discussion of the Credit Facilities. 78 Reorganization Items, Net Reorganization items, net represent amounts incurred after the Petition Date as a direct result of the Chapter 11 Cases and are comprised of the following for the year ended December 31, 2021 and 2020: Year Ended December 31, 2021 2020 (Dollars in millions) Gain on settlement of Honeywell claims (1) $ ( 502 ) $ — Advisor fees 174 55 Bid termination and expense reimbursement 79 — Director's and officers insurance 39 0 Expenses related to Senior Notes (2) 28 — Write off of pre-petition debt issuance cost 25 6 Employee stock cash out 13 — DIP Financing fees 1 13 Other 18 ( 1 ) Total reorganization items, net $ ( 125 ) $ 73 (1) The gain on settlement of Honeywell claims of $ 502 million is comprised of the pre-emergence Honeywell claims of $ 1,459 million, less the $ 375 million payment to Honeywell, less the Series B Preferred Stock issued to Honeywell, which was recorded at $ 577 million, less a currency translation adjustment of $ 5 million. (2) Includes $ 15 million in connection with Make-Whole Litigation and $ 13 million related to post-petition interest. Exit Financing and Entry into Credit Facilities On the Effective Date, in accordance with the Plan, the Company and certain of its subsidiaries entered into secured debt facilities consisting of: • a seven-year secured first-lien U.S. Dollar term loan facility in the amount of $ 715 million; • a seven-year secured first-lien Euro term loan facility in the amount of € 450 million; and • a five-year senior secured first-lien Revolving Facility in the amount of $ 300 million providing for multi-currency revolving loans. On January 11, 2022, the revolving facility was amended, refer to the "Revolving Facility and Letters of Credit", section of Note 16, Long-term Debt and Credit Agreements for further details. The Company may use up to $ 125 million under the Revolving Facility for the issuance of letters of credit to the Swiss Borrower (as defined below) or any of its subsidiaries. Letters of credit are available for issuance under the Credit Agreement on terms and conditions customary for financings of this kind, which issuances will reduce availability under the Revolving Facility. This agreement was amended on January 11, 2022, as further discussed in Note 16, Long-term Debt and Credit Agreements . The proceeds of the Term Loan Facilities were used on the Effective Date (i) for the payment of fees and expenses payable in connection with entry into the Credit Agreement, the effectiveness of the Plan, the refinancing of the Company’s existing indebtedness and the preferred equity investments that were made on the Effective Date, (ii) to fund distributions in accordance with the Plan, (iii) to pay off the Company’s existing indebtedness, including under its Pre-petition Credit Agreement, notes indenture and Debtor-in-possession Term Loan and (iv) for general corporate purposes. The Revolving Facility was undrawn on the Effective Date. Proceeds of the Revolving Facility are available to be used for working capital and other general corporate purposes, including acquisitions permitted under the Credit Agreement. Any letters of credit will be used for general corporate purposes. 79 The table below presents changes to our debt outstanding as a result of the Plan: December 31, 2020 Movement (1) Less debt repaid Exit financing (2) December 31, 2021 (Dollars in millions) Secured Term Loan Facilities and accrued interest $ 1,082 $ 21 $ ( 1,103 ) $ — $ — Borrowings under Old Revolving Facility 370 4 ( 374 ) — — Senior Notes and accrued interest 429 32 ( 461 ) — — Debtor-in-possession Term Loan 200 — ( 200 ) — — Term Loan Facilities — — — 1,188 1,188 Total long-term debt $ 2,081 $ 57 $ ( 2,138 ) $ 1,188 $ 1,188 (1) Amounts primarily are related to accrued interest, unamortized deferred financing cost as of December 31, 2020 and the impact of foreign exchange. (2) Term Loan Facilities amount, net of deferred financing costs as of December 31, 2021 of $ 1,188 million reflects exit financing amounts as of the Effective Date of $ 1,221 million adjusted to the December 31, 2021 foreign exchange rate. Financial Statement Classification of Liabilities Subject to Compromise As a result of the Chapter 11 Cases, the payment of pre-petition liabilities is generally subject to compromise pursuant to a Plan of Reorganization. Generally, actions to enforce or otherwise effect payment of pre-bankruptcy filing liabilities are enjoined. Although payment of pre-petition claims generally was not permitted during the Chapter 11 Cases, the Bankruptcy Court granted the Debtors authority to pay certain pre-petition claims in designated categories and subject to certain terms and conditions. This relief generally was designed to preserve the value of the Debtors’ business and assets. Among other things, the Bankruptcy Court authorized, but did not require, the Debtors to pay certain pre-petition claims relating to employee wages and benefits, taxes, critical vendors and foreign vendors Prior to emergence, pre-petition liabilities that were subject to compromise were required to be reported at the amounts expected to be allowed. Therefore, liabilities subject to compromise in the table below reflected management’s estimates of amounts expected to be allowed by the Bankruptcy Court, based upon the status of negotiations with creditors. Upon emergence or shortly thereafter, amounts recorded as liabilities subject to compromise were either settled, as reflected in the table below or such amounts have been reinstated to current or non-current liabilities in the Consolidated Balance Sheet, based upon management’s judgment as to the timing for settlement of such claims. 80 The following table presents the movements in the liabilities subject to compromise as reported in the Consolidated Balance Sheet from December 31, 2020 to December 31, 2021: December 31, 2020 Change in estimated allowed claims Cash payment Issuance of Series B Preferred Stock Reinstatements Reorganization OCI December 31, 2021 (Dollars in millions) Obligations payable to Honeywell $ 1,482 $ ( 23 ) $ ( 375 ) $ ( 577 ) $ — $ ( 502 ) $ ( 5 ) $ — Senior Notes 429 32 ( 461 ) — — — — — Pension, compensation, benefit and other employee-related 92 ( 10 ) — — ( 82 ) — — — Uncertain tax positions and deferred taxes 69 ( 8 ) — — ( 61 ) — — — Accounts payable 82 ( 50 ) — — ( 32 ) — — — Advanced discounts from suppliers 33 ( 6 ) — — ( 27 ) — — — Lease liabilities 19 ( 2 ) — — ( 17 ) — — — Product warranties and performance guarantees 16 — — — ( 16 ) — — — Freight Accrual 27 ( 27 ) — — — — — — Other 41 ( 14 ) — — ( 27 ) — — — Total liabilities subject to compromise $ 2,290 $ ( 108 ) $ ( 836 ) $ ( 577 ) $ ( 262 ) $ ( 502 ) $ ( 5 ) $ — The Company emerged from Chapter 11 bankruptcy on the Effective Date of April 30, 2021. The amounts in the table above represent the best estimate of our pre-petition liabilities prior to emergence on the Effective Date. Note 3. Summary of Significant Accounting Policies Principles of Consolidation and Combination The Consolidated Financial Statements include the accounts of Garrett Motion Inc. and all of its subsidiaries in which a controlling financial interest is maintained. We consolidate entities that we control due to ownership of a majority voting interest, and we consolidate variable interest entities when we have variable interests and are the primary beneficiary. Our consolidation policy requires equity investments that we exercise significant influence over but in which we do not have a controlling financial interest to be accounted for using the equity method. Investments through which we are not able to exercise significant influence over the investee and which we do not have readily determinable fair values are accounted for under the cost method. All intercompany transactions and balances are eliminated in consolidation. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and highly liquid investments having an original maturity of three months or less. 81 Restricted Cash Restricted cash primarily consists of bank deposits used to pledge as collateral in order to be able to issue bank notes as payment to certain suppliers in the Asia Pacific region (refer to Note 9, Factoring and Notes Receivable ). The Company released $ 39 million during January and February 2022. Trade Receivables and Allowance for Doubtful Accounts Trade accounts receivable are recorded at the invoiced amount as a result of transactions with customers. Garrett maintains allowances for doubtful accounts for estimated losses as a result of a customer’s inability to make required payments. As of January 1, 2020, Garrett adopted Accounting Standards Update ("ASU") 2016-13 , Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . The new guidance requires an entity to recognize as an allowance its estimate of lifetime expected credit losses rather than incurred losses. The guidance is also applicable to contract assets such as unbilled receivables. Consistent with the new guidance, Garrett estimates losses from doubtful accounts expected over the contractual life of the receivables based on days past due as measured from the contractual due date and collection history. Garrett also takes into consideration changes in economic conditions that may not be reflected in historical trends (for example, customers in bankruptcy, liquidation or reorganization). Receivables are written-off against the allowance for doubtful accounts when they are determined uncollectible. Such determination includes analysis and consideration of the particular conditions of the account, including time intervals since last collection, customer performance against agreed upon payment plans, solvency of customer and any bankruptcy proceedings. Transfer of Financial Instruments Sales and transfers of financial instruments are accounted for under ASC 860, Transfers and Servicing (“ASC 860”). The Company may discount and sell accounts receivables during the normal course of business. These receivables which are transferred to a third party without recourse to the Company and that meet the criteria of sales accounting as per ASC 860, are excluded from the amounts reported in the Consolidated Balance Sheets. The cash proceeds received from such sales are included in operating cash flows. The expenses associated with the factoring of receivables are recorded within Other expense, net in the Consolidated Statements of Operations. The Company may also receive bank notes in settlement of accounts receivables, primarily in the Asia Pacific region. Such bank notes are classified as notes receivables under Accounts, notes and other receivables – net in the Consolidated Balance Sheets. The collections of such bank notes are included in operating cash flows and any expenses related to discounting these are included within Other expense, net in the Consolidated Statements of Operations. The Company can hold the bank notes until maturity, exchange them with suppliers to settle liabilities, or sell them to third party financial institutions in exchange for cash. Inventories Inventories are stated at the lower of cost, determined on a first-in, first-out basis, including direct material costs and direct and indirect manufacturing costs, or net realizable value. Obsolete inventory is identified based on analysis of inventory for known obsolescence issues. The original equipment inventory on hand in excess of forecasted usage and lack of consumption in the previous 12 months is fully reserved, unless the value of such material is recoverable from either the vendor or the customer. Property, Plant and Equipment Property, plant and equipment are recorded at cost less accumulated depreciation and amortization. For financial reporting, the straight-line method of depreciation is used over the estimated useful lives of 10 to 50 years for buildings and improvements, 2 to 16 years for machinery and equipment, 3 to 10 years for tooling equipment and 5 to 7 years for software. Leases For the periods beginning January 1, 2019, right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of a lease (the “commencement date”) based on the present value of lease payments over the lease term. We determine if an arrangement is a lease at inception. Operating leases are included in Other assets, Accrued liabilities, and Other liabilities in our Consolidated Balance Sheets. No finance leases have been recognized. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate 82 based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease where it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Variable lease payments are expensed in the period in which they occur. We have lease agreements with lease and non-lease components, which are generally accounted for separately. For machinery and equipment, we account for the lease and non-lease components as a single lease component. We account for short-term leases by recognizing lease payments in net income on a straight-line basis over the lease term and will not recognize any ROU assets and lease liabilities on the Consolidated Balance Sheet. For the periods prior to January 1, 2019, we accounted for leases in accordance with ASC 840, Leases. Goodwill Goodwill is subject to impairment testing annually, and whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. This testing compares carrying value to fair value of our single reporting unit. The Company recognizes an impairment charge for the amount by which the carrying value of the reporting unit exceeds the reporting unit´s fair value. However, any impairment should not exceed the amount of goodwill allocated to the reporting unit. Because we have a single reporting unit with a negative carrying value, no impairment was recognized. Warranties and Guarantees Expected warranty costs for products sold are recognized based on an estimate of the amount that eventually will be required to settle such obligations. These accruals are based on factors such as past experience, length of the warranty and various other considerations. Costs of product recalls, which may include the cost of the product being replaced as well as the customer’s cost of the recall, including labor to remove and replace the recalled part, are accrued as part of our warranty accrual at the time an obligation becomes probable and can be reasonably estimated. These estimates are adjusted from time to time based on facts and circumstances that impact the status of existing claims. For additional information, see Note 25, Commitments and Contingencies of the Notes to the Consolidated Financial Statements. Sales Recognition Product sales are recognized when we transfer control of the promised goods to our customer, which is based on shipping terms. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the promised goods, which includes estimates of variable consideration to the extent it is probable that a significant reversal of revenue recognized will not occur. Amounts billed but ultimately expected to be refunded to the customer are recorded as part of the customer pricing reserve within Accrued liabilities on the Consolidated Balance Sheet. In the sale of products in the OEM channel, the transaction price for these goods is generally equal to the agreed price of each unit and represents the standalone selling price for the unit. In the sale of products in the aftermarket channel, the terms of a contract or the historical business practice can give rise to variable consideration due to, but not limited to, discounts and bonuses. We estimate variable consideration at the most likely amount we will receive from customers and reduce revenues recognized accordingly. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. We adjust our estimate of revenue at the earlier of when the value of consideration we expect to receive changes or when the consideration becomes fixed. Research and Development Garrett conducts research and development (“R&D”) activities, which consist primarily of the development of new products and product applications. R&D costs are charged to expense as incurred. Such costs are included in Cost of goods sold and were $ 136 million, $ 111 million and $ 129 million, for the years ended December 31, 2021, 2020 and 2019, respectively. Additionally, the Company incurs engineering-related expenses which are also included in Cost of goods sold and were $ 22 million, $ 13 million and $ 5 million for the years ended December 31, 2021, 2020 and 2019, respectively. 83 Environmental Matters The Company records liabilities for environmental assessments and remediation activities in the period in which it is probable that a liability has been incurred and the amount of that liability can be reasonably estimated. Estimated costs are recorded at undiscounted amounts, based on experience and assessments and are regularly evaluated. To the extent that the required remediation procedures change, or additional contamination is identified, the Company’s estimated environmental liabilities may also change. The liabilities are recorded in Accrued liabilities and Other liabilities in the Consolidated Balance Sheet. Asbestos-Related Contingencies and Insurance Recoveries Honeywell is subject to certain asbestos-related and environmental-related liabilities, primarily related to its legacy Bendix business. In conjunction with the Spin-Off, certain operations that were part of the Bendix business, along with the ownership of the Bendix trademark, as well as certain operations that were part of other legacy elements of the Business, were transferred to us. Prior to the Chapter 11 Cases, the accounting for the majority of our asbestos-related liability payments and accounts payable reflect the terms of the indemnification and reimbursement agreement with Honeywell entered into on September 12, 2018 (the “Honeywell Indemnity Agreement”), under which Garrett ASASCO Inc. ("Garrett ASASCO") is required to make payments to Honeywell in amounts equal to 90 % of Honeywell’s asbestos-related liability payments and accounts payable, primarily related to the 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 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. During the Chapter 11 Cases, the Obligation payable to Honeywell related to these agreements was deemed a pre-petition, unsecured liability subject to compromise and as such all amounts were reclassified to Liabilities Subject to Compromise. The Honeywell Indemnity Agreement provided that the agreement will terminate upon the earlier of (x) December 31, 2048 or (y) December 31st of the third consecutive year during which certain amounts owed to Honeywell during each such year were less than $ 25 million as converted into Euros in accordance with the terms of the agreement. On April 26, 2021, the Bankruptcy Court entered the Confirmation Order, among other things, confirming the Plan. On the Effective Date, the conditions to effectiveness of the Plan were satisfied or waived and the Company emerged from bankruptcy. The Plan as confirmed by the Bankruptcy Court included 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 Agreements. For more information see Note 17, Mandatorily Redeemable Series B Preferred Stock and Note 25, Commitments and Contingencies of the Notes to the Consolidated Financial Statements. Stock-Based Compensation Plans The principal awards issued under our stock-based compensation plans, which are described in Note 23, Stock-Based Compensation , are performance stock units and restricted stock units. The cost for such awards is measured at the grant date based on the fair value of the award. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods (generally the vesting period of the equity award) and is included in Selling, general and administrative expenses in the Consolidated Statements of Operations. Forfeitures are estimated at the time of grant to recognize expense for those awards that are expected to vest and are based on our historical forfeiture rates. Pension Benefits We sponsor defined benefit pension plans covering certain employees, primarily in Switzerland, the U.S. and Ireland. For such plans, we are required to disaggregate the service cost component of net benefit costs and report those costs in the same line item or items in the Consolidated Statements of Operations as other compensation costs arising from services rendered by the pertinent employees during the period. The other nonservice components of net benefit costs are required to be presented separately from the service cost component. We record the service cost component of Pension ongoing (income) expense in Cost of goods sold or Selling, general and administrative expenses. The remaining components of net benefit costs within Pension ongoing (income) expense, primarily interest costs and assumed return on plan assets, are recorded in Non-operating expense (income). We recognize net actuarial gains or losses in excess of 10 % of the greater of 84 the fair value of plan assets or the plans’ projected benefit obligation (the corridor) annually in the fourth quarter each year (“MTM Adjustment”). The MTM Adjustment is recorded in Non-operating (income) expense. Foreign Currency Translation Assets and liabilities of subsidiaries operating outside the United States with a functional currency other than U.S. Dollars are translated into U.S. Dollars using year-end exchange rates. Sales, costs and expenses are translated at the average exchange rates in effect during the year. Foreign currency translation gains and losses are included as a component of Accumulated other comprehensive income (loss). Derivative Financial Instruments We minimize our risks from foreign currency exchange rate fluctuations through our normal operating and financing activities and, when deemed appropriate through the use of derivative financial instruments. Derivative financial instruments are used to manage risk and are not used for trading or other speculative purposes. Derivative financial instruments that qualify for hedge accounting must be designated and effective as a hedge of the identified risk exposure at the inception of the contract. Accordingly, changes in fair value of the derivative contract must be highly correlated with changes in fair value of the underlying hedged item at inception of the hedge and over the life of the hedge contract. All derivatives are recorded on the balance sheet as assets or liabilities and measured at fair value. For derivatives designated as cash flow hedges, the effective portion of the changes in fair value of the derivatives are recorded in Accumulated other comprehensive income (loss) and subsequently recognized in earnings when the hedged items impact earnings. Cash flows of such derivative financial instruments are classified consistent with the underlying hedged item. For derivatives designated as net investment hedges, provided the hedging relationship is highly effective, the changes in fair value of the derivatives and the periodic settlements are recorded in Accumulated other comprehensive income (loss). Income Taxes We account for income taxes pursuant to the asset and liability method which requires us to recognize current tax liabilities or receivables for the amount of taxes we estimate are payable or refundable for the current year and deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts and their respective tax bases of assets and liabilities and the expected benefits of net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period enacted. A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible. Earnings per share As of December 31, 2021, basic earnings per share are calculated using the two-class method, pursuant to the issuance of our Series A preferred stock on the Effective Date. The calculation of basic earnings per share requires an allocation of earnings to all securities that participate in dividends with common shares, such as our Series A preferred stock, to the extent that each security may share in the entity’s earnings. Basic earnings per share are calculated by dividing undistributed earnings allocated to common stock by the weighted average number of common shares. See Note 24, Earnings Per Share for further details. Diluted earnings per share for the year ended December 31, 2021 is calculated using the more dilutive of the two-class or if-converted methods. The two-class method uses net income available to common shareholders and assumes conversion of all potential shares other than the participating securities. The if-converted method uses net income and assumes conversion of all potential shares including the participating securities. Diluted earnings per share for the years ended December 31, 2020 and 2019 are computed based upon the weighted average number of common shares outstanding and all dilutive potential common shares outstanding and all potentially issuable PSUs at the end of the period (if any) based on the number of shares issuable if it were the end of the vesting period using the treasury stock method and the average market price of our Common Stock for the year. 85 Basic and diluted weighted average of common shares outstanding for the years ended December 31, 2021, 2020 and 2019 were 69,706,183 , 75,543,461 and 74,602,868 and 317,503,300 , 76,100,509 and 75,934,373 , respectively. See Note 24, Earnings Per Share for further details. Use of Estimates The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the Consolidated Financial Statements and related disclosures in the accompanying notes. Actual results could differ from those estimates. Estimates and assumptions are periodically reviewed and the effects of changes are reflected in the Consolidated Financial Statements in the period they are determined to be necessary. In connection with the filing of the Chapter 11 Cases on the Petition Date, the Consolidated Financial Statements included herein have been prepared in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic No. 852, Reorganizations . See Note 2, Plan of Reorganization , of the Consolidated Financial Statements for further details. Liabilities Subject to Compromise Liabilities subject to compromise include pre-petition liabilities that are unsecured, under-secured or where it cannot be determined that the liabilities are fully secured. Liabilities that may be affected by a plan of reorganization must be reported at the amounts expected to be allowed by the Bankruptcy Court, even if they may be settled for lesser amounts as a result of the plan of reorganization or negotiations with creditors. If there is uncertainty about whether a secured claim is undersecured, or will be impaired under the plan of reorganization, the entire amount of the claim is included with prepetition claims in liabilities subject to compromise. Reorganization Items, Ne t Effective on September 20, 2020, we began to apply the provisions of ASC 852, Reorganizations , which is applicable to companies under bankruptcy protection, and requires amendments to the presentation of key financial statement line items. ASC 852 requires that the financial statements for periods subsequent to the filing of the Chapter 11 Cases distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Revenues, expenses, realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items, net in the consolidated statements of operations beginning September 20, 2020. Related Party Transactions We lease certain facilities and receive property maintenance services from Honeywell, which as of emergence from Chapter 11 is the owner of our Series B Preferred Stock and appoints a director to the Board of Directors ("the Board"). Lease and service agreements were made at commercial terms prevalent in the market at the time they were executed. Our payments under the agreements with Honeywell were $ 9 million from emergence through the period ended December 31, 2021 and were included in Cost of goods sold, Selling, general and administrative expenses, and Reorganization Items, net in our Consolidated Statements of Operations. Related to the agreements with Honeywell, our Consolidated Balance Sheet includes liabilities of $ 15 million as of December 31, 2021. Liability balances are primarily related to lease contracts of $ 12 million as of December 31, 2021. Certain of our related parties participated in our Plan as follows, as more fully discussed in Note 2, Plan of Reorganization and Note 21, Equity : • The Company paid $ 75 million in connection with the following: • We reimbursed Centerbridge Partners, L.P. (together with its affiliated funds, “Centerbridge”) and Oaktree Capital Management, L.P. (together with its affiliated funds, “Oaktree”), who are significant shareholders, and Honeywell for professional fees and expenses related to their support of our emergence from Chapter 11 bankruptcy; • We reimbursed Centerbridge and Oaktree for their participation in the Equity Backstop Commitment Agreement; and 86 • Centerbridge and Oaktree were parties to our Registration Rights Agreement (see definition in Note 21, Equity ) for the registration of our Series A Preferred Stock and our Series A Investor Rights Agreement. Series A Preferred Stock Our Series A Preferred Stock is not a mandatorily redeemable financial instrument and is classified as permanent equity in our Consolidated Balance Sheets. The Series A Preferred stock contains a conversion feature which is not required to be bifurcated, is not a derivative, and does not contain a beneficial conversion feature. It is considered a participating security with the Company’s Common Stock as holders of the Series A Preferred Stock will also be entitled to such dividends paid to holders of Common Stock to the same extent as if such holders of Series A Preferred Stock had converted their shares of Series A Preferred Stock into Common Stock (without regard to any limitations on conversions) and had held such shares of Common Stock on the record date for such dividends and distributions. See Note 2, Plan of Reorganization and Note 21, Equity , of the Consolidated Financial Statements for further details. Series B Preferred Stock Our Series B Preferred Stock is a mandatorily redeemable financial instrument and is classified as debt in our Consolidated Balance Sheets. The Series B Preferred stock does not require physical settlement by the repurchase of a fixed number of the issuer’s equity shares in exchange for cash, and therefore not required to be subsequently remeasured. The Series B Preferred Stock redemption options are not required to be bifurcated and are not considered derivatives. On September 30, 2021, the Company filed an amended and restated Certificate of Designations (the “A&R Certificate of Designations”) amending and restating the terms of the Series B Preferred Stock. The A&R Certificate of Designations for this first amendment became effective on October 1, 2021. On December 16, 2021, the Company filed a second amended and restated Certificate of Designations amending and restating the terms of the Series B Preferred Stock. The second amended A&R Certificate of Designations became effective on December 17, 2021. The amendment was accounted for as a debt modification that did not result in an extinguishment or have a material impact on our Consolidated Financial Statements. On February 18, 2022, the Company will redeem 217,183,244 shares of Series B Preferred Stock for an aggregate price of $ 197 million. See Note 2, Plan of Reorganization and Note 17, Mandatorily Redeemable Series B Preferred Stock , of the Consolidated Financial Statements for further details. Reclassifications Certain reclassifications have been made to prior year amounts to conform to current year classifications. Specifically certain items that had been previously recorded in selling, general and administrative expenses presented now within Cost of goods sold in our Consolidated Statements of Operations. Additionally, we reclassed a portion of our recorded obligations for product warranties and product performance guarantees from Accrued Liabilities to Other Liabilities. The reclassifications had no impact on net income, equity, or cash flows as previously reported. Recently Issued Accounting Pronouncements In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of Effects of Reference Rate Reform on Financial Reporting , which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. The amendments in this Update apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848) , which clarified the scope and applicability of certain provisions. The Company has evaluated the impact of ASU 2020-04 and ASU 2021-01 on our debt agreements and hedging contracts and determined that they do not have a material impact on our Consolidated Financial Statements. Our Credit Agreement provides a mechanism for determining an alternative rate of interest to be used in place of LIBOR (“Benchmark Replacement”), mitigating the Reference Rate Reform transition impact. In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance . The amendments in this update increase the transparency surrounding government assistance by requiring disclosure of 1) the types of assistance received, 2) an entity’s accounting for the assistance, and 3) the effect of the assistance on the entity’s financial statements. The update is effective for annual periods beginning after December 15, 2021. We plan to adopt this pronouncement for our fiscal year beginning January 1, 2022, and we do not expect it to have a material effect on our Consolidated Financial Statements. 87 There are no other recently issued, but not yet adopted, accounting pronouncements which are expected to have a material impact on the Company’s Consolidated Financial Statements and related disclosures. Note 4. Revenue Recognition and Contracts with Customers The Company generates revenue through the sale of products to customers in the OEM and aftermarket channels. OEM and aftermarket contracts generally include scheduling agreements that stipulate the pricing and delivery terms that identify the quantity and timing of the product to be transferred. Revenue recognition under ASC 606 is generally consistent with the previous standard, with the exception of how we account for payments made to customers in conjunction with future business. Historically these payments were recognized as a reduction of revenue at the time the payments were made. Under ASC 606, these payments result in deferred reductions to revenue that are subsequently recognized when the products are delivered to the customer. The Company evaluates the amounts capitalized each period end for recoverability and expenses any amounts that are no longer expected to be recovered over the term of the business arrangement. These payments are recorded in Other current assets and Other assets in our Consolidated Balance Sheets. Disaggregated Revenue For Net sales by region (determined based on country of shipment) and channel, refer to Note 27, Concentrations . We recognize virtually all of our revenues arising from performance obligations at a point in time. Less than 1 % of our revenue is satisfied over time. Contract Balances The timing of revenue recognition, billings and cash collections results in unbilled receivables (contract assets) and billed accounts receivable, reported in Accounts, notes and other receivables – net, and customer advances and deposits (contract liabilities), reported in Accrued Liabilities, on the Consolidated Balance Sheets. Contract assets arise when the timing of billing to customers differs from the timing of revenue recognition. Contract assets are recognized when the revenue associated with the contract is recognized prior to billing and derecognized once invoiced in accordance with the terms of the contract. Contract liabilities are recorded in scenarios where we enter into arrangements where customers are contractually obligated to remit cash payments in advance of us satisfying performance obligations and recognizing revenue. Contract liabilities are generally derecognized when revenue is recognized. These assets and liabilities are reported on the Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. The following table summarizes our contract assets and liabilities balances: 2021 2020 (Dollars in millions) Contract assets—January 1 $ 61 $ 6 Contract assets—December 31 63 61 Change in contract assets—Increase/(Decrease) $ 2 $ 55 Contract liabilities—January 1 $ ( 2 ) $ ( 3 ) Contract liabilities—December 31 ( 5 ) ( 2 ) Change in contract liabilities—(Increase)/Decrease $ ( 3 ) $ 1 Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is defined as the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For product sales, typically each product sold to a customer represents a distinct performance obligation. Virtually all of our performance obligations are satisfied as of a point in time. Performance obligations are supported by contracts with customers, providing a framework for the nature of the distinct goods, services or bundle of goods and services. The timing of satisfying the performance obligation is typically indicated by the terms of the contract. All 88 performance obligations are expected to be satisfied within one year , with substantially all performance obligations being satisfied within a month. The timing of satisfaction of our performance obligations does not significantly vary from the typical timing of payment, with cash advances (contract liabilities) and unbilled receivables (contract assets) being settled within 3 months. For some contracts, we may be entitled to receive an advance payment. We have applied the practical expedient to not disclose the value of remaining performance obligations for contracts with an original expected term of one year or less. Note 5. Other Expense, Net Year Ended December 31, 2021 2020 2019 (Dollars in millions) Indemnification related — post Spin-Off $ — $ 41 $ 28 Indemnification related — litigation — 3 11 Environmental remediation, non-active sites — 1 — Factoring and notes receivables discount fees 1 1 1 $ 1 $ 46 $ 40 Note 6. Non-Operating (Income) Expense Year Ended December 31, 2021 2020 2019 (Dollars in millions) Equity income of affiliated companies $ ( 7 ) $ ( 5 ) $ ( 6 ) Interest income ( 11 ) ( 3 ) ( 7 ) Pension (income) expense — non service ( 13 ) 5 8 Foreign exchange 14 ( 35 ) 13 Others, net 1 — — $ ( 16 ) $ ( 38 ) $ 8 Note 7. Income Taxes The sources of income (loss) from continuing operations, before income taxes, classified between domestic entities and those entities domiciled outside of the U.S., are as follows: Year Ended December 31, 2021 2020 2019 Income before taxes (Dollars in millions) Domestic entities $ 242 $ ( 87 ) $ ( 54 ) Entities outside the U.S. 296 206 400 $ 538 $ 119 $ 346 89 Tax expense (benefit) Tax expense (benefit) consists of: Year Ended December 31, 2021 2020 2019 (Dollars in millions) Current: Federal $ ( 1 ) $ 3 $ 9 State — 1 1 Foreign 80 69 64 $ 79 $ 73 $ 74 Deferred: Federal $ ( 9 ) $ — $ 2 State ( 2 ) — — Foreign ( 25 ) ( 34 ) ( 43 ) $ ( 36 ) $ ( 34 ) $ ( 41 ) $ 43 $ 39 $ 33 The U.S. federal statutory income tax rate is reconciled to our effective income tax rate as follows: Year Ended December 31, 2021 2020 2019 (Dollars in millions) U.S. federal statutory income tax rate 21.0 % 21.0 % 21.0 % Taxes on non-U.S. earnings different from U.S. tax ( 7.6 ) % ( 6.5 ) % ( 2.3 ) % Reserves for tax contingencies 3.7 % 15.9 % 2.5 % Non-deductible and permanent items ( 14.4 ) % 7.1 % 1.7 % Withholding and other taxes on foreign earnings 5.7 % ( 14.7 ) % 4.4 % Tax law changes — % — % ( 17.3 ) % Changes in valuation allowance ( 0.3 ) % 10.5 % 0.5 % All other items ( 0.2 ) % ( 0.5 ) % ( 1.0 ) % 7.9 % 32.8 % 9.5 % The effective tax rate decreased by 24.9 percentage points in 2021 compared to 2020. The decrease was primarily attributable to the nontaxable gain on the settlement of the Honeywell claims during the year, increased tax benefits from an internal restructuring and fewer losses in jurisdictions that we do not expect to benefit from such losses; partially offset by increases in withholding taxes on unrepatriated earnings. The internal restructuring occurred predominantly in the fourth quarter of 2021 which involved transfers of certain rights to intellectual property and various intercompany financing arrangements resulting in an approximately 11 percent point decrease to the effective tax rate during the current year. The overall increase in earnings from 2020 was also a contributing factor to a lower effective tax rate as the impact of certain recurring non-deductible permanent expenses and reserves for tax contingencies were diluted by higher earnings. The effective tax rate increased by 23.3 percentage points in 2020 compared to 2019. The increase was primarily attributable to the absence of tax benefits related to the remeasurement of deferred tax assets and liabilities for tax law changes enacted during 2019, higher tax expense because of nondeductible costs incurred in connection with the Chapter 11 Cases, the resolution of tax audits and an increase in losses for jurisdictions where we do not expect to generate future tax benefits from such losses. The increase in the effective tax rate was also impacted by overall lower earnings compared to 2019 because of the adverse impacts of COVID-19, partially offset by tax benefits from lower withholding taxes on non-US earnings. 90 Deferred tax assets (liabilities) The tax effects of temporary differences and tax carryforwards which give rise to future income tax benefits and payables are as follows: December 31, 2021 2020 (Dollars in millions) Deferred tax assets: Intangibles and fixed assets $ 219 $ 202 Pension 7 18 Accruals and reserves 39 32 Net operating losses and other tax attribute carryforwards 37 35 Outside basis differences 11 11 Other 30 29 Total deferred tax assets 343 327 Valuation allowance ( 32 ) ( 34 ) Net deferred tax assets $ 311 $ 293 Deferred tax liabilities: Outside basis differences $ ( 19 ) $ ( 30 ) Other ( 24 ) ( 15 ) Total deferred tax liabilities ( 43 ) ( 45 ) Net deferred tax asset $ 268 $ 248 As of December 31, 2021, the Company had net operating loss carryforwards of $ 109 million in the below jurisdictions. Jurisdiction Expiration Period Net Operating Loss Carryforwards (Dollars in millions) Brazil Indefinite $ 49 Luxembourg 2038 26 United Kingdom Indefinite 26 Other Various 8 $ 109 We maintain a valuation allowance of $ 32 million against a portion of the non-U.S. total deferred tax assets. In the event we determine that we will not be able to realize our net deferred tax assets in the future, we will reduce such amounts through an increase to tax expense in the period such determination is made. Conversely, if we determine that we will be able to realize net deferred tax assets in excess of the carrying amounts, we will decrease the recorded valuation allowance through a reduction to tax expense in the period that such determination is made . Our balance sheets present a deferred tax asset of $ 289 million and a deferred tax liability of $ 21 million after taking into account jurisdictional netting. The Company does not intend to permanently reinvest the undistributed earnings of its foreign subsidiaries and has recorded a deferred tax liability mainly consisting of withholding taxes of approximately $ 19 million as of December 31, 2021 . 91 The following table summarizes the activity related to the Company’s uncertain tax positions (excluding interest and penalties and related tax attributes): December 31, 2021 2020 2019 (Dollars in millions) Change in unrecognized tax benefits: Balance at beginning of year $ 60 $ 54 $ 48 Gross increases related to current period tax positions 13 8 8 Gross increases related to prior periods tax positions 31 6 — Gross decreases related to prior periods tax positions ( 21 ) — — Decrease related to resolutions of audits with tax authorities — ( 7 ) — Expiration of the statute of limitations for the assessment of taxes ( 1 ) ( 2 ) ( 2 ) Foreign currency translation ( 2 ) 1 — Balance at end of year $ 80 $ 60 $ 54 As of December 31, 2021 , 2020, and 2019 there wer e $ 80 million, $ 60 million, and $ 54 million, respectively, of unrecognized tax benefits that, if recognized, would be recorded as a component of Tax expense. Estimated interest and penalties related to uncertain tax benefits are classified as a component of tax expense in the Consolidated Statements of Operations and totaled $ 3 million of income, $ 5 million of expense and $ 3 million of expense for the years ended December 31, 2021, 2020 , and 2019 , respectively. Accrued interest and penalties were $ 26 million , $ 29 million, and $ 26 million, as of December 31, 2021, 2020 , and 2019 , respectively. We are currently under audit in a few jurisdictions for tax years ranging from 2006 through 2020. Based on the outcome of these examinations, or as a result of the expiration of statutes of limitations for specific jurisdictions, it is possible that certain unrecognized tax benefits for tax positions taken on previously filed tax returns will materially change from those recorded as liabilities in our financial statements. Note 8. Accounts, Notes and Other Receivables—Net December 31, 2021 2020 (Dollars in millions) Trade receivables $ 553 $ 625 Notes receivables 121 152 Other receivables 78 77 $ 752 $ 854 Less—Allowance for expected credit losses ( 5 ) ( 13 ) $ 747 $ 841 Trade receivables include $ 63 million and $ 61 million of unbilled balances as of December 31, 2021 and 2020, respectively. Note 9. Factoring and Notes Receivable The Company entered into arrangements with financial institutions to sell eligible trade receivables. For the years ended December 31, 2021 and December 31, 2020, the Company sold $ 566 million and $ 473 million of eligible receivables, respectively, without recourse, and accounted for these arrangements as true sales. Expense of $ 1 million was recognized within Other expense, net for each of the years ended December 31, 2021, December 31, 2020 and December 31, 2019. The Company also received guaranteed banknotes without recourse, in settlement of accounts receivables, primarily in the Asia Pacific region. The Company can hold the bank notes until maturity, exchange them with suppliers to settle liabilities, or sell them to third party financial institutions in exchange for cash. For the years ended December 31, 2021 and 92 December 31, 2020, the Company sold less than $ 1 million and $ 160 million of banknotes, respectively, without recourse and accounted for these as true sales. Expense of less than $ 1 million was recognized within Other expense, net for each of the years ended December 31, 2021, December 31, 2020 and December 31, 2019. As of December 31, 2021 and December 31, 2020, the Company has pledged collateral of $ 5 million and $ 18 million, respectively, of guaranteed banknotes which have not been sold in order to be able to issue banknotes as payment to certain suppliers. Such pledged amounts are included as Notes receivables in our Consolidated Balance Sheet. Note 10. Inventories—Net December 31, 2021 2020 (Dollars in millions) Raw materials $ 162 $ 160 Work in process 19 19 Finished products 92 97 $ 273 $ 276 Less—Reserves ( 29 ) ( 41 ) $ 244 $ 235 Note 11. Other Current Assets December 31, 2021 2020 (Dollars in millions) Prepaid expenses $ 13 $ 62 Taxes receivable 15 22 Advanced discounts to customers, current 11 10 Customer reimbursable engineering 5 13 Foreign exchange forward contracts 12 3 $ 56 $ 110 Note 12. Other Assets December 31, 2021 2020 (Dollars in millions) Advanced discounts to customers, non-current $ 61 $ 70 Operating right-of-use assets (Note 18) 51 36 Income tax receivable 27 20 Pension and other employee related 15 — Designated cross-currency swap 30 — Other 16 9 $ 200 $ 135 93 Note 13. Property, Plant and Equipment—Net December 31, 2021 2020 (Dollars in millions) Land and improvements $ 16 $ 17 Buildings and improvements 149 153 Machinery and equipment 711 711 Tooling 393 390 Software 72 68 Construction in progress 87 86 Others 26 26 1,454 1,451 Less—Accumulated depreciation and amortization ( 969 ) ( 946 ) $ 485 $ 505 Depreciation and amortization expense was $ 92 million, $ 86 million and $ 73 million in 2021, 2020 and 2019 , respectively. Note 14. Goodwill The change in the carrying amount of goodwill for the years ended December 31, 2021 and 2020 is as follows: December 31, 2020 Currency Translation Adjustment December 31, 2021 Goodwill $ 193 — $ 193 Note 15. Accrued Liabilities December 31, 2021 December 31, 2020 (Dollars in millions) Customer pricing reserve $ 72 $ 82 Compensation, benefits and other employee related 76 62 Repositioning 10 7 Product warranties and performance guarantees - Short-term 21 8 Income and other taxes 25 37 Advanced discounts from suppliers, current 14 5 Customer advances and deferred income (1) 23 8 Accrued interest 8 — Short-term lease liability (Note 18) 9 5 Other (primarily operating expenses) (2) 37 28 $ 295 $ 242 (1) Customer advances and deferred income include $ 5 million and $ 2 million of contract liabilities as of December 31, 2021 and December 31, 2020, respectively. See Note 4, Revenue Recognition and Contracts with Customers . (2) Includes $ 3 million of environmental liabilities as of December 31, 2021 and December 31, 2020. The Company accrued repositioning costs related to projects to optimize our product costs and to right-size our organizational structure. Expenses related to the repositioning accruals are included in Cost of goods sold in our Consolidated Statements of Operations. 94 Severance Costs Exit Costs Total Balance at December 31, 2019 3 1 4 Charges 10 — 10 Usage—cash ( 7 ) — ( 7 ) Adjustments 1 ( 1 ) — Balance at December 31, 2020 $ 7 $ — $ 7 Charges 16 — 16 Usage—cash ( 13 ) — ( 13 ) Balance at December 31, 2021 $ 10 $ — $ 10 Note 16. Long-term Debt and Credit Agreements Exit Credit Facilities On the Effective Date, in accordance with the Plan, the Company entered into a Credit Agreement, by and among the Company, Garrett LX I S.à r.l. (the “Lux Borrower”), Garrett Motion Holdings Inc. (the “U.S. Co-Borrower”) and Garrett Motion Sàrl (the “Swiss Borrower,” together with the Lux Borrower and the U.S. Co-Borrower, the “Borrowers”), the lenders and issuing banks party thereto and JPMorgan Chase Bank, N.A., as administrative agent (the “Credit Agreement”), which provides for senior secured financing. The Credit Facilities consist of: • Dollar Facility : a seven-year secured first-lien U.S. Dollar term loan facility for $ 715 million; • Euro Facility : a seven-year secured first-lien Euro term loan facility for € 450 million ; and • Revolving Facility : a five-year senior secured first-lien Revolving Facility for $ 300 million providing for multi-currency revolving loans. On January 11, 2022, the revolving facility was amended, refer to the "Revolving Facility and Letters of Credit", section of this footnote, below, for further details. On the Effective Date, Credit Facilities, net of deferred financing costs were $ 1,221 million , after proceeds from the Credit Facilities and issuance of Series A Preferred Stock (see Note 21, Equity ) were used to pay off the Company’s pre-emergence indebtedness. For more information, see Note 2, Plan of Reorganization . The principal outstanding and carrying amount of our long-term debt as of December 31, 2021 are as follows: Due Interest Rate December 31, 2021 Dollar Facility 4/30/2028 3.75 % $ 713 Euro Facility 4/30/2028 3.50 % 510 Total principal outstanding 1,223 Less: unamortized deferred financing costs ( 35 ) Less: current portion of long-term debt ( 7 ) Total long-term debt $ 1,181 Revolving Facility and Letters of Credit The Revolving Facility (as amended by the First Amendment, described and defined below) allows maximum borrowings of $ 424 million and matures on April 30, 2026. On December 31, 2021, the Company had no borrowings outstanding under the Revolving Facility, $ 3 million of outstanding letters of credit, and available borrowing capacity of $ 297 million. Under the Revolving Facility, the Company may use up to $ 125 million under the Revolving Facility for the issuance of letters of credit to the Swiss Borrower or any of its subsidiaries. Letters of credit are available for issuance under the Credit Agreement on terms and conditions customary for financings of this kind, which issuances will reduce availability under the Revolving Facility. 95 Separate from the Revolving Facility, the Company obtained a $ 35 million bilateral letter of credit facility, which also matures on April 30, 2026. As of December 31, 2021, the Company had $ 8 million utilized and $ 27 million of remaining available capacity. Minimum scheduled principal repayments of the Credit Facilities as of December 31, 2021 are as follows: December 31, (Dollars in millions) 2022 $ 7 2023 7 2024 7 2025 7 2026 7 Thereafter 1,188 Total debt payments $ 1,223 First Amendment to the Credit Agreement On January 11, 2022, the Company entered into an Amendment No. 1 (the “First Amendment”) to the Credit Agreement. The First Amendment increases the amount of revolving loan commitments available to the Swiss Borrower under the Credit Agreement by $ 124 million (the “Incremental Revolving Commitment”) to an aggregate amount of $ 424 million . The Incremental Revolving Commitment has the same terms and is subject to the same conditions applicable to revolving loans generally under the Credit Agreement, except for fees paid in connection with the arrangement of the increased amount. The First Amendment also removes LIBOR as an available rate at which revolving loans could accrue and add for such revolving loans new benchmark rate options based on the term or daily overnight secured overnight financing rate ("SOFR") published by the Federal Reserve Bank of New York and based on the average bid reference rate administered by ASX Benchmarks Pty Limited. The outstanding term loan under the Credit Agreement continues to accrue interest in LIBOR, but will switch to an alternative benchmark rate when certain events occur, which alternative benchmark we anticipate will be term SOFR. Guarantees All obligations under the Credit Facilities are unconditionally guaranteed jointly and severally, by: (a) the Company; (b) each existing and future direct and indirect material wholly-owned subsidiary of the Company that is organized under the laws of any state of the United States and (c) substantially all of the existing and future direct and indirect material wholly-owned subsidiaries of the Company that are organized under the laws of certain other jurisdictions, including Australia, England and Wales, Ireland, Italy, Japan, Luxembourg (including Lux Borrower), Mexico, Romania, Slovakia, Switzerland (including Swiss Borrower), and any other jurisdiction at the Swiss Borrower’s option from time to time agreed with the administrative agent, subject in each case to certain exceptions and limitations and agreed guaranty and security principles. The guarantors organized under the laws of England and Wales, Luxembourg, Switzerland and the United States entered into a guarantee under the Credit Agreement concurrently with the effectiveness of the Credit Agreement. The guarantors organized under the laws of Australia, Ireland, Italy, Japan, Mexico, Romania and Slovakia have subsequently acceded to such guarantee. Security The Credit Facilities are secured on a first-priority basis by: (i) a perfected security interest in the equity interests of each direct material subsidiary of each guarantor under the Credit Facilities and (ii) perfected security interests in, and mortgages on, substantially all tangible and intangible personal property and material real property of each of the guarantors under the Credit Facilities, subject, in each case, to certain exceptions and limitations, including the agreed guaranty and security principles. The guarantors organized under the laws of England and Wales, Luxembourg, Switzerland and the United States entered into security documents securing the obligations of each borrower concurrently with the effectiveness of the Credit Agreement. The guarantors organized under the laws of Australia, Ireland, Japan, Mexico, Romania and Slovakia have subsequently executed security documents. 96 Maturity The Revolving Facility matures five years after the effective date of the Credit Agreement, with certain extension rights at the discretion of each lender. The Term Loan Facilities mature seven years after the Effective Date of the Credit Agreement, with certain extension rights in the discretion of each lender. Interest Rate and Fees The Dollar Facility is subject to an interest rate, at our option, of either (a) an alternate base rate (“ABR”) (which shall not be less than 1.50 %) or (b) an adjusted London Inter-bank Offered Rate (“LIBOR”) (which shall not be less than 0.50 %), in each case, plus an applicable margin equal to 3.25 % in the case of LIBOR loans and 2.25 % in the case of ABR loans. The Euro Facility is subject to an interest rate equal to an adjusted Euro Interbank Offered Rate (“EURIBOR”) (which shall not be less than zero ) plus an applicable margin equal to 3.50 %. As of December 31, 2021, the Revolving Facility is subject to an interest rate comprised of an applicable benchmark rate (which shall not be less than 1.00 % if such benchmark is the ABR rate and not less than 0.00 % in the case of other applicable benchmark rates) that is selected based on the currency in which borrowings are outstanding thereunder, in each case, plus an applicable margin. The applicable margin for the Revolving Facility varies based on our leverage ratio. Accordingly, the interest rates for the Credit Facilities will fluctuate during the term of the Credit Agreement based on changes in the ABR, LIBOR, EURIBOR and other applicable benchmark rates or future changes in our leverage ratio. The Credit Agreement provides the Benchmark Replacement, given the reference rate reform discontinuing LIBOR. Interest payments with respect to the Term Loan Facilities are required either on a quarterly basis (for ABR loans) or at the end of each interest period (for LIBOR and EURIBOR loans) or, if the duration of the applicable interest period exceeds three months, then every three months . See discussion of the amendment to the Revolving Facility in First Amendment to the Credit Agreement, above. In addition to paying interest on outstanding borrowings under the Revolving Facility, the Borrowers are required to pay a quarterly commitment fee based on the unused portion of the Revolving Facility, which is determined by our leverage ratio and ranges from 0.25 % to 0.50 % per annum. Prepayments The Borrowers are obligated to make quarterly principal payments throughout the term of the Dollar Facility according to the amortization provisions in the Credit Agreement, as such payments may be reduced from time to time in accordance with the terms of the Credit Agreement as a result of the application of loan prepayments made by us, if any, prior to the scheduled date of payment thereof. We may voluntarily prepay borrowings under the Credit Agreement without premium or penalty, subject to a 1.00 % prepayment premium in connection with any repricing transaction with respect to the Term Loan Facilities in the first six months after the Effective Date of the Credit Agreement and customary breakage” costs with respect to LIBOR and EURIBOR loans. We may also reduce the commitments under the Revolving Facility, in whole or in part, in each case, subject to certain minimum amounts and increments. See discussion of the amendment to the Revolving Facility in First Amendment to the Credit Agreement, above. The Credit Agreement also contains certain mandatory prepayment provisions in the event that we incur certain types of indebtedness, receive net cash proceeds from certain non-ordinary course asset sales or other dispositions of property or, starting with the fiscal year ending on December 31, 2022, 0.50 % of excess cash flow on an annual basis (with step-downs to 25 % and 0 % subject to compliance with certain leverage ratios), in each case subject to terms and conditions customary for financings of this kind. Representations and Warranties The Credit Agreement contains certain representations and warranties (subject to certain agreed qualifications) that are customary for financings of this kind. Certain Covenants The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type that, among other things, limit our and our subsidiaries’ ability to incur additional indebtedness or liens, to dispose of assets, to make certain fundamental changes, to enter into restrictive agreements, to make certain investments, loans, advances, guarantees and acquisitions, to prepay certain indebtedness and to pay dividends or to make other distributions or redemptions/repurchases in respect of our and our subsidiaries’ equity interests. The Credit Agreement expressly permits 97 payments-in-kind on our Series A Preferred Stock as well as mandatory cash redemptions in respect of our Series B Preferred Stock. During the fiscal years ending December 31, 2021 and December 31, 2022, the Credit Agreement restricts the Company’s ability to pay cash dividends on or to redeem or otherwise acquire for cash the Series A Preferred Stock unless a ratable payment (on an as-converted basis) is made to holders of our common equity and such payments would otherwise be permitted under the terms of the Credit Agreement. On July 21, 2021, the terms of the Certificate of Designations of the Series A Preferred Stock were amended to allow the payment of a ratable dividend on the Series A Preferred Stock and the Common Stock prior to December 31, 2022 so long as the full board of directors of the Company ratifies the Disinterested Directors’ Committee’s declaration of any such dividend or distribution. On January 25, 2022, the Board approved a further amendment to the terms of the Certificate of Designations of the Series A Preferred Stock to permit the such dividends or distributions to include individually negotiated transactions, to remove the December 31, 2022 sunset date from such dividends and distributions, and to expressly permit the purchase, redemption or other acquisition or cash by the Company of shares of Dividend Junior Stock (as defined in the Certificate of Designations of the Series A Preferred Stock) without requiring ratable participation by holders of Series A Preferred Stock. These amendments were approved by written consent of the holders of a majority of our Series A Preferred Stock on February 8, 2022, and are expected to become effective on or about March 3, 2022. In addition, the Revolving Facility also contains a financial covenant requiring the maintenance of a consolidated total leverage ratio of not greater than 4.7 to 1.00 as of the end of each fiscal quarter if, on the last day of any such fiscal quarter, the aggregate amount of loans and letters of credit (excluding backstopped or cash collateralized letters of credit and other letters of credit with an aggregate face amount not exceeding $ 30 million ) outstanding under the Revolving Facility exceeds 35 % of the aggregate commitments thereunder. As of December 31, 2021, the Company is in compliance with all its financing covenants. Events of Default The Credit Agreement contains customary events of default, including with respect to a failure to make payments under the Credit Facilities, cross-default, certain bankruptcy and insolvency events and customary change of control events. Prepetition Indebtedness Pursuant to the Plan, on the Effective Date, the obligations of the Debtors under each of the following debt instruments were cancelled and the applicable agreements governing such obligations were terminated: (a) the Credit Agreement, dated as of September 27, 2018, by and among the Company, as holdings, Garrett LX III S.à r.l., as Lux Borrower, Garrett Borrowing LLC, as U.S. Co-Borrower, Garrett Motion Sàrl, as Swiss Borrower, the lenders and issuing banks party thereto and the Pre-petition Credit Agreement Agent, as Administrative Agent, as amended, restated, supplemented or otherwise modified from time to time in accordance with its terms; and (b) the Indenture, dated as of September 27, 2018, among Garrett Motion Inc., as Parent, Garrett LX I S.à r.l., as Issuer, Garrett Borrowing LLC, as Co-Issuer, the guarantors named therein, Deutsche Trustee Company Limited, as Trustee, Deutsche Bank AG, as Security Agent and Paying Agent, and Deutsche Bank Luxembourg S.A., as Registrar and Transfer Agent, pursuant to which the Senior Notes were issued, as may be amended, supplemented or otherwise modified from time to time. Holders of Allowed Pre-petition Credit Agreement Claims (as defined in the Plan) received payment in cash in an amount equal to such holder’s Allowed Pre-petition Credit Agreement Claim. Holders of Allowed Senior Subordinated Noteholder Claims (as defined in the Plan) received payment in cash in an amount equal to such holder’s Allowed Senior Subordinated Noteholder Claim. DIP Credit Agreement On the Effective Date, the DIP Credit Agreement, dated as of October 9, 2020, by and among the Company, as borrower, each lender party thereto from time to time, and the DIP Agent, as amended, supplemented or otherwise modified from time to time was paid in full and terminated. Note 17. Mandatorily Redeemable Series B Preferred Stock Series B Preferred Stock Pursuant to the Plan and the Plan Support Agreement, on the Effective Date the Company issued 834,800,000 shares of Series B Preferred Stock to Honeywell in satisfaction of its claims arising from (a) that certain Indemnification Guarantee Agreement, dated September 27, 2018, by and among Honeywell ASASCO 2 Inc., Garrett ASASCO Inc., and the other Guarantors party thereto, as may be amended, restated, supplemented or otherwise modified from time to time 98 prior to the Effective Date (the “Honeywell Indemnification Guarantee Agreement”); (b) the Honeywell Indemnity Agreement; (c) the Tax Matters Agreement, dated September 12, 2018, by and among Honeywell International Inc., GMI, Honeywell ASASCO Inc. and Honeywell ASASCO 2 Inc., as may be amended, supplemented or otherwise modified from time to time (the “Tax Matters Agreement” and, together with the Honeywell Indemnification Guarantee Agreement and the Honeywell Indemnity Agreement, the “Honeywell Agreements”). The Company is authorized to grant 1,200,000,000 shares of preferred stock in the reorganized company. The Series B Preferred Stock will not be entitled to any dividends or other distributions or payments other than the scheduled redemption payments and payments upon liquidation as provided in the Certificate of Designations of the Series B Preferred Stock (as amended and restated from time to time, the “Series B Certificate of Designations”). On April 30 of each year, beginning on April 30, 2022 and ending on April 30, 2030, on which any shares of Series B Preferred Stock are outstanding (each, a “Scheduled Redemption Date”), the Company will redeem, pro rata from each holder, an aggregate number of shares of Series B Preferred Stock equal to a scheduled redemption amount with respect to such Scheduled Redemption Date as set forth in the Series B Certificate of Designations divided by $ 1.00 per share (the “Scheduled Redemption Amounts”), provided that the Company will not be obligated to redeem the shares of Series B Preferred Stock on a Scheduled Redemption Date if, as of such date, (i) the Consolidated EBITDA of the Company and its subsidiaries measured as of the end of the most recently completed fiscal year is less than $ 425 million or (ii) the Company does not have sufficient funds legally available to pay the redemption amount due on such Scheduled Redemption Date. Shares of Series B Preferred Stock whose redemption on a Scheduled Redemption Date is deferred, and which are not thereafter redeemed in accordance with the applicable Initial Deferral Payment Schedule (as defined in the Series B Certificate of Designations) will accrue interest from and after the time that the Company fails to make redemption payments in accordance with the applicable Initial Deferral Payment Schedule. Any shares of Series B Preferred Stock that have not been redeemed on a Scheduled Redemption Date outstanding as of April 30, 2030, will be redeemed on April 30, 2030. Except as required by law, the holders of Series B Preferred Stock have no voting rights, provided that a vote or the consent of the holders representing a majority of the Series B Preferred Stock will be required to effect or validate (i) any amendment, modification or alteration to the Certificate of Incorporation that would authorize or create, or increase the authorized amount of, any shares of any class or series or any securities convertible into shares of any class or series of capital stock that would rank senior to the Series B Preferred Stock, (ii) any amendment, modification or alteration to the Certificate of Incorporation that would authorize or create, or increase the authorized amount of, any shares of any class or series of capital stock that would rank pari passu to the Series B Preferred Stock on the occurrence of a liquidation, (iii) entry by the Company or any of its subsidiaries into any agreement containing or imposing, directly or indirectly, any restrictions (including, but not limited to, any covenant or agreement) on the Company’s ability to make required payments on or redeem the shares of Series B Preferred Stock, (iv) any amendment, modification, alteration or repeal of any provision of the Certificate of Incorporation or any other certificate of designations of the Company that would have an adverse effect, in any material respect, on the rights, preferences, privileges or voting power of the shares of Series B Preferred Stock or any holder thereof or any amendment, modification, alteration or repeal of the Series B Certificate of Designations, (v) any increase in the number of members of the Board at a time when the sum of (a) the aggregate value of deferred Scheduled Redemption Amounts relating to past Scheduled Redemption Dates (plus any unpaid interest accruing thereon) plus (b) the aggregate present value of future Scheduled Redemption Amounts, calculated using a discount rate of 7.25 % (such sum, the “Aggregate Series B Liquidation Preference”) is greater than $ 125 million or (vi) any action or inaction that would reduce the stated amount of any share of Series B Preferred Stock to below $ 1.00 per share. On September 30, 2021, the Company filed an amended and restated Certificate of Designations amending and restating the terms of the Series B Preferred Stock, and on December 16, 2021, the Company filed a second amended and restated Certificate of Designations amending and restating the terms of the Series B Preferred Stock. These amendments, among other things, (i) require the Company to effect a redemption of outstanding shares of Series B Preferred Stock, on or prior to December 30, 2022, such that the Present Value (as defined in the Series B Certificate of Designations) of all of the remaining outstanding shares of Series B Preferred Stock shall be $ 400 million, subject to applicable law and certain conditions, including that the Company has funds legally available to do so (the “First Planned Partial Early Redemption”), which First Planned Partial Early Redemption was completed by the Company on December 28, 2021, (ii) provide that the right of each holder of the Series B Preferred Stock to require the Company to redeem all of such holder’s shares of Series B Preferred Stock (the “Holder Put Right”) cannot be exercised until December 30, 2022 at the earliest (subject to the prior occurrence of a triggering event), (iii) require the Company, on or before March 31, 2022, to effect a second partial redemption of outstanding shares of Series B Preferred Stock (the “Second Planned Partial Early Redemption”), such that following the First Planned Partial Early Redemption and the Second Planned Partial Early Redemption, the Present Value (as defined in the Series B Certificate of Designations) of all of the remaining outstanding shares of Series B Preferred Stock shall be $ 207 million (rounded down to the nearest dollar), subject to applicable law, including that the Company has funds legally available to do so, and subject to the Company having increased the size of its revolving credit facility from 99 $ 300 million to $ 500 million or the Company’s Board of Directors having determined that the Company otherwise has sufficient liquidity to effect the Second Planned Partial Early Redemption. On December 28, 2021, Garrett completed the First Planned Partial Early Redemption, partially redeeming the Series B Preferred Stock with a cash payment of $ 211 million ($ 201 million principal and $ 10 million as interest). As of December 31, 2021 and effective with the completion of the First Planned Partial Early Redemption, the scheduled redemptions were $ 200 million for March 29, 2022, $ 16 million for April 30, 2024, $ 100 million for April 30, 2025, $ 100 million for April 30, 2026, and $ 54 million for April 30, 2027, totaling $ 470 million. This amount is recorded on our Consolidated Balance Sheet as of December 31, 2021 at the net present value of the redemptions, discounted at 7.67 %, of $ 395 million. Of the amount recorded on our Consolidated Balance Sheet as of December 31, 2021, $ 195 million is classified as a long-term liability. Each holder of Series B Preferred Stock will have the right to require the Company to redeem all, but not less than all, of such holder’s shares of Series B Preferred Stock if the Consolidated EBITDA (as defined in the Series B Certificate of Designations) of the Company and its subsidiaries exceeds $ 600 million for two consecutive fiscal quarters. Upon liquidation, Series B Preferred Stock will rank (A) senior to the Common Stock and (B) junior to the Series A Preferred Stock and will have a right to be paid the Aggregate Series B Liquidation Preference. The Company will be automatically obligated to redeem all shares of Series B Preferred Stock upon (i) a change of control, (ii) an assertion from the Company or the Board that any portion of the Series B Preferred Stock or any of the Company’s obligations under the Series B Certificate of Designations are invalid or unenforceable, (iii) if indebtedness outstanding under the Credit Agreement is accelerated (and such acceleration is not rescinded), or (iv) the Company or any of its material subsidiaries enters bankruptcy or similar proceedings affecting creditors’ or equity holders’ rights. The Majority in Interest (as defined in the Series B Certificate of Designations) has a continuing right, voting separately as a class, to elect or appoint the Series B Director (as defined in the Series B Certificate of Designations), and an exclusive right to remove the Series B Director at any time for any reason or no reason (with or without cause), subject to the rights of other holders to remove any Series B Director for cause to the extent provided by the Delaware General Corporation Law (the "DGCL") until the first date on which the Aggregate Series B Liquidation Preference is not greater than $ 125 million (the “Series B Threshold Date”). From and after the Series B Threshold Date, the Majority in Interest will have no right to elect or appoint any directors to the Board. If the Majority in Interest is no longer entitled to elect or appoint a Series B Director, then the then-serving Series B Director will automatically be deemed to have resigned from the Board. So long as any shares of Series B Preferred Stock are outstanding, the Company may not take certain actions without the written consent of the Majority in Interest, including, among other things, increasing the size of the Board so long as the Aggregate Series B Liquidation Preference is greater than $ 125 million. On February 11, 2022, the Company delivered to the holder of shares of Series B Preferred Stock a notice of partial redemption to effect the Second Planned Partial Early Redemption on February 18, 2022. As a result, on February 18, 2022, the Company will redeem 217,183,244 shares of Series B Preferred Stock for an aggregate price of $ 197 million. Following the completion of the Second Planned Partial Early Redemption and the Company’s previously completed First Planned Partial Early Redemption, the Present Value of all of the remaining outstanding shares of Series B Preferred Stock shall be $ 207 million (rounded down to the nearest dollar). Note 18. Leases We have operating leases that primarily consist of real estate, machinery and equipment. Our leases have remaining lease terms of up to 16 years, some of which include options to extend the leases for up to two years , and some of which include options to terminate the leases within the year. The components of lease expense are as follows: Year Ended December 31, 2021 2020 2019 (Dollars in millions) Operating lease cost $ 15 $ 15 $ 14 100 Supplemental cash flow information related to operating leases is as follows: Year Ended December 31, 2021 2020 2019 (Dollars in millions) Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 12 $ 13 $ 12 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 26 $ 7 $ 12 Supplemental balance sheet information related to operating leases is as follows: Year Ended December 31, 2021 2020 (Dollars in millions) Other assets $ 51 $ 36 Accrued liabilities 9 5 Other liabilities 42 15 Liabilities subject to compromise — 19 Year Ended December 31, 2021 2020 (Dollars in millions) Weighted-average lease term (in years) 8.88 5.14 Weighted-average discount rate 5.65 % 6.16 % Maturities of operating lease liabilities were as follows: Year Ended December 31, 2021 (Dollars in millions) 2022 $ 11 2023 10 2024 8 2025 7 2026 6 Thereafter 22 Total lease payments 64 Less imputed interest ( 13 ) $ 51 101 Note 19. Financial Instruments and Fair Value Measures Credit and Market Risk We continually monitor the creditworthiness of our customers to which we grant credit terms in the normal course of business. The terms and conditions of our credit sales are designed to mitigate or eliminate concentrations of credit risk with any single customer. Foreign Currency Risk Management We are exposed to market risks from changes in currency exchange rates. These exposures may impact future earnings and/or operating cash flows. Our exposure to market risk for changes in foreign currency exchange rates arises from international financing activities between subsidiaries, foreign currency denominated monetary assets and liabilities and transactions arising from international trade. We hedge currency exposures with natural offsets to the fullest extent possible and, once these opportunities have been exhausted, through foreign currency exchange forward contracts (foreign currency exchange contracts). The Company restarted its cash flow hedging program after the emergence from Chapter 11 and has since then entered into forward currency exchange contracts to mitigate exposure to foreign currency exchange rate volatility and the associated impact on earnings related to forecasted foreign currency commitments. These forward currency exchange contracts are assessed as effective and are designated as cash flow hedges. Gains and losses on derivatives qualifying as cash flow hedges are recorded in Accumulated other comprehensive income (loss) until the underlying transactions are recognized in earnings. The Company also entered into float to float cross-currency swaps exchange contracts to hedge net investments in foreign subsidiaries. These cross-currency swaps exchange contracts are assessed as effective and are designated as net investment hedges. Gains and losses on derivatives qualifying as net investment hedges are recorded in Cumulative Translation Adjustment income (loss) until the net investment is liquidated or sold. At December 31, 2021 and December 31, 2020, we had contracts with aggregate gross notional amounts of $ 2,788 million and $ 19 million, respectively, to hedge foreign currencies, principally the U.S. Dollar, Swiss Franc, British Pound, Euro, Chinese Yuan, Japanese Yen, Mexican Peso, New Romanian Leu, Czech Koruna, Australian Dollar and Korean Won. 102 Fair Value of Financial Instruments The FASB’s accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Financial and nonfinancial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table sets forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2021 and December 31, 2020: Fair Value Notional Amounts Assets Liabilities December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020 (Dollars in millions) Designated instruments: Designated forward currency exchange contracts $ 382 $ — $ 9 $ — (a) $ 1 $ — (c) Designated cross-currency swap 715 — 30 — (b) — Total designated instruments 1,097 — 39 — 1 — Undesignated instruments: Undesignated interest rate swap 940 — 7 — (a) — — Undesignated forward currency exchange contracts 751 19 2 — (a) 4 — (c) Total undesignated instruments 1,691 19 9 — 4 — Total designated and undesignated instruments $ 2,788 $ 19 $ 48 $ — $ 5 $ — (a) Recorded within Other current assets in the Company’s Consolidated Balance Sheets (b) Recorded within Other assets in the Company’s Consolidated Balance Sheets (c) Recorded within Accrued liabilities in the Company’s Consolidated Balance Sheets On June 11, 2021 the Company entered into interest rate swap contracts to partially mitigate market value risk associated with interest rate fluctuations on its variable rate term loan debt. As of December 31, 2021, the Company had outstanding interest rate swaps with an aggregate notional amount of € 830 million, with respective maturities of April 2023, April 2024, April 2025, April 2026 and April 2027. The Company uses interest rate swaps specifically to mitigate variable interest risk exposure on its long-term debt portfolio and has not designated them as hedging instruments for accounting purposes. Effective with our entry into the Credit Agreement (see Note 16, Long-term Debt and Credit Agreements ), the Company entered into floating-floating cross-currency swap contracts to limit its exposure to investments in certain foreign subsidiaries exposed to foreign exchange fluctuations. The cross-currency swaps have been designated as net investment hedges of its Euro-denominated operations. As of December 31, 2021, an aggregate notional amount of € 606 million was designated as net investment hedges of the Company’s investment in Euro-denominated operations. The cross-currency swaps’ fair values were net assets of $ 30 million at December 31, 2021. Our Consolidated Statements of Comprehensive Income (loss) includes Changes in fair value of net investment hedges, net of tax of $ 41 million during the year ended December 31, 2021 related to these net investment hedges. No ineffectiveness has been recorded on the net investment hedges. 103 The Company initiated a cash flow hedging program in the first quarter of 2019 and has since then entered into forward currency exchange contracts to mitigate exposure to foreign currency exchange rate volatility and the associated impact on earnings related to forecasted foreign currency commitments. These forward currency exchange contracts are assessed as highly effective and are designated as cash flow hedges. Gains and losses on derivatives qualifying as cash flow hedges are recorded in Accumulated other comprehensive income (loss) until the underlying transactions are recognized in earnings. The foreign currency exchange, interest rate swap and cross-currency swap contracts are valued using market observable inputs. As such, these derivative instruments are classified within Level 2. The assumptions used in measuring fair value of the cross-currency swap are considered Level 2 inputs, which are based upon market observable interest rate curves, cross currency basis curves, credit default swap curves, and foreign exchange rates. The carrying value of Cash, cash equivalents and restricted cash, Account receivables and Notes and Other receivables contained in the Consolidated Balance Sheets approximates fair value. The following table sets forth the Company’s financial assets and liabilities that were not carried at fair value: December 31, 2021 Carrying Value Fair Value (Dollars in millions) Term Loan Facilities $ 1,188 $ 1,227 The Company determined the fair value of certain of its long-term debt and related current maturities utilizing transactions in the listed markets for similar liabilities. As such, the fair value of the long-term debt and related current maturities is considered Level 2. Note 20. Other Liabilities December 31, 2021 2020 (Dollars in millions) Income taxes $ 106 $ 45 Designated and undesignated derivatives — 22 Pension and other employee related 61 14 Long-term lease liability (Note 18) 42 15 Advanced discounts from suppliers 16 11 Product warranties and performance guarantees – Long-term 11 6 Environmental Remediation – Long-term 15 2 Other 18 5 $ 269 $ 120 Note 21. Equity Issuance of Common Stock As discussed in Note 2, Plan of Reorganization , upon the effectiveness of and pursuant to the Plan, all Old Common Stock of the Company was cancelled, and the Company issued 65,035,801 shares of Common Stock to holders of Old Common Stock that did not exercise the Cash-Out Election. Each holder of Existing Common Stock that did not exercise the Cash-Out Election received a number of shares of new Common Stock equal to the number of shares of Old Common Stock held by such holder in consideration for the cancellation of their shares of Old Common Stock. The Company paid $ 69 million to holders of Old Common Stock who had made the Cash-Out Election. Issuance of Series A Preferred Stock In connection with the Company’s emergence from bankruptcy and pursuant to the Plan, the Company issued 247,768,962 shares of the Company’s Series A Preferred Stock to affiliated funds of Centerbridge, affiliated funds of Oaktree and certain other investors and parties, including in connection with the consummation of two rights offerings and 104 that certain replacement equity backstop commitment agreement. The Company is authorized to grant 1,200,000,000 shares of preferred stock in the reorganized company. Series A Preferred Stock Holders of the Series A Preferred Stock will be entitled to receive, when, as and if declared by a committee of disinterested directors of the Board (which initially consisted of Daniel Ninivaggi, Julia Steyn, Robert Shanks, and D’aun Norman) out of funds legally available for such dividend, cumulative cash dividends at an annual rate of 11 % on the stated amount per share plus the amount of any accrued and unpaid dividends on such share, accumulating daily and payable quarterly on January 1, April 1, July 1 and October 1, respectively, in each year. Such a dividend will not be declared at any time when Consolidated EBITDA (as defined in the Series A Certificate of Designations) of the Company and its subsidiaries for the most recent four fiscal quarters for which financial statements of the Company are available is less than $ 425 million. Dividends on the Series A Preferred Stock will accumulate whether or not declared. Under the terms of our Series B Preferred Stock, a dividend on the Series A Preferred Stock may not be declared so long as the Company has not satisfied or cannot satisfy in full any deferred redemption payments or redemption payments owed on the next scheduled redemption date to holders of Series B Preferred Stock. Holders of the Series A Preferred Stock will also be entitled to such dividends paid to holders of Common Stock to the same extent as if such holders of Series A Preferred Stock had converted their shares of Series A Preferred Stock into Common Stock (without regard to any limitations on conversions) and had held such shares of Common Stock on the record date for such dividends and distributions. Such payments will be made concurrently with the dividend or distribution to the holders of the Common Stock. The Company is restricted from paying or declaring any dividend, or making any distribution, on any class of Common Stock or any future class of preferred stock established thereafter by the Board (other than any series of capital stock that ranks pari passu to the Series A Preferred Stock) (such stock, “Dividend Junior Stock”), other than a dividend payable solely in Dividend Junior Stock, unless (i) all cumulative accrued and unpaid preference dividends on all outstanding shares of Series A Preferred Stock have been paid in full and the full dividend thereon due has been paid or declared and set aside for payment and (ii) all prior redemption requirements with respect to Series A Preferred Stock have been complied with, provided, notwithstanding the foregoing, that the Company may pay a dividend or make a distribution on Dividend Junior Stock if (a) the holders of the Series A Preferred Stock also participate in such dividends or distributions, (b) such dividends or distributions are made on or prior to December 31, 2022, and (c) the full Board of the Company has ratified the Disinterested Directors’ Committee’s declaration of any such dividend or distribution. Under the terms of the Credit Agreement, during the fiscal years ending December 31, 2021 and December 31, 2022, the Company may not make payments or redemptions in cash solely with respect to the Series A Preferred Stock unless a ratable payment (on an as-converted basis) is made to holders of the Common Stock and such payments would otherwise be permitted under the terms of the Credit Agreement. On July 21, 2021, the terms of the Certificate of Designations of the Series A Preferred Stock were amended to allow the payment of a ratable dividend on the Series A Preferred Stock and the Common Stock prior to December 31, 2022 so long as the full Board of the Company ratifies the Disinterested Directors’ Committee’s declaration of any such dividend or distribution. On January 25, 2022, the Board approved a further amendment to the terms of the Certificate of Designations of the Series A Preferred Stock to permit the such dividends or distributions to include individually negotiated transactions, to remove the December 31, 2022 sunset date from such dividends and distributions, and to expressly permit the purchase, redemption or other acquisition or cash by the Company of shares of Dividend Junior Stock (as defined in the Certificate of Designations of the Series A Preferred Stock) without requiring ratable participation by holders of Series A Preferred Stock. These amendments were approved by written consent of the holders of a majority of our Series A Preferred Stock on February 8, 2022, and are expected to become effective on or about March 3, 2022. The Board determined that the amount of preference dividends which will accumulate for the preference dividend for the year ended December 31, 2021 is $ 0.394337 per share. As there were 245,921,617 shares of Series A Preferred Stock as of December 31, 2021, the aggregate accumulated dividend as of December 31, 2021 is $ 97 million and is presented as a reduction to Net income available to common shareholders in our Consolidated Statements of Operations. Voting Holders of the Series A Preferred Stock will be entitled to vote together as a single class with the holders of Common Stock, with each such holder entitled to cast the number of votes equal to the number of votes such holder would have been entitled to cast if such holder were the holder of a number of shares of Common Stock equal to the whole number of shares of Common Stock that would be issuable upon conversion of such holder’s shares of Series A Preferred Stock in addition 105 to a number of shares of Common Stock equal to the amount of cumulative unpaid preference dividends (whether or not authorized or declared) divided by the lesser of (i) the fair market value per share of such additional shares and (ii) the fair market value per share of the Common Stock. So long as any shares of Series A Preferred Stock are outstanding, a vote or the consent of the holders representing a majority of the Series A Preferred Stock will be required for (i) effecting or validating any amendment, modification or alteration to the Certificate of Incorporation that would authorize or create, or increase the authorized amount of, any shares of any class or series or any securities convertible into shares of any class or series of capital stock that would rank senior or pari passu to the Series A Preferred Stock with respect to dividend payments or upon the occurrence of a liquidation, (ii) any increase in the authorized number of shares of Series A Preferred Stock or of any series of capital stock that ranks pari passu with Series A Preferred Stock, (iii) effecting or validating any amendment, alteration or repeal of any provision of the Certificate of Incorporation or Bylaws that would have an adverse effect on the rights, preferences, privileges or voting power of Series A Preferred Stock or the holders thereof in any material respect, or (iv) any action or inaction that would reduce the stated amount of any share of Series A Preferred Stock to below $ 5.25 per share. Liquidation Upon liquidation, Series A Preferred Stock will rank senior to the Common Stock and the Series B Preferred Stock, and will have the right to be paid, out of the assets of the Company legally available for distribution to its stockholders, an amount equal to the Aggregate Liquidation Entitlement (as defined in the Series A Certificate of Designations) for all outstanding shares of Series A Preferred Stock. Other Rights All shares of Series A Preferred Stock will automatically convert to shares of Common Stock, at an initial conversion price of $ 5.25 per share of Common Stock (subject to adjustment as described in the Series A Certificate of Designations) (the “Conversion Price”) upon either (i) the election of holders representing a majority of the then-outstanding Series A Preferred Stock or (ii) the occurrence of a Trading Day (as defined in the Series A Certificate of Designations) at any time on or after the date which is two years after the Effective Date on which (A) the aggregate stated amount of all outstanding shares of Series B Preferred Stock is an amount less than or equal to $ 125 million, (B) the Common Stock is traded on a Principal Exchange, a Fallback Exchange or an Over-the-Counter Market (each as defined in the Series A Certificate of Designations) and, in each case, the Automatic Conversion Fair Market Value (as defined in the Series A Certificate of Designations) of the Common Stock exceeds 150 % of the Conversion Price, and (C) the Consolidated EBITDA (as defined in the Series A Certificate of Designations) of the Company and its subsidiaries for the last twelve months ended as of the last day of each of the two most recent fiscal quarters is greater than or equal to $ 600 million. Shares of Series A Preferred Stock are also convertible into Common Stock at any time at the option of the holder, effective on January 1, April 1, July 1 and October 1 in each year, or on the third business day prior to the date of redemption of the outstanding shares of the Series A Preferred Stock as described in the following paragraph. The Company may, at its election, redeem all but not less than all of the outstanding shares of Series A Preferred Stock (i) at any time following the date which is six years after the Effective Date or (ii) in connection with the consummation of a Change of Control (as defined in the Series A Certificate of Designations), in either case for a cash purchase price equal to $ 5.25 per share plus cumulative unpaid preference dividends (whether or not authorized or declared) as of the redemption date. Registration Rights Agreement In connection with our emergence from bankruptcy, on April 30, 2021, we entered into a registration rights agreement (the “Registration Rights Agreement”) with the holders of our Common Stock and Series A Preferred Stock named therein to provide for resale registration rights for the holders’ Registrable Securities (as defined in the Registration Rights Agreement). Pursuant to the terms of the Registration Rights Agreement, we filed a registration statement on Form S-1 (Registration No. 333-256659) registering (i) 243,265,707 shares of our Series A Preferred Stock, (ii) 52,471,709 shares of our Common Stock and (iii) 243,265,707 shares of our Common Stock issuable upon conversion of our Series A Preferred Stock (the “Resale Registration Statement"), in each case initially issued to certain holders of the Common Stock and Series A Preferred Stock (the “Registration Rights Holders”) in connection with our emergence from bankruptcy on April 30, 2021. The Resale Registration Statement was declared effective by the Securities and Exchange Commission (the 106 "SEC") on June 11, 2021, which may result in the resale of a substantial number of shares of our Common Stock or Series A Preferred Stock by the relevant Registration Rights Holders. At any time following the Effective Date, any Registration Rights Holders who, directly or indirectly, together with their respective affiliates, have beneficial ownership of at least 7.5 % of the then-issued and outstanding shares of Common Stock, after giving effect to the conversion of the Series A Preferred Stock (such Registration Rights Holders, the “Required Investors”), may request registration of all or any portion of the Registrable Securities beneficially owned by such Required Investors on Form S-1 or, if available, on Form S-3 (each, a “Demand Registration”). Unless there is a currently effective shelf registration statement covering such Registrable Securities, the Company will effect such Demand Registration by filing with the SEC a registration statement within (i) 60 days in the case of a registration statement on Form S-1 and (ii) 30 days in the case of a registration statement on Form S-3. The aggregate number of Demand Registrations on Form S-1 that may be requested by the Required Investors shall not exceed four ; the Required Investors may request an unlimited number of Demand Registrations on Form S-3. The relevant Required Investors may request to effectuate any offering of Registrable Securities by means of an underwritten offering, provided that the aggregate gross proceeds of such public offering are expected to be at least $ 50 million. The Company will not be required to effect more than one underwritten offering in any 90 -day period. In the event the Company proposes to file a shelf registration statement with respect to any offering of its equity securities, the Company will give written notice of such proposed filing to the Registration Rights Holders as soon as practicable (but in no event less than 5 business days prior to the proposed date of public filing of such shelf), and such notice shall offer the Registration Rights Holders the opportunity to register under such registration statement the resale of such number of Registrable Securities as each such Registration Rights Holder may request in writing (a “Piggyback Registration”). If the Company proposes to file a registration statement that is not a shelf registration statement with respect to any offering of its equity securities, the Company will give written notice of such proposed filing to certain of the Registration Rights Holders (the “Piggyback Eligible Investors”), and such notice shall offer the Piggyback Eligible Investors the opportunity to make a Piggyback Registration. If the Company proposes to undertake an underwritten offering pursuant to a registration statement for which there was a Piggyback Registration, the Piggyback Eligible Investors may be entitled to participate in such underwritten offering, subject to customary cutback provisions in certain circumstances. If requested by the managing underwriter or underwriters in the event of any underwritten public offering of equity securities by the Company, each holder of Registrable Securities participating in such sale agrees, as a condition to such holder’s participation in the offering, to execute a lock-up agreement, which will provide for restrictions on transferring the Company’s capital stock as specified in the Registration Rights Agreement. Additionally, in connection with any underwritten public offering of Registrable Securities and upon the request of the managing underwriter or underwriters, the Company will agree not to effect any public sale or distribution of any Lock-Up Securities (as defined in the Registration Rights Agreement). The Registration Rights Agreement includes customary indemnification provisions. The Company will be responsible for its own expenses associated with the performance of its obligations under the Registration Rights Agreement and certain fees and expenses of legal counsel to the relevant Registration Rights Holders. Except as described in the preceding sentence, the Registration Rights Holders will bear their own expenses, including any underwriting discounts, selling commissions and transfer taxes applicable to any sale of Registrable Securities. The Registration Rights Agreement will automatically terminate upon the later of (i) the expiration of the Shelf Period (as defined in the Registration Rights Agreement) and (ii) at such time as no Registrable Securities remain outstanding. Series A Investor Rights Agreement Pursuant to the Plan, the Company entered into a Series A Investor Rights Agreement (the “Series A Investor Rights Agreement”) with Centerbridge Credit Partners Master, L.P. (“Centerbridge Credit”), Centerbridge Special Credit Partners III-Flex, L.P. (“Centerbridge Special Credit” and, together with Centerbridge Credit, the “Centerbridge Investors”), OCM Opps GTM Holdings, LLC (“OCM Opps”), Oaktree Value Opportunities Fund Holdings, L.P. (“Oaktree Value”), Oaktree Phoenix Investment Fund, L.P. (“Oaktree Phoenix”) and Oaktree Opportunities Fund Xb Holdings (Delaware), L.P. (“Oaktree Opportunities” and, together with OCM Opps, Oaktree Value and Oaktree Phoenix, the “Oaktree Investors”) and the other signatories thereto (the “Additional Investors” and, together with the Centerbridge Investors and the Oaktree Investors, the “Series A Investors”). Pursuant to the Series A Investor Rights Agreement, as of the Effective Date, the Centerbridge Investors and Oaktree Investors each have the right to designate three members for election to our Board and 107 the Additional Investors have the right to designate one director for election to the Board. One director will be the chief executive officer of the Company. The Centerbridge Investors and Oaktree Investors each have a continuing right to designate three directors to the Board, subject to their respective (and permitted transferees’) beneficial ownership of at least 60 % of their respective aggregate initial ownership interest as of the Effective Date as calculated for each party in accordance with the relevant terms of the Series A Investor Rights Agreement (the “Initial Investor Interest”), at least one of which will not be employed by Centerbridge Investors or Oaktree Investors, as applicable, or their respective affiliates. If the Centerbridge Investors or Oaktree Investors, as applicable, beneficially own less than 60 % but at least 40 % of their respective Initial Investor Interest, then they will each have the right to designate at least two directors to the Board. If the Centerbridge Investors or Oaktree Investors, as applicable, beneficially own less than 40 % but at least 20 % of their respective Initial Investor Interest, then they will each have the right to designate at least one director to the Board. If the Centerbridge Investors or Oaktree Investors, as applicable, cease to own at least 20 % of their respective Initial Investor Interest, then they will have no right to designate any directors to the Board. Pursuant to the Series A Investor Rights Agreement, the Additional Investors have a continuing right to designate one director for election to the Board, subject to their (and permitted transferees’) beneficial ownership of at least 60 % of their Initial Investor Interest. If the Additional Investors beneficially own less than 60 % of their Initial Investor Interest, then they have no right to designate any directors to the Board. The designee of the Additional Investors shall be the person nominated, separately and not jointly, by those Additional Investors holding at least 65 % of the shares of Series A Preferred Stock held by the Additional Investors at such time. After the Additional Investors no longer have a right to designate a director as described above, if the Company becomes aware that at least 20 % of the Series A Preferred Stock issued as of the Effective Date is held by stockholders other than the Centerbridge Investors and Oaktree Investors, then the holders of a majority of the Series A Preferred Stock then outstanding (excluding Series A Preferred Stock held by the Centerbridge Investors and the Oaktree Investors) will collectively have the right to designate one director to the Board. If the number of individuals that any Series A Investor has the right to designate for election to the Board is decreased in accordance with the foregoing, then the corresponding number of directors designated by such investor will immediately offer to resign from the Board under the terms of the Series A Investor Rights Agreement. The Company is restricted under the Series A Investor Rights Agreement from increasing the size of the Board without the written consent of the Series A Investors holding a majority of the then-outstanding Series A Preferred Stock for so long as the outstanding Series A Preferred Stock represents, in the aggregate, a majority of the combined voting power of the then-outstanding shares of all classes and series of capital stock of the Company entitled generally to vote in the election of directors of the Company. Share Repurchase Program On November 16, 2021, the Board of Directors authorized a $ 100 million share repurchase program valid until November 15, 2022, providing for the pro rata purchase of shares of Series A Preferred Stock and Common Stock. Through December 31, 2021, the Company has repurchased 1,846,138 shares of Series A Preferred Stock for $ 15 million, and has repurchased 509,443 shares of Common Stock for $ 4 million. 108 Note 22. Accumulated Other Comprehensive Income (Loss) The changes in accumulated other comprehensive income (loss) are provided in the tables below: Pre-Tax Tax After-Tax (Dollars in millions) Year Ended December 31, 2019 Foreign exchange translation adjustment $ 67 $ — $ 67 Pension adjustments ( 18 ) 4 ( 14 ) Changes in fair value of effective cash flow hedges 2 2 4 $ 51 $ 6 $ 57 Year Ended December 31, 2020 Foreign exchange translation adjustment $ ( 234 ) $ — $ ( 234 ) Pension adjustments ( 17 ) ( 1 ) ( 18 ) Changes in fair value of effective cash flow hedges ( 8 ) 1 ( 7 ) $ ( 259 ) $ — $ ( 259 ) Year Ended December 31, 2021 Foreign exchange translation adjustment $ 38 $ — $ 38 Pension adjustments 43 ( 7 ) 36 Changes in fair value of effective cash flow hedges 11 ( 1 ) 10 Changes in fair value of net investment hedges 51 ( 10 ) 41 $ 143 $ ( 18 ) $ 125 109 Changes in Accumulated Other Comprehensive Income (Loss) by Component Foreign Exchange Translation Adjustment Changes in Fair Value of Effective Cash Flow Hedges Changes in Fair Value of Net Investment Hedges Pension Adjustments Total Accumulated Other Comprehensive Income (Loss) (Dollars in millions) Balance at December 31, 2019 $ 153 $ 4 $ — $ ( 27 ) $ 130 Other comprehensive income before reclassifications ( 234 ) ( 3 ) — ( 29 ) ( 266 ) Amounts reclassified from accumulated other comprehensive income — ( 4 ) — 11 7 Net current period other comprehensive income ( 234 ) ( 7 ) — ( 18 ) ( 259 ) Balance at December 31, 2020 $ ( 81 ) $ ( 3 ) $ — $ ( 45 ) $ ( 129 ) Other comprehensive loss before reclassifications 38 11 41 35 125 Amounts reclassified from accumulated other comprehensive income — ( 1 ) — 1 — Net current period other comprehensive loss 38 10 41 36 125 Balance at December 31, 2021 $ ( 43 ) $ 7 $ 41 $ ( 9 ) $ ( 4 ) Reclassifications Out of Accumulated Other Comprehensive Income (Loss) Year Ended December 31, 2021 Affected Line in the Consolidated Statement of Operations Net Sales Cost of Goods Sold Selling, General and Administrative Expenses Non-Operating (Income) Expense Total (Dollars in millions) Amortization of Pension and Other Postretirement Items: Actuarial losses recognized $ — $ — $ — $ 1 $ 1 Losses (gains) on cash flow hedges — ( 1 ) — — ( 1 ) Tax expense (benefit) — — — — — Total reclassifications for the period, net of tax — ( 1 ) — 1 $ — Year Ended December 31, 2020 Affected Line in the Consolidated Statement of Operations Net Sales Cost of Goods Sold Selling, General and Administrative Expenses Non-Operating (Income) Expense Total (Dollars in millions) Amortization of Pension and Other Postretirement Items: Actuarial losses recognized $ — $ — $ — $ 13 $ 13 Losses (gains) on cash flow hedges — ( 4 ) — — ( 4 ) Tax expense (benefit) ( 2 ) Total reclassifications for the period, net of tax $ — $ ( 4 ) $ — $ 13 $ 7 110 Note 23. Stock-Based Compensation 2018 Stock Incentive Plan On September 14, 2018, our Board adopted, and Honeywell, as our sole stockholder, approved, the 2018 Stock Incentive Plan of Garrett Motion Inc. and its affiliates (the “Stock Incentive Plan”) and the 2018 Stock Plan for Non-Employee Directors (the “Director Equity Plan”). The Stock Incentive Plan provides for the grant of stock options, stock appreciation rights, performance awards, restricted stock units, restricted stock, other stock-based awards, and cash-based awards to employees of Garrett or its affiliates, and independent contractors or consultants of Garrett. The maximum aggregate number of shares of our Common Stock that may be issued under the Stock Incentive Plan is 10,000,000 shares and, for the Director Equity Plan, 400,000 shares. Up to 5,000,000 shares may be granted as incentive stock options under the Stock Incentive Plan. As part of our emergence from Chapter 11 (Note 2, Plan of Reorganization ), the Plan provided for the acceleration of all outstanding awards under the Stock Incentive Plan. As of the Effective Date, all outstanding awards pursuant to the Stock Incentive Plan were cancelled. The Plan provided for the following: • Acceleration and vesting of all outstanding equity awards; • Vested equity awards were deemed to be exercised on a net settled basis; and • Common Stock provided upon the exercise of stock options were deemed outstanding as of the Effective Date. In addition: • Award holders are deemed to have exercised the Cash-Out Election, and therefore entitled to a cash payment of $ 6.25 per share; • Awards that were “Out of the money” were deemed cancelled for no consideration; and • Cash performance stock unit (“CPSU”) awards accelerated and vested based on target performance without proration and settled in cash in accordance with the Plan and are not classified as equity awards. The cash settlement of an equity award (stock options, stock appreciation rights, performance awards, restricted stock units, restricted stock, other stock-based awards) is treated as the repurchase of an outstanding equity instrument. In accordance with ASC 718, all outstanding awards were cancelled, with no replacement grant, therefore modification accounting was not applied. Restricted stock units As of the Effective Date, 1,205,650 restricted stock units (“RSU”) awards were settled for consideration of $ 6.25 per share, for a total cash settlement of $ 8 million, of which $ 7 million was recorded to equity, and $ 1 million was recorded to Reorganization items, net in the Consolidated Statement of Operations. Measurement of the cash settlement value of RSU awards was performed on an individual grant basis. As of the Effective Date, all unamortized stock compensation expense of $ 7 million was charged to Reorganization items, net in the Consolidated Statement of Operations. Performance stock units As of the Effective Date, 228,765 performance stock units (“PSU”) awards were settled for consideration of $ 6.25 per share, for a total cash settlement of $ 1 million, which was recorded to Reorganization items, net in the Consolidated Statement of Operations. Stock options As of the Effective Date, all unvested stock options were considered “Out of the money” and cancelled for no consideration. All unamortized stock compensation expense of $ 1 million was charged to Reorganization items, net in the Consolidated Statement of Operations. 111 Cash performance stock units As of the Effective Date, 2,069,897 CPSU awards were settled for consideration of $ 1.00 per unit, for a total cash settlement of $ 2 million, which was charged to Reorganization items, net in the Consolidated Statement of Operations. 2021 Long-Term Incentive Plan On May 25, 2021, our Board adopted, the Garrett Motion Inc. 2021 Long-Term Incentive Plan (the “Long-Term Incentive Plan”). The Long-Term Incentive Plan provides for the grant of stock options, stock appreciation rights, performance awards, restricted stock units, restricted stock, other stock-based awards, and cash-based awards to employees and non-employee directors of Garrett or its affiliates, and independent contractors or consultants of Garrett. The maximum aggregate number of shares of our Common Stock that may be issued under the Long-Term Incentive Plan is 31,280,476 shares. As of December 31, 2021, an aggregate of 3,300,474 shares of our Common Stock were awarded and 27,980,002 shares of our Common Stock were available for future issuance under the Long-Term Incentive Plan. Restricted Stock Units — RSU awards are issued to certain key employees and directors at fair market value at the date of grant. RSUs typically vest over 3 years or 5 years and when vested, each unit entitles the holder to one share of our Common Stock. As of December 31, 2021, an aggregate of 1,827,599 RSU awards were granted to officers, certain key employees, and non-employee directors under the Long-Term Incentive Plan. The following table summarizes information about RSU activity related to both the Stock Incentive Plan and the Long-Term Incentive Plan for each of the periods presented: Number of Restricted Stock Units Weighted Average Grant Date Fair Value Per Share Non-vested at December 31, 2019 2,794,640 $ 12.62 Granted 878,904 6.70 Vested ( 1,185,121 ) 7.83 Forfeited ( 949,454 ) 8.11 Non-vested at December 31, 2020 1,538,969 $ 13.11 Granted 1,827,599 8.31 Vested ( 326,058 ) 13.10 Forfeited ( 16,551 ) 11.71 Vested and cancelled ( 1,205,650 ) 13.10 Non-vested at December 31, 2021 1,818,309 $ 8.31 The following table summarizes the impact to the Consolidated Statement of Operations from RSUs: Year Ended December 31, 2021 2020 2019 (Dollars in millions) Compensation expense $ 4 $ 9 $ 15 Reorganization items, net (Note 2) 8 — — Future income tax benefit recognized 1 3 — As of December 31, 2021, there was $ 13 million of total unrecognized compensation cost related to unvested RSUs granted under our Long-Term Incentive Plan, which is expected to be recognized over a weighted-average period of 3.70 years. There was no unrecognized compensation expense outstanding related to the Stock Incentive Plan. Awards granted under the Stock Incentive Plan were cancelled pursuant to the Plan as part of our emergence from Chapter 11 noted above. 112 Performance Stock Units — As of December 31, 2021, an aggregate of 1,472,875 PSU awards were granted to officers and certain key employees under the Long-Term Incentive Plan, which, upon vesting, entitles the holder to shares of our Common Stock. The actual number of shares an employee receives for each PSU depends on the Company’s performance against various measures. For PSUs granted in 2021, under the Long-Term Incentive Plan, the performance measures are related to absolute total shareholder return (“TSR”) with stock price hurdles, adjusted EBITDA and adjusted EBITDA margin, weighted 60 %, 20 % and 20 % respectively over a two-year performance period from January 1, 2022 through December 31, 2023 for the TSR measure and a three-year performance period from January 1, 2021 through December 31, 2023 for the adjusted EBITDA and adjusted EBITDA margin measures. Each grantee is granted a target level of PSUs and may earn between 0 % and 100 % of the target level depending on the Company’s performance against the financial measures. The awards associated with the TSR performance measure are considered to have a market condition. A Monte-Carlo simulation model was used to determine the grant date fair value by simulating a range of possible future stock prices for the Company over the performance period. This model requires an input of assumptions including the simulation term, the risk-free interest rate, a volatility estimate for the Company’s shares, and a dividend yield estimate. The simulation term was the period of time between performance period start date and the performance end date. The risk-free interest rate assumption was based on observed interest rates from the Treasury Constant Maturity yield curve consistent with the simulation term. The Company’s volatility estimate was based on the historical volatilities of peers over a historical period consistent with the simulation term. The Company does not expect to pay a dividend during the applicable term. The fair value of the PSUs granted in 2021 was estimated using the following assumptions: Monte Carlo Assumptions December 31, 2021 Volatility 64.01 % Dividend yield 0.00 % Risk-free interest rate 0.24 % The following table summarizes information about PSU activity related to both the Stock Incentive Plan and the Long-Term Incentive Plan for each of the periods presented: Number of Performance Stock Units Weighted Average Grant Date Fair Value Per Share Non-vested at December 31, 2019 331,321 $ 16.17 Granted 1,021,069 8.36 Vested — — Forfeited ( 1,038,279 ) 8.48 Non-vested at December 31, 2020 314,111 $ 16.17 Granted 1,472,875 8.67 Vested — — Forfeited ( 85,346 ) 14.00 Vested and cancelled ( 228,765 ) — Non-vested at December 31, 2021 1,472,875 $ 8.67 The fair value of the TSR-based PSUs is based on the output of the Monte Carlo simulation model noted above and the PSUs not containing a market condition are based on the fair market value of the Company’s stock at the grant date. The number of underlying shares to be issued will be based on actual performance achievement over the performance period. The per-unit weighted average fair value at the date of grant for PSUs granted during the period ended December 31, 2021 was $ 8.67 . The fair value of each PSU grant is amortized monthly into compensation expense on a graded vesting (accelerated) basis over a vesting period of 36 months. The accrual of compensation costs is based on our estimate of the final expected value of the award and is adjusted as required for the performance-based condition. The Company estimates forfeitures at the time of issuance, which results in a reduction in compensation expense. As the payout of PSUs includes dividend equivalents, no separate dividend yield assumption is required in calculating the fair value of the PSUs. The Company currently does not pay dividends. 113 The following table summarizes the impact to the Consolidated Statement of Operations from PSUs: Year Ended December 31, 2021 2020 2019 (Dollars in millions) Compensation expense $ 2 $ — $ 2 Reorganization items, net (Note 2) 1 — — As of December 31, 2021, there was $ 11 million of total unrecognized compensation cost related to unvested PSUs granted under our Long-Term Incentive Plan, which is expected to be recognized over a weighted average period of 1.96 years. There was no unrecognized compensation expense outstanding related to the Stock Incentive Plan. Awards granted under the Stock Incentive Plan were cancelled pursuant to the Plan as part of our emergence from Chapter 11 noted above. Continuity Awards — In September 2020, in response to the unprecedented and ongoing market uncertainty resulting from the COVID-19 pandemic and in connection with the Board’s evaluation of strategic alternatives for the Company, the Compensation Committee approved one-time cash continuity awards (“Continuity Awards”) to ensure retention of key individuals in exchange for the forfeiture of RSUs and PSUs granted in February 2020. The Continuity Awards total $ 11 million, with $ 9 million paid in September 2020 and the remaining $ 2 million paid in 2021. The Continuity Awards were subject to repayment if, prior to June 30, 2021, the recipient had a qualifying termination of employment. Given the Continuity Awards had a one-year service requirement, the combined transaction was accounted for as a modification to liability-classified awards. The total incremental compensation cost resulting from the modification was $ 5 million. As of December 31, 2021, there was no unrecognized compensation cost related to the Continuity Awards. The following table summarizes information about Continuity Award activity for each of the periods presented: Number of Awards Weighted Average Grant Date Fair Value Per Award Non-vested at December 31, 2020 43 $ 257,536 Granted — — Vested ( 43 ) ( 257,536 ) Forfeited — — Non-vested at December 31, 2021 — $ — The following table summarizes the impact to the Consolidated Statement of Operations from Continuity Awards: Year Ended December 31, 2021 2020 (Dollars in millions) Compensation expense $ 5 $ 7 Future income tax benefit recognized 1 1 Note 24. Earnings Per Share Earnings per share is calculated using the two-class method pursuant to the issuance of our Series A preferred stock on the Effective Date. Our Series A preferred stock is considered a participating security because holders of the Series A Preferred Stock will also be entitled to such dividends paid to holders of Common Stock to the same extent on an as-converted basis. The two-class method requires an allocation of earnings to all securities that participate in dividends with common shares, such as our Series A preferred stock, to the extent that each security may share in the entity’s earnings. Basic earnings per share are then calculated by dividing undistributed earnings allocated to common stock by the weighted average number of common shares outstanding for the period. The Series A preferred stock is not included in the computation of basic earnings per share in periods in which we have a net loss, as the Series A preferred stock is not contractually obligated to share in our net losses. Diluted earnings per share for the year ended December 31, 2021 is calculated using the more dilutive of the two-class or if-converted methods. The two-class method uses net income available to common shareholders and assumes conversion of all potential shares other than the participating securities. The if-converted method uses net income and 114 assumes conversion of all potential shares including the participating securities. Diluted earnings per share for the years ended December 31, 2020 and 2019 are computed based upon the weighted average number of common shares outstanding and all dilutive potential common shares outstanding and all potentially issuable PSUs at the end of the period (if any) based on the number of shares issuable if it were the end of the vesting period using the treasury stock method and the average market price of our Common Stock for the year. The details of the earnings per share calculations for the years ended December 31, 2021, 2020 and 2019 are as follows: Year Ended December 31 2021 2020 2019 (Dollars in millions except per share amounts) Basic earnings per share: Net Income $ 495 $ 80 $ 313 Less: preferred stock dividend ( 97 ) — — Net income available for distribution 398 80 313 Less: earnings allocated to participating securities ( 280 ) — — Net income available to common shareholders $ 118 $ 80 $ 313 Weighted average common shares outstanding - Basic 69,706,183 75,543,461 74,602,868 EPS – Basic $ 1.69 $ 1.06 $ 4.20 Diluted earnings per share: Method used: If-converted Weighted average common shares outstanding - Basic 69,706,183 75,543,461 74,602,868 Dilutive effect of unvested RSUs and other contingently issuable shares 28,155 557,048 1,331,505 Dilutive effect of participating securities 247,768,962 — — Weighted average common shares outstanding – Diluted 317,503,300 317,503,300 76,100,509 75,934,373 EPS – Diluted $ 1.56 $ 1.05 $ 4.12 The diluted earnings per share calculations exclude the effect of stock options when the options’ assumed proceeds exceed the average market price of the common shares during the period. For the years ended December 31, 2021, December 31, 2020, and December 31, 2019, the weighted average number of stock options excluded from the computations was 131,623 , 428,690 and 483,408 respectively. As of December 31, 2021, there were no options outstanding. Note 25. Commitments and Contingencies Chapter 11 Cases On the Petition Date, the Debtors each filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Chapter 11 Cases were jointly administered under the caption “In re: Garrett Motion Inc., 20-12212.” On April 20, 2021, the Debtors filed the Plan. On April 26, 2021, the Bankruptcy Court entered the Confirmation Order, among other things, confirming the Plan. On the Effective Date, the conditions to effectiveness of the Plan were satisfied or waived and the Company emerged from bankruptcy. Since the Effective Date, the reorganized Debtors have been administering and reconciling outstanding proofs of claim and proofs of interest filed against the Debtors. All of the Chapter 11 Cases other than the main lead Chapter 11 Case of the Company have been closed, the main Chapter 11 Case of the Company will remain open until all proofs of claim and proofs of interest are fully administered. See Note 2, Plan of Reorganization , for more information. Obligations payable to Honeywell Honeywell was a defendant in asbestos-related personal injury actions mainly related to its legacy Bendix friction materials (“Bendix”) business. The Bendix business manufactured automotive brake linings that contained chrysotile asbestos in an encapsulated form. Claimants consist largely of individuals who allege exposure to asbestos from brakes 115 from either performing or being in the vicinity of individuals who performed brake replacements. Certain operations that were part of the Bendix business were transferred to Garrett. In connection with the Spin-Off, Garrett ASASCO, a wholly owned indirect subsidiary of the Company, entered into the Honeywell Indemnity Agreement with Honeywell on September 12, 2018. As of the Spin-Off date of October 1, 2018, Garrett ASASCO was obligated to make payments to Honeywell in amounts equal to 90 % of Honeywell’s asbestos-related liability payments and accounts payable, primarily related to the 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 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. Pursuant to the terms of this Honeywell Indemnity Agreement, Garrett ASASCO was responsible for paying to Honeywell such amounts, up to a cap of an amount equal to the Euro-to-U.S. dollar exchange rate determined by Honeywell as of a date within two business days prior to the date of the Distribution (1.16977 USD = 1 EUR) equivalent of $ 175 million in respect of such liabilities arising in any given calendar year. The Honeywell Agreements governed the respective rights, responsibilities and obligations of Honeywell and us after the Spin-Off with respect to all tax matters (including tax liabilities, tax attributes, tax returns and tax contests). The Tax Matters Agreement generally provided that, following the Spin-Off date of October 1, 2018, we were responsible and would indemnify Honeywell for all taxes, including income taxes, sales taxes, value-added and payroll taxes, relating to Garrett for all periods, including periods prior to the completion date of the Spin-Off. The Plan as confirmed by the Bankruptcy Court included 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 Agreements. For more information see Note 17, Mandatorily Redeemable Series B Preferred Stock. The following table summarizes our Obligation payable to Honeywell related to these agreements as of December 31, 2020. For the year ended December 31, 2020 all amounts were reclassified to Liabilities subject to compromise on the Consolidated Balance Sheets: 2020 Asbestos and environmental Tax Matters Total (Dollars in millions) Beginning of year $ 1,090 $ 261 $ 1,351 Legal fees expensed 41 — 41 Payments to Honeywell ( 35 ) — ( 35 ) Currency translation adjustment 100 25 125 End of year $ 1,196 $ 286 $ 1,482 Current 2 40 42 Non-current 1,194 246 1,440 Total $ 1,196 $ 286 $ 1,482 As these liabilities were satisfied under the Plan, our Consolidated Balance Sheet as of December 31, 2021 reflects no liabilities related to these matters. Securities Litigation On September 25, 2020, a putative securities class action complaint was filed against Garrett Motion Inc. and certain current and former Garrett officers and directors in the United States District Court for the Southern District of New York. The case bears the caption : Steven Husson, Individually and On Behalf of All Others Similarly Situated, v. Garrett Motion Inc., Olivier Rabiller, Alessandro Gili, Peter Bracke, Sean Deason, and Su Ping Lu , Case No. 1:20-cv-07992-JPC (SDNY) (the “Husson Action”). The Husson Action asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for securities fraud and control person liability. On September 28, 2020, the 116 plaintiff sought to voluntarily dismiss his claim against Garrett Motion Inc. in light of the Company’s bankruptcy; this request was granted. On October 5, 2020, another putative securities class action complaint was filed against certain current and former Garrett officers and directors in the United States District Court for the Southern District of New York. This case bears the caption: The Gabelli Asset Fund, The Gabelli Dividend & Income Trust, The Gabelli Value 25 Fund Inc., The Gabelli Equity Trust Inc., SM Investors LP and SM Investors II LP, on behalf of themselves and all others similarly situated, v. Su Ping Lu, Olivier Rabiller, Alessandro Gili, Peter Bracke, Sean Deason, Craig Balis, Thierry Mabru, Russell James, Carlos M. Cardoso, Maura J. Clark, Courtney M. Enghauser, Susan L. Main, Carsten Reinhardt, and Scott A. Tozier , Case No. 1:20-cv-08296-JPC (SDNY) (the “Gabelli Action”). The Gabelli Action also asserted claims under Sections 10(b) and 20(a) of the Exchange Act. On November 5, 2020, another putative securities class action complaint was filed against certain current and former Garrett officers and directors in the United States District Court for the Southern District of New York. This case bears the caption: Joseph Froehlich, Individually and On Behalf of All Others Similarly Situated, v. Olivier Rabiller, Allesandro Gili, Peter Bracke, Sean Deason, and Su Ping Lu , Case No. 1:20-cv-09279-JPC (SDNY) (the “Froehlich Action”). The Froehlich Action also asserted claims under Sections 10(b) and 20(a) of the Exchange Act. All 3 actions are currently assigned to Judge John P. Cronan. Su Ping Lu filed a waiver of service in the Gabelli Action on November 10, 2020. On November 24, 2020, competing motions were filed seeking the appointment of lead plaintiff and lead counsel and the consolidation of the Husson, Gabelli, and Froehlich Actions. On December 8, 2020, counsel for the plaintiffs in the Gabelli Action — the Entwistle & Cappucci law firm — filed an unopposed stipulation and proposed order that would (1) appoint the plaintiffs in the Gabelli Action — the “Gabelli Entities” — the lead plaintiffs; (2) would appoint Entwistle & Cappucci as lead counsel for the plaintiff class; and (3) consolidate the Gabelli Action, the Husson Action, and the Froehlich Action (the “Consolidated D&O Action”). On January 21, 2021, the Court granted the motion to consolidate the actions and granted the Gabelli Entities’ motions for appointment as lead plaintiff and for selection of lead counsel. On February 25, 2021, plaintiffs filed a Consolidated Amended Complaint for Violation of the federal securities laws. The Company’s insurer, AIG, has accepted the defense, subject to the customary reservation of rights. The Company agreed with the Gabelli Entities and their lead counsel to permit a class claim to be recognized in the bankruptcy court and to have securities claims against the Company to be litigated in the district court alongside the Consolidated D&O Action. The Gabelli Entities have agreed that any recoveries against Garrett Motion Inc. on account of securities claims litigated through the class claim are limited to available insurance policy proceeds. On July 2, 2021, the bankruptcy court entered an order approving the joint request from the Company and the Gabelli Entities to handle the securities claims against Garrett Motion Inc. in this manner. The Gabelli Entities were authorized, and on July 22, 2021 filed a second amended complaint to add claims against Garrett Motion Inc. On August 11, 2021, Garrett Motion Inc., Olivier Rabiller, Alessandro Gili, Peter Bracke, Sean Deason, Russell James, Carlos Cardoso, Maura Clark, Courtney Enghauser, Susan Main, Carsten Reinhardt, and Scott Tozier filed a motion to dismiss with respect to claims asserted against them. On the same day, Su Ping Lu, who is represented separately, filed a motion to dismiss with respect to the claims asserted against her. Lead plaintiffs’ opposition to the motions to dismiss was filed on October 26, 2021, and the defendant's reply briefs were filed on or before December 8, 2021. The motions to dismiss remain pending before the District Court. Brazilian Tax Matters In September 2020, the Brazilian tax authorities issued an infraction notice against Garrett Motion Industria Automotiva Brasil Ltda, challenging the use of certain tax credits (“Befiex Credits”) between January 2017 and February 2020. The infraction notice results in a loss contingency that may or may not ultimately be incurred by the Company. The estimated total amount of the contingency as of December 31, 2021 was $ 28 million including penalties and interest. The Company appealed the infraction notice on October 23, 2020. In March 2021, in response to our request, the Brazilian Tax Authorities reconsidered their position for a portion of the $ 28 million mentioned above and allowed Garrett Motion Brazil the right to offset Federal Tax with the Befiex Credits. The letter does not qualify as a formal decision and requires formal recognition from the Judge and from the Federal Judgement Office in charge of the disputes. On August 21, 2021, we requested such formal recognition from the Judge, which request resulted in a suspension of the claims of the Brazilian Tax Authorities as set out in their initial September 2020 letter, until such a time as the Judge makes a formal determination on 117 our request. The Company believes, based on management’s assessment and the advice of external legal counsel, that it has meritorious arguments in connection with the infraction notice and any liability for the infraction notice is currently not probable. Accordingly, no accrual is required at this time. Other Matters We are subject to other lawsuits, investigations and disputes arising out of the conduct of our business, including matters relating to commercial transactions, government contracts, product liability, prior acquisitions and divestitures, employee benefit plans, intellectual property and environmental, health and safety matters. We recognize a liability for any contingency that is probable of occurrence and reasonably estimable. We continually assess the likelihood of adverse judgments of outcomes in these matters, as well as potential ranges of possible losses (taking into consideration any insurance recoveries), based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts. Warranties and Guarantees In the normal course of business, we issue product warranties and product performance guarantees. We accrue for the estimated cost of product warranties and performance guarantees based on contract terms and historical experience at the time of sale to the customer. Adjustments to initial obligations for warranties and guarantees are made as changes to the obligations become reasonably estimable. Product warranties and product performance guarantees are included in Accrued liabilities and Other Liabilities. The following table summarizes information concerning our recorded obligations for product warranties and product performance guarantees. Year Ended December 31, 2021 2020 2019 (Dollars in millions) Beginning of year $ 14 $ 29 $ 32 Accruals for warranties/guarantees issued during the year 21 18 31 Settlement of warranty/guarantee claims ( 19 ) ( 17 ) ( 34 ) Amounts reclassified from/(to) Liabilities subject to compromise 16 ( 16 ) — $ 32 $ 14 $ 29 118 Note 26. Defined Benefit Pension Plans We sponsor several funded U.S. and non-U.S. defined benefit pension plans. Pension benefits for many of our U.S. employees are provided through a non-contributory, qualified defined benefit plan. All non-union hourly and salaried employees that joined the Business or Garrett for the first time after December 31, 2012, are not eligible to participate in our U.S. defined benefit pension plans. We also sponsor defined benefit pension plans which cover non-U.S. employees who are not U.S. citizens, in Switzerland and Ireland. Other pension plans outside of the U.S. are not material to the Company either individually or in the aggregate. The following tables summarize the balance sheet impact, including the benefit obligations, assets and funded status associated with our significant pension plans. Pension Benefits U.S. Plans U.S. Plans Non-U.S. Plans Non-U.S. Plans 2021 2020 2021 2020 (Dollars in millions) Change in benefit obligation: Benefit obligation at beginning of the year $ 220 $ 206 $ 259 $ 226 Service cost 1 1 10 9 Interest cost 4 6 1 2 Plan amendments — — — ( 10 ) Actuarial (gains) losses (1) ( 6 ) 17 ( 25 ) 18 Benefits paid ( 11 ) ( 10 ) ( 3 ) ( 3 ) Settlements and curtailments (2) — — — ( 10 ) Foreign currency translation — — ( 15 ) 22 Transfers — — ( 1 ) 2 Other — — 3 3 Benefit obligation at end of the year 208 220 229 259 Change in plan assets: Fair value of plan assets at beginning of the year 219 204 172 150 Actual return on plan assets 14 25 16 8 Employer contributions — — 7 7 Benefits paid ( 11 ) ( 10 ) ( 3 ) ( 3 ) Settlements and curtailments (2) — — — ( 10 ) Foreign currency translation — — ( 10 ) 15 Transfers — — ( 1 ) 2 Other 1 — 1 3 Fair value of plan assets at end of year 223 219 182 172 Funded status of plans $ 15 $ ( 1 ) $ ( 47 ) $ ( 87 ) Amounts recognized in Consolidated Balance Sheet consist of: Other assets - non-current (3) 15 — — — Accrued pension liabilities- non-current (4) — — ( 47 ) — Liabilities subject to compromise (5) — ( 1 ) — ( 87 ) Net amount recognized $ 15 $ ( 1 ) $ ( 47 ) $ ( 87 ) ________________________________ 119 (1) The actuarial gain on the U.S. plan during 2021 was $ 6 million, driven by higher discount rates. For the non-US plans, the 2021 actuarial gain amounted to $ 25 million. The increase in discount rates led to an assumption gain of $ 11 million in Ireland and $ 5 million in Switzerland. Changes in demographic assumptions in Switzerland led to an additional gain of $ 11 million. Lower actual salary increases led to a further gain of $ 5 million in Ireland. This overall financial gain was offset by a loss of $ 8 million in Switzerland, attributable to an increase in projected benefits. (2) In Switzerland the total lump sum benefit payments of $ 10 million were greater than the service cost and interest cost for year ended December 31, 2020, therefore settlement accounting was applied. Following the settlement accounting, part of the previously unrecognized loss, approximately $ 1 million was recognized as pension settlement expense. (3) Included in Other assets in the Consolidated Balance Sheet. (4) Included in Other liabilities in the Consolidated Balance Sheet. (5) Included in Liabilities subject to compromise in the Consolidated Balance Sheet for the year ended December 31, 2020. Amounts recognized in Accumulated other comprehensive (income) loss associated with our significant pension and other postretirement benefit plans at December 31, 2021 and December 31, 2020 are as follows: Pension Benefits U.S. Plans U.S. Plans Non-U.S. Plans Non-U.S. Plans 2021 2020 2021 2020 (Dollars in millions) Prior service (credit) $ ( 1 ) $ ( 1 ) $ ( 8 ) $ ( 9 ) Net actuarial (gain) loss ( 1 ) 9 ( 11 ) 24 Net amount recognized $ ( 2 ) $ 8 $ ( 19 ) $ 15 The components of net periodic benefit (income) cost and other amounts recognized in Other comprehensive (income) loss for our significant pension and other postretirement benefit plans include the following components: Pension Benefits U.S. Plans Non-U.S. Plans Net Periodic Benefit Cost 2021 2020 2019 2021 2020 2019 (Dollars in millions) Service cost $ 1 $ 1 $ 1 $ 10 $ 9 $ 6 Interest cost 4 6 7 1 2 2 Expected return on plan assets ( 10 ) ( 11 ) ( 10 ) ( 6 ) ( 6 ) ( 4 ) Amortization of prior service (credit) cost — — — ( 1 ) — — Recognition of actuarial losses — — — — 13 13 Settlements and curtailments (1) — — — — 1 — Net periodic (income) benefit cost $ ( 5 ) $ ( 4 ) $ ( 2 ) $ 4 $ 19 $ 17 ________________________________ (1) In Switzerland the total lump sum benefit payments of $ 10 million were greater than the service cost and interest cost for year ended December 31, 2020, therefore settlement accounting was applied. Following the settlement accounting, part of the previously unrecognized loss, approximately $ 1 million was recognized as pension settlement expense. 120 Other Changes in Plan Assets and Benefits Obligations Recognized in U.S. Plans Non-U.S. Plans Other Comprehensive (Income) Loss 2021 2020 2019 2021 2020 2019 (Dollars in millions) Actuarial (gains) losses $ ( 10 ) $ 3 $ 2 $ ( 34 ) $ 15 $ 27 Prior service (credit) — — — ( 10 ) 1 Prior service credit recognized during year — — — 1 — — Actuarial losses recognized during year — — — — ( 14 ) ( 13 ) Foreign currency translation — — — — 2 1 Total recognized in other comprehensive (income) loss $ ( 10 ) $ 3 $ 2 $ ( 33 ) $ ( 7 ) $ 16 Total recognized in net periodic benefit (income) cost and other comprehensive (income) loss $ ( 15 ) $ ( 1 ) $ — $ ( 29 ) $ 12 $ 33 Major actuarial assumptions used in determining the benefit obligations and net periodic benefit (income) cost for our significant benefit plans are presented in the following table as weighted averages. Pension Benefits U.S. Plans Non-U.S. Plans 2021 2020 2019 2021 2020 2019 (Dollars in millions) Actuarial assumptions used to determine benefit obligations as of December 31: Discount rate 2.95 % 2.65 % 3.30 % 0.86 % 0.46 % 0.79 % Expected annual rate of compensation increase 3.20 % 3.57 % 3.74 % 2.07 % 1.82 % 1.77 % Interest credited to accounts (1) — — — % 1.50 % 1.50 % 1.50 % Actuarial assumptions used to determine net periodic benefit (income) cost for years ended December 31: Discount rate—benefit obligation 2.65 % 3.30 % 4.44 % 0.46 % 0.79 % 1.65 % Discount rate—service cost 3.37 % 4.47 % 4.47 % 0.23 % 1.20 % 1.20 % Discount rate—interest cost 2.86 % 4.06 % 4.06 % 0.63 % 1.74 % 1.74 % Expected rate of return on plan assets 4.88 % 5.49 % 5.80 % 3.60 % 3.79 % 3.34 % Expected annual rate of compensation increase 3.57 % 3.74 % 3.74 % 1.80 % 1.77 % 1.77 % ________________________________ (1) Only applicable to the defined benefit pension plan in Switzerland. The discount rate for our significant pension plans reflects the current rate at which the associated liabilities could be settled at the measurement date of December 31, 2021 . To determine the discount rates, we use a modeling process that involves matching the expected cash outflows of our benefit plans to a yield curve constructed from a portfolio of high quality, fixed-income debt instruments. We use the single weighted-average yield of this hypothetical portfolio as a discount rate benchmark. For both our U.S. and non-U.S. defined benefit pension plans, we estimate the service and interest cost components of net period benefit (income) cost by utilizing a full yield curve approach in the estimation of these cost components by applying the specific spot rates along the yield curve used in the determination of the pension benefit obligation to their underlying projected cash flows. This approach provides a more precise measurement of service and interest costs by improving the correlation between projected cash flows and their corresponding spot rates. For non-U.S. benefit plans, actuarial assumptions reflect economic and market factors relevant to each country. 121 The following amounts relate to our significant pension plans with accumulated benefit obligations exceeding the fair value of plan assets. December 31, U.S. Plans Non-U.S. Plans 2021 2020 2021 2020 (Dollars in millions) Projected benefit obligation $ — $ — $ 229 $ 259 Accumulated benefit obligation — — 217 239 Fair value of plan assets — — 182 172 Our U.S. pension asset investment strategy focuses on maintaining a diversified portfolio using various asset classes in order to achieve market exposure and diversification on a risk adjusted basis. Our target allocations are as follows: 76 % fixed income securities, 15 % global equity securities, 5 % real estate investments, 2 % multi-asset credit income securities, and 2 % hedge funds bonds. Global equity securities include mutual funds that invest in companies located both inside and outside the United States. The real estate fund invests in real estate investment trusts – companies that purchase office buildings, hotels and other real estate property. The multi-asset credit funds invest in diversified geographies, asset classes and credit instruments to capture global credit risk premiums. The hedge funds are pooled investments structured to reduce volatility of returns and long-term return enhancements . Our assets are reviewed on a daily basis to ensure that we are within the targeted asset allocation ranges and, if necessary, asset balances are adjusted back within target allocations. Our non-U.S. pension assets are typically managed by decentralized fiduciary committees. Our non-U.S. investment policies are different for each country as local regulations, funding requirements, and financial and tax considerations are part of the funding and investment allocation process in each country. The fair values of both our U.S. and non-U.S. pension plans assets by asset category are as follows: U.S. Plans December 31, 2021 Total Level 1 Level 2 Level 3 (Dollars in millions) Cash $ 4 $ 4 $ — $ — Equity funds 34 — 34 — Government bond funds 39 — 39 — Corporate bond funds 135 — 135 — Real estate funds 11 — 11 — Total assets at fair value $ 223 $ 4 $ 219 $ — U.S. Plans December 31, 2020 Total Level 1 Level 2 Level 3 (Dollars in millions) Equity funds $ 79 $ — $ 79 $ — Short-term investments 2 — 2 — Corporate bond funds 117 — 117 — Real estate funds 21 — 21 — Total assets at fair value $ 219 $ — $ 219 $ — 122 Non-U.S. Plans December 31, 2021 Total Level 1 Level 2 Level 3 (Dollars in millions) Cash and cash equivalents $ 3 $ 3 $ — Equity funds 100 100 Government bond funds 34 34 Corporate bond funds 11 11 Real estate funds 22 22 Other 13 13 Total assets at fair value $ 183 $ 3 $ 180 $ — Non-U.S. Plans December 31, 2020 Total Level 1 Level 2 Level 3 (Dollars in millions) Cash and cash equivalents $ 5 $ 5 $ — $ — Equity funds 76 — 76 — Government bond funds 35 — 35 — Corporate bond funds 23 — 23 — Real estate funds 20 — 20 — Other 13 — 13 — Total assets at fair value $ 172 $ 5 $ 167 $ — Equity funds, corporate bond funds, government bond funds, real estate funds and short-term investments are valued either by bids provided by brokers or dealers or quoted prices of securities with similar characteristics. Other includes diversified mutual funds. These investments are valued at estimated fair value based on quarterly financial information received from the investment advisor and/or general partner. Our general funding policy for qualified defined benefit pension plans is to contribute amounts at least sufficient to satisfy regulatory funding standards. We are not required to make any contributions to our U.S. pension plan in 2021. In 2021, contributions of $ 7 million were made to our non-U.S. pension plans to satisfy regulatory funding requirements. In 2022, we expect to make contributions of cash and/or marketable securities of approximately $ 7 million to our non-U.S. pension plans to satisfy regulatory funding standards. Contributions for both our U.S. and non-U.S. pension plans do not reflect benefits paid directly from Company assets. Benefit payments, including amounts to be paid from Company assets, and reflecting expected future service, as appropriate, are expected to be paid as follows: U.S. Plans Non-U.S. Plans (Dollars in millions) 2022 $ 11 $ 4 2023 11 4 2024 11 4 2025 11 4 2026 11 5 2027-2031 57 31 123 Note 27. Concentrations Sales concentration —Net sales by region (determined based on country of shipment) and channel are as follows: Year Ended December 31, 2021 OEM Aftermarket Other Total (Dollars in millions) United States $ 383 $ 176 $ 6 $ 565 Europe 1,602 155 27 1,784 Asia 1,153 50 28 1,231 Other International 28 25 — 53 $ 3,166 $ 406 $ 61 $ 3,633 Year Ended December 31, 2020 OEM Aftermarket Other Total (Dollars in millions) United States $ 309 $ 148 $ 5 $ 462 Europe 1,395 122 30 1,547 Asia 928 41 26 995 Other International 11 19 — 30 $ 2,643 $ 330 $ 61 $ 3,034 Year Ended December 31, 2019 OEM Aftermarket Other Total (Dollars in millions) United States $ 307 $ 171 $ 7 $ 485 Europe 1,631 136 39 1,806 Asia 843 51 29 923 Other International 15 19 — 34 $ 2,796 $ 377 $ 75 $ 3,248 Customer concentration —Net sales to Garrett’s largest customers and the corresponding percentage of total net sales are as follows: Net sales Year Ended December 31, 2021 % 2020 % 2019 % (Dollars in millions) Customer A $ 347 10 $ 301 10 $ 374 12 Customer B 480 13 346 11 240 7 Others 2,806 77 2,387 79 2,634 81 $ 3,633 100 $ 3,034 100 $ 3,248 100 124 Long-lived assets concentration —Long-lived assets by region are as follows: Long-lived Assets (1) December 31 2021 2020 2019 (Dollars in millions) United States $ 19 $ 21 $ 24 Europe 291 315 285 Asia 162 151 141 Other International 14 18 21 $ 486 $ 505 $ 471 _________________________ (1) Long-lived assets are comprised of property, plant and equipment–net. Supplier concentration —The Company’s largest supplier accounted for 6 %, 8 % and 12 % of direct materials purchases for the years ended December 31, 2021, 2020 and 2019 respectively. Note 28. Unaudited Quarterly Financial Information The following tables show selected unaudited quarterly results of operations for 2021 and 2020. The quarterly data have been prepared on the same basis as the audited annual financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair statement of our results of operations for these periods. Basic and diluted earnings per share for the quarterly periods ended June 30, 2021 and September 30, 2021 have been corrected versus information previously filed in our quarterly reports Form 10-Q to correct for the calculation using the two-class method. 2021 March 31 June 30 September 30 December 31 Year Ended December 31 (Dollars in millions) Net Sales $ 997 $ 935 $ 839 $ 862 $ 3,633 Gross Profit 196 193 163 155 707 Net (Loss) Income ( 105 ) 409 63 128 495 Net (Loss) Income available for distribution ( 105 ) 385 27 91 398 Earnings (loss) per share - basic ( 1.38 ) 1.63 0.09 0.29 1.69 Earnings (loss) per share - diluted ( 1.38 ) 1.29 0.09 0.29 1.56 2020 March 31 June 30 September 30 December 31 Year Ended December 31 (Dollars in millions) Net Sales $ 745 $ 477 $ 804 $ 1,008 $ 3,034 Gross Profit 138 80 147 174 539 Net Income (Loss) 52 ( 9 ) 11 26 80 Earnings (loss) per share - basic 0.69 ( 0.12 ) 0.15 0.34 1.06 Earnings (loss) per share - diluted 0.68 ( 0.12 ) 0.14 0.34 1.05 125 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.