Garrett Motion Inc. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Based on management's evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of December 31, 2021, due to the material weakness in internal control over financial reporting described under "Management's Annual Report on Internal Control Over Financial Reporting" below. Management’s Annual Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control-Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that, as of December 31, 2021, our internal control over financial reporting was not effective because of the material weakness in internal control over financial reporting as explained herein. In the course of preparing our Annual Report on Form 10-K and Consolidated Financial Statements for the year ended December 31, 2021, management identified an error in the calculation of its basic and diluted earnings per share for the three and six months ended June 30, 2021 and the three and nine months ended September 30, 2021, resulting from the Company's failure to correctly account for the outstanding shares of Series A Preferred Stock as a participating security in the earnings per share calculations. Following the identification of the aforementioned error, management performed a root cause analysis and identified that the error related to a deficiency in the design and implementation of effective controls relating to involvement of subject matter experts in management’s review of complex and bespoke transactions. As such, management determined that a material weakness in internal control over financial reporting existed at that time. Management has since completed certain remediation steps as set out below. Deloitte SA, our independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting, which is included in Item 8, Financial Statements and Supplementary Data , of this Annual Report and which report expresses an adverse opinion on the effectiveness of internal control over financial reporting. Remediation Plan Our management is committed to remediating the identified material weakness in a timely manner. In order to remediate the material weakness, management has developed a plan to implement measures designed to ensure that the control deficiencies that resulted in the material weakness are remediated, such that these controls are designed, implemented and operating effectively. Specifically, subsequent to December 31, 2021, management completed a comprehensive review of our controls and procedures associated with complex and bespoke transactions, including revisiting such transactions with input from relevant subject matter experts as determined necessary, reassessing the understanding of each transaction, evaluating the application of the underlying accounting standards to the transactions, and verifying the completeness, accuracy and reasonableness of the final accounting conclusions. Management has also since updated the design of our controls to evaluate the need to involve relevant subject matter experts as part of the review controls associated with complex and bespoke accounting transactions. While management believes the foregoing efforts will effectively remediate the material weakness, the material weakness will not be considered fully remediated until all aspects of the remediation plan have been implemented and such controls operate for a sufficient period of time to allow 126 management to conclude, through testing, that these controls are operating effectively. The Company will monitor the effectiveness of its remediation plan and will refine its remediation plan as appropriate. Changes in Internal Control Over Financial Reporting Other than the identification of the material weakness discussed above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information Restatement of earnings per share As discussed within Item 9A, Controls and Procedures , the Company concluded that an error was made in the calculation of earnings per share for the three and six months ended June 30, 2021 and the three and nine months ended September 30, 2021. The following tables present the effect of the restatement on the Company's earnings per share for the aforementioned periods. Three months ended June 30, 2021 Six months ended June 30, 2021 As reported Adjustment As restated As reported Adjustment As restated (Dollars in millions except per share amounts) Basic earnings per share: Net Income $ 409 $ — $ 409 $ 304 $ — $ 304 Less: preferred stock dividend (24) — (24) (24) — (24) Net income available for distribution 385 — 385 280 — 280 Less: earnings allocated to participating securities — (271) (271) — (150) (150) Net income available to common shareholders $ 385 $ (271) $ 114 $ 280 $ (150) $ 130 Weighted average common shares outstanding - Basic 69,667,651 — 69,667,651 72,862,102 — 72,862,102 EPS – Basic $ 5.53 $ (3.90) $ 1.63 $ 3.84 $ (2.05) $ 1.79 Diluted earnings per share: Method used: If-converted If-converted Net income available to common shareholders $ 409 $ — $ 409 $ 304 $ — $ 304 Weighted average common shares outstanding - Basic 69,667,651 — 69,667,651 72,862,102 — 72,862,102 Dilutive effect of unvested RSUs and other contingently issuable shares — — — — — — Dilutive effect of participating securities 166,086,887 81,682,075 247,768,962 83,502,247 164,266,715 247,768,962 Weighted average common shares outstanding – Diluted 235,754,538 235,754,538 81,682,075 317,436,613 156,364,349 156,364,349 164,266,715 320,631,064 EPS – Diluted $ 1.73 $ (0.44) $ 1.29 $ 1.94 $ (0.99) $ 0.95 127 Three months ended September 30, 2021 Nine months ended September 30, 2021 As reported Adjustment As restated As reported Adjustment As restated (Dollars in millions except per share amounts) Basic earnings per share: Net Income $ 63 $ — $ 63 $ 367 $ — $ 367 Less: preferred stock dividend (36) — (36) (60) — (60) Net income available for distribution 27 — 27 307 — 307 Less: earnings allocated to participating securities — (21) (21) — (203) (203) Net income available to common shareholders $ 27 $ (21) $ 6 $ 307 $ (203) $ 104 Weighted average common shares outstanding - Basic 65,056,274 — 65,056,274 70,802,999 — 70,802,999 EPS – Basic $ 0.42 $ (0.33) $ 0.09 $ 4.34 $ (2.88) $ 1.46 Diluted earnings per share: Method used: Two-class (1) If-converted Net income available to common shareholders $ 63 $ (57) $ 6 $ 367 $ — $ 367 Weighted average common shares outstanding - Basic 65,056,274 — 65,056,274 70,802,999 — 70,802,999 Dilutive effect of unvested RSUs and other contingently issuable shares 25,069 — 25,069 8,289 — 8,289 Dilutive effect of participating securities 247,763,126 — 247,763,126 138,852,987 108,915,975 247,768,962 Weighted average common shares outstanding – Diluted 312,844,469 — 312,844,469 209,664,275 108,915,975 318,580,250 EPS – Diluted $ 0.20 $ (0.11) $ 0.09 $ 1.75 $ (0.60) $ 1.15 (1) The dilutive effect of participating securities is presented here merely for reference. The denominator for the calculation of diluted earnings per share under the two-class method is comprised of the weighted average common shares outstanding - basic, and the dilutive effect of unvested RSUs and other contingently issuable shares. The Company's Consolidated Interim Financial Statements for the above periods are not impacted except as disclosed above. The changes to basic and diluted earnings per share also do not affect compliance with the financial covenants contained in the Company’s outstanding debt instruments or compliance with any other agreement of the Company or its subsidiaries. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 128 PART III Item 10. Directors, Executive Officers and Corporate Governance Information with respect to this Item will be set forth in our 2022 Proxy Statement, which will be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2021. For the limited purpose of providing the information necessary to comply with this Item 10, the 2022 Proxy Statement is incorporated herein by this reference. Item 11. Executive Compensation Information with respect to this Item will be set forth in our 2022 Proxy Statement, which will be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2021. For the limited purpose of providing the information necessary to comply with this Item 11, the 2022 Proxy Statement is incorporated herein by this reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information with respect to this Item will be set forth in our 2022 Proxy Statement, which will be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2021. For the limited purpose of providing the information necessary to comply with this Item 12, the 2022 Proxy Statement is incorporated herein by this reference. Item 13. Certain Relationships and Related Transactions, and Director Independence Information with respect to this Item will be set forth in our 2022 Proxy Statement, which will be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2021. For the limited purpose of providing the information necessary to comply with this Item 13, the 2022 Proxy Statement is incorporated herein by this reference. Item 14. Principal Accountant Fees and Services Information with respect to this Item will be set forth in our 2022 Proxy Statement, which will be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2021. For the limited purpose of providing the information necessary to comply with this Item 14, the 2022 Proxy Statement is incorporated herein by this reference. 129 PART IV Item 15. Exhibits and Financial Statement Schedules (a) Documents filed as part of this report: 1. The following financial statements are included in Item 8 “Financial Statements and Supplementary Data” herein. Report of Independent Registered Accounting Firm 67 Consolidated Statements of Operations for the Years Ended December 31, 202 1 , 20 20 and 201 9 . 71 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 202 1 , 20 20 and 201 9 . 72 Consolidated Balance Sheets as of December 31, 202 1 and 20 20 . 73 Consolidated Statements of Cash Flows for the Y ears E nded December 31, 202 1 , 20 20 and 20 19 . 74 Consolidated Statements of Equity (Deficit) for the Y ears E nded December 202 1 , 20 20 and 20 19 . 75 Notes to the Consolidated Financial Statements 76 2. The following financial statement schedule should be considered in conjunction with our consolidated financial statements. All other schedules are omitted because they are not applicable, not required or the required information is shown in the consolidated financial statements or notes thereto. GARRETT MOTION INC. Schedule II-Valuation and Qualifying Accounts For and as of the year ending: Balance at Beginning of Period Additions Charged to Costs and Expenses Deductions Foreign Exchange Translation Adjustment Other Activity Balance at End of Period (Dollars in millions) December 31, 2021 Allowance for expected credit losses $ 13 $ 3 $ ( 11 ) $ — $ — $ 5 Inventory reserves 41 5 ( 15 ) ( 2 ) — 29 Tax valuation allowance 34 5 ( 4 ) ( 3 ) — 32 December 31, 2020 Allowance for expected credit losses (1) $ 4 $ 6 $ ( 3 ) $ 1 $ 5 $ 13 Inventory reserves 25 25 ( 11 ) 2 — 41 Tax valuation allowance 27 13 — ( 6 ) — 34 December 31, 2019 Allowance for expected credit losses $ 3 $ 4 $ ( 3 ) $ — $ — $ 4 Inventory reserves 23 7 ( 5 ) — — 25 Tax valuation allowance 21 7 — ( 1 ) — 27 (1) Other activity relates to the adoption impact of ASU 2016-03, Financial Instruments - Credit Losses . 3. The exhibits to this report are listed below Incorporated by Reference Exhibit Number Description Form File No. Exhibit Filing Date Filed/ Furnished Herewith 2.1 Amended Debtors’ Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated April 26, 2021 8-K 001-38636 2.1 4/27/2021 3.1 Second Amended and Restated Certificate of Incorporation of Garrett Motion Inc., dated April 30, 2021 8-K 001-38636 3.1 4/30/2021 130 3.2 Certificate of Designations of the Company’s Series A Preferred Stock 8-K 001-38636 3.2 4/30/2021 3.3 Certificate of Amendment of Certificate of Designations of Series A Cumulative Convertible Preferred Stock of Garrett Motion Inc., filed with the Delaware Secretary of State on July 21, 2021 8-K 001-38636 3.1 7/21/2021 3.4 Second Amended and Restated Certificate of Designations of the Company’s Series B Preferred Stock 8-K 001-38636 3.1 12/17/2021 3.5 Third Amended and Restated Bylaws of Garrett Motion Inc., as amended 10-Q 001-38636 3.5 10/28/2021 4.1 Description of Capital Stock * 10.10† Offer Letter for Olivier Rabiller, dated May 2, 2018 10-12B 001-38636 10.1 8/23/2018 10.11† Offer Letter for Daniel Deiro, dated June 1, 2018 10-12B 001-38636 10.3 8/23/2018 10.12† Offer Letter for Thierry Mabru, dated June 1, 2018 10-12B 001-38636 10.4 8/23/2018 10.13† Offer Letter for Craig Balis, dated June 1, 2018 10-12B 001-38636 10.5 8/23/2018 10.14† Letter Agreement, dated May 31, 2018, between Honeywell Transportation Systems and Peter Bracke 10-Q 001-38636 10.2 11/8/2019 10.15† Addendum to Employment Contract, dated as of September 3, 2019, between Garrett Motion Sàrl and Peter Bracke 10-Q 001-38636 10.3 11/8/2019 10.16† Addendum to Employment Agreement, dated June 8, 2020, between Garrett Motion Sàrl and Peter Bracke 10-Q 001-38636 10.2 7/30/2020 10.17† Employment Contract, dated May 29, 2020, between Garrett Motion Sàrl, Garrett Motion Inc. and Sean Deason 10-Q 001-38636 10.1 7/30/2020 10.18† Offer Letter for Jérôme Maironi, dated June 1, 2018 10-Q 001-38636 10.1 5/11/2020 10.19† Non-Employee Director Compensation Program 10-K 001-38636 10.20 2/27/2020 10.20† Severance Pay Plan for Designated Executive Employees of Garrett Motion Inc. 10-K 001-38636 10.21 2/27/2020 10.21† Form of Continuity Award Agreement 8-K 001-38636 10.1 6/19/2020 10.22† Employment Contract, dated July 30, 2021, with Joanne Lau 8-K 001-38636 10.1 10/6/2021 10.23 Credit Agreement, dated April 30, 2021, among Garrett Motion Inc., Garrett LX I S.à r.l., Garrett Motion Holdings, Inc., Garrett Motion Sàrl, the lenders and issuing banks party thereto and JPMorgan Chase Bank, N.A., as administrative agent 8-K 001-38636 10.1 4/30/2021 10.24 Series A Investor Rights Agreement, dated as of April 30, 2021, among Garrett Motion Inc. and the investors named therein 8-K 001-38636 10.2 4/30/2021 10.25 Registration Rights Agreement, dated as of April 30, 2021, among Garrett Motion Inc. and the holders party thereto 8-K 001-38636 10.3 4/30/2021 10.26† Garrett Motion Inc. 2021 Long-Term Incentive Plan 8-K 001-38636 10.1 5/28/2021 10.27† Form of Garrett Motion Inc. 2021 Long-Term Incentive Plan Restricted Stock Unit Award Agreement 8-K 001-38636 10.2 5/28/2021 10.28† Form of Garrett Motion Inc. 2021 Long-Term Incentive Plan Restricted Stock Unit Award Agreement 2021 Performance-Based (Stock Price) 8-K 001-38636 10.3 5/28/2021 10.29† Form of Garrett Motion Inc. 2021 Long-Term Incentive Plan Restricted Stock Unit Award Agreement 2021 Performance-Based (EBITDA) 8-K 001-38636 10.4 5/28/2021 131 10.30† Form of Garrett Motion Inc. 2021 Long-Term Incentive Plan Non-Employee Director Restricted Stock Unit Award Agreement 8-K 001-38636 10.5 5/28/2021 10.31* Amendment No. 1, dated January 11, 2022, to the Credit Agreement, dated April 30, 2021, among Garrett Motion Inc., Garrett LX I S.à r.l., Garrett Motion Holdings, Inc., Garrett Motion Sàrl, the lenders and issuing banks party thereto and JPMorgan Chase Bank, N.A., as administrative agent * 10.32† Settlement Agreement between Garrett Motion Sàrl and Peter Bracke, dated as of June 1, 2021. 8-K 001-38636 10.2 6/4/2021 21.1* List of Subsidiaries * 23.1 Consent of Independent Registered Public Accounting Firm * 31.1 Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * 31.2 Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * 32.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ** 32.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ** 99.1 Order of the Bankruptcy Court, dated April 26, 2021, confirming the Amended Debtors’ Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code 8-K 001-38636 2.1 4/27/2021 101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document * 101.SCH Inline XBRL Taxonomy Extension Schema Document * 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document * 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document * 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document * 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document * 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) * teph * Filed herewith ** Furnished herewith † Management contract or compensation plan or arrangement Item 16. Form 10- K Summary None. 132 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Garrett Motion Inc. Date: February 14, 2022 By: /s/ Olivier Rabiller Olivier Rabiller President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Olivier Rabiller President, Chief Executive Officer and Director February 14, 2022 Olivier Rabiller (Principal Executive Officer) /s/ Sean Deason Senior Vice President and Chief Financial Officer February 14, 2022 Sean Deason (Principal Financial Officer) /s/ Joanne Lau Vice President and Corporate Controller (Principal Accounting Officer) February 14, 2022 Joanne Lau /s/ Daniel Ninivaggi Chairman of the Board and Director February 14, 2022 Daniel Ninivaggi /s/ D'aun Norman Director February 14, 2022 D'aun Norman /s/ John Petry Director February 14, 2022 John Petry /s/ Tina Pierce Director February 14, 2022 Tina Pierce /s/ Robert Shanks Director February 14, 2022 Robert Shanks /s/ Steven Silver Director February 14, 2022 Steven Silver /s/ Julia Steyn Director February 14, 2022 Julia Steyn /s/ Steven Tesoriere Director February 14, 2022 Steven Tesoriere 133