Garrett Motion Inc. 10-Q

Item 1. Financial Statements GARRETT MOTION INC. CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (Dollars in millions, except per share amounts) Net sales (Note 3) $ 945 $ 839 $ 2,705 $ 2,771 Cost of goods sold 767 676 2,183 2,219 Gross profit 178 163 522 552 Selling, general and administrative expenses 57 60 164 166 Other expense, net 1 — 2 1 Interest expense 18 25 61 70 Loss on extinguishment of debt — — 5 — Non-operating income ( 29 ) ( 4 ) ( 73 ) ( 4 ) Reorganization items, net (Note 1) — ( 9 ) 2 ( 130 ) Income before taxes 131 91 361 449 Tax expense (Note 5) 26 28 83 82 Net income 105 63 278 367 Less: preferred stock dividend (Note 18) ( 40 ) ( 36 ) ( 117 ) ( 60 ) Net income available for distribution $ 65 $ 27 $ 161 $ 307 Earnings per common share Basic $ 0.21 $ 0.09 $ 0.52 $ 1.46 Diluted $ 0.21 $ 0.09 $ 0.52 $ 1.15 Weighted average common shares outstanding Basic 64,820,887 65,056,274 64,834,298 70,802,999 Diluted 65,250,287 65,081,343 65,118,021 318,580,250 The Notes to the Consolidated Interim Financial Statements are an integral part of this statement. 2 GARRETT MOTION INC. CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (Dollars in millions) Net income $ 105 $ 63 $ 278 $ 367 Foreign exchange translation adjustment 10 ( 6 ) 13 37 Changes in fair value of effective cash flow hedges, net of tax (Note 16) 9 2 26 7 Changes in fair value of net investment hedges, net of tax (Note 16) 45 12 87 27 Total other comprehensive income, net of tax 64 8 126 71 Comprehensive income $ 169 $ 71 $ 404 $ 438 The Notes to the Consolidated Interim Financial Statements are an integral part of this statement. 3 GARRETT MOTION INC. CONSOLIDATED INTERIM BALANCE SHEETS (Unaudited) September 30, 2022 December 31, 2021 (Dollars in millions) ASSETS Current assets: Cash and cash equivalents $ 159 $ 423 Restricted cash 2 41 Accounts, notes and other receivables – net (Note 6) 797 747 Inventories – net (Note 8) 283 244 Other current assets 130 56 Total current assets 1,371 1,511 Investments and long-term receivables 32 28 Property, plant and equipment – net 419 485 Goodwill 193 193 Deferred income taxes 250 289 Other assets (Note 9) 338 200 Total assets $ 2,603 $ 2,706 LIABILITIES Current liabilities: Accounts payable $ 1,001 $ 1,006 Current maturities of long-term debt (Note 13) 7 7 Mandatorily redeemable Series B Preferred Stock (Note 15) — 200 Accrued liabilities (Note 10) 331 295 Total current liabilities 1,339 1,508 Long-term debt (Note 13) 1,108 1,181 Mandatorily redeemable Series B Preferred Stock – long-term (Note 15) — 195 Deferred income taxes 17 21 Other liabilities (Note 11) 241 269 Total liabilities $ 2,705 $ 3,174 COMMITMENTS AND CONTINGENCIES (Note 20) EQUITY (DEFICIT) Series A Preferred Stock, par value $ 0.001 ; 245,390,067 and 245,921,617 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively $ — $ — Common Stock, par value $ 0.001 ; 1,000,000,000 and 1,000,000,000 shares authorized, 64,925,058 and 64,570,950 issued and 64,818,324 and 64,570,950 outstanding as of September 30, 2022 and December 31, 2021, respectively — — Additional paid–in capital 1,331 1,326 Retained deficit ( 1,555 ) ( 1,790 ) Accumulated other comprehensive income (loss) (Note 17) 122 ( 4 ) Total deficit ( 102 ) ( 468 ) Total liabilities and deficit $ 2,603 $ 2,706 The Notes to the Consolidated Interim Financial Statements are an integral part of this statement. 4 GARRETT MOTION INC. CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, (Dollars in millions) 2022 2021 Cash flows from operating activities: Net income $ 278 $ 367 Adjustments to reconcile net income to net cash provided by (used for) operating activities Reorganization items, net — ( 423 ) Deferred income taxes 16 10 Depreciation 64 70 Amortization of deferred issuance costs 6 5 Interest payments, net of debt discount accretion ( 19 ) 18 Loss on extinguishment of debt 5 — Foreign exchange loss 4 7 Stock compensation expense 8 5 Pension expense — ( 1 ) Change in fair value of derivatives ( 54 ) — Other 2 ( 3 ) Changes in assets and liabilities: Accounts, notes and other receivables ( 166 ) 48 Inventories ( 80 ) ( 59 ) Other assets 13 40 Accounts payable 180 ( 161 ) Accrued liabilities ( 2 ) ( 19 ) Obligations payable to Honeywell — ( 375 ) Other liabilities ( 17 ) 25 Net cash provided by (used for) operating activities $ 238 $ ( 446 ) Cash flows from investing activities: Expenditures for property, plant and equipment ( 78 ) ( 74 ) Other — 1 Net cash used for investing activities $ ( 78 ) $ ( 73 ) 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 Payments of long-term debt ( 5 ) ( 1,513 ) Payments of revolving credit facility — ( 370 ) Payments of debtor-in-possession financing — ( 200 ) Redemption of Series B Preferred stock ( 381 ) — Payments for Cash-Out election — ( 69 ) Payments for share repurchases ( 4 ) — Payments for dividends ( 42 ) — Debt financing costs ( 4 ) ( 8 ) Net cash (used for) provided by financing activities $ ( 436 ) $ 362 Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash ( 27 ) ( 2 ) Net decrease in cash, cash equivalents and restricted cash ( 303 ) ( 159 ) Cash, cash equivalents and restricted cash at beginning of the period 464 693 Cash, cash equivalents and restricted cash at end of the period $ 161 $ 534 Supplemental cash flow disclosure: Income taxes paid (net of refunds) $ 38 $ 47 Interest paid 56 42 Reorganization items paid 4 342 Supplemental disclosure of non-cash investing and financing activities: Issuance of Series B Preferred Stock — 577 The Notes to the Consolidated Interim Financial Statements are an integral part of this statement 5 GARRETT MOTION INC. CONSOLIDATED INTERIM STATEMENTS OF EQUITY (DEFICIT) (Unaudited) Series A Preferred Stock Common Stock Additional Paid-in Capital Retained Deficit Accumulated Other Comprehensive (Loss)/Income Total Deficit Shares Amount Shares Amount (in millions) Balance at December 31, 2020 — $ — 76 $ — $ 28 $ ( 2,207 ) $ ( 129 ) $ ( 2,308 ) Net loss — — — — — ( 105 ) — ( 105 ) Other comprehensive income, net of tax — — — — — — 111 111 Stock-based compensation — — — — 2 — — 2 Balance at March 31, 2021 — — 76 — $ 30 $ ( 2,312 ) $ ( 18 ) $ ( 2,300 ) Net income — — — — — 409 — 409 Cash-out election — — ( 11 ) — — ( 69 ) — ( 69 ) Issuance of Series A Preferred Stock 248 — — — 1,301 — — 1,301 Other comprehensive loss, net of tax — — — — — — ( 48 ) ( 48 ) Stock-based compensation — — — — 1 — — 1 Balance at June 30, 2021 248 $ — 65 $ — $ 1,332 $ ( 1,972 ) $ ( 66 ) $ ( 706 ) Net income — — — — — 63 — 63 Other comprehensive income, net of tax — — — — — — 8 8 Stock-based compensation — — — — 2 — — 2 Balance at September 30, 2021 248 $ — 65 $ — $ 1,334 $ ( 1,909 ) $ ( 58 ) $ ( 633 ) Series A Preferred Stock Common Stock Additional Paid-in Capital Retained Deficit Accumulated Other Comprehensive (Loss)/Income Total Deficit Shares Amount Shares Amount (in millions) Balance at December 31, 2021 246 $ — 64 $ — $ 1,326 $ ( 1,790 ) $ ( 4 ) $ ( 468 ) Net income — — — — — 88 — 88 Share repurchases — — — — ( 1 ) ( 1 ) — ( 2 ) Other comprehensive income, net of tax — — — — — — 23 23 Stock-based compensation — — — — 2 — — 2 Balance at March 31, 2022 246 — 64 — $ 1,327 $ ( 1,703 ) $ 19 $ ( 357 ) Net income — — — — — — — — — 85 — 85 Share repurchases — — — — ( 1 ) — — ( 1 ) Other comprehensive income, net of tax — — — — — — 39 39 Stock-based compensation — — — — 3 — — 3 Balance at June 30, 2022 246 $ — 64 $ — $ 1,329 $ ( 1,618 ) $ 58 $ ( 231 ) Net income — — — — — 105 — 105 Share repurchases — — — — ( 1 ) — — ( 1 ) Other comprehensive income, net of tax — — — — — — 64 64 Dividends declared — — — — — ( 42 ) — ( 42 ) Stock-based compensation — — — — 3 — — 3 Balance at September 30, 2022 246 $ — 64 $ — $ 1,331 $ ( 1,555 ) $ 122 $ ( 102 ) The Notes to the Consolidated Interim Financial Statements are an integral part of this statement. 6 GARRETT MOTION INC. NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Unaudited) (Dollars in millions, except per share amounts) 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 unaudited Consolidated Interim Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission applicable to interim financial statements. While these statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by United States generally accepted accounting principles (“GAAP”) for complete financial statements. The unaudited Consolidated Interim Financial Statements should therefore be read in conjunction with the Consolidated Financial Statements and accompanying notes for the year ended December 31, 2021 included in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on February 14, 2022 (our “2021 Form 10-K”). The results of operations for the three and nine months ended September 30, 2022 and cash flows for the nine months ended September 30, 2022 should not necessarily be taken as indicative of the entire year. All amounts presented are in millions, except per share amounts. We report our quarterly financial information using a calendar convention: the first, second and third quarters are consistently reported as ending on March 31, June 30 and September 30. It has been our practice to establish actual quarterly closing dates using a predetermined fiscal calendar, which requires our businesses to close their books on a Saturday to minimize the potentially disruptive effects of quarterly closing on our business processes. For differences in actual closing dates that are material to year-over-year comparisons of quarterly or year-to-date results have been adjusted for the three months ended September 30, 2022. Our actual closing dates for the three months ended September 30, 2022 and 2021 were October 1, 2022 and October 2, 2021 , respectively. We evaluate segment reporting in accordance with ASC 280, Segment Reporting . We concluded that Garrett operates in a single operating segment and a single reportable segment based on the operating results available and evaluated regularly by the chief operating decision maker (“CODM”), which is our Chief Executive Officer, to make decisions about resource allocation and performance assessment. The CODM makes operational performance assessments and resource allocation decisions on a consolidated basis, inclusive of all of the Company’s products across channels and geographies. 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 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. Voluntary Filing Under Chapter 11 On September 20, 2020 (the “Petition Date”), the Company and certain of its subsidiaries (collectively, the “Debtors”) each filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). The Debtors’ chapter 11 cases (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 Revised Amended Plan of Reorganization (the “Plan”). On April 26, 2021, the Bankruptcy Court entered an order among other things, confirming the Plan. On April 30, 2021 (the “Effective Date”), the conditions to the effectiveness of the Plan were satisfied or waived and the Company emerged from bankruptcy (“Emergence”). 7 Emergence from Chapter 11 Upon Emergence or shortly thereafter, amounts recorded as liabilities subject to compromise were either settled, or such amounts have been reinstated to current or non-current liabilities in the Consolidated Interim Balance Sheet, based upon management’s judgment as to the timing for settlement of such claims. 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 three and nine months ended September 30, 2022 and 2021, respectively: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (Dollars in millions) Gain on settlement of Honeywell claims (1) $ — $ — $ — $ ( 502 ) Advisor fees — ( 8 ) — 172 Bid termination and expense reimbursement — — — 79 Director’s and officers insurance — — — 39 Expenses related to Senior Notes (2) — — — 28 Write off pre-petition debt issuance cost — — — 25 Employee stock cash out — — — 13 Debtor in Possession ("DIP") financing fees — — — 1 Other — ( 1 ) 2 15 Total reorganization items, net $ — $ ( 9 ) $ 2 $ ( 130 ) (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 a complaint in the Bankruptcy Court against the trustee of the indenture governing the Company's previously-issued 5.125 % senior notes due 2026, and $ 13 million related to post-petition interest thereon. The obligations of the Debtors under the indenture were canceled at Emergence. Note 2. Summary of Significant Accounting Policies The accounting policies of the Company are set forth in Note 3 to the Consolidated Financial Statements for the year ended December 31, 2021 included in our 2021 Form 10-K. Recently Adopted Accounting Pronouncements In November 2021, the Financial Accounting Standards Board (“FASB”) issued accounting standards update ("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. The Company adopted the new guidance as of January 1, 2022. The adoption did not have a material impact on our Consolidated Interim Financial Statements; however, the Company expects to increase its disclosures with respect to government assistance beginning with our Annual Report on Form 10-K for the year ended December 31, 2022. Recently Issued Accounting Pronouncements In September 2022, the FASB issued ASU 2022-04, Disclosure of Supplier Finance Program Obligations (Topic 405-50): Disclosure of Supplier Finance Purchase Obligations. The amendment in this update requires companies to disclose key terms of supplier financing programs used in connection with the purchase of goods and services, along with information about their obligations under these programs including a rollforward of those obligations. The guidance is effective for fiscal years beginning after December 15, 2022 on a retrospective basis, including interim periods within those fiscal years, except for the requirement to disclose rollforward information, which is effective on a prospective basis for 8 fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the guidance to determine the impact on its disclosures. Note 3. Revenue Recognition and Contracts with Customers Disaggregated Revenue Net sales by region (determined based on country of shipment) and channel are as follows: Three Months Ended September 30, 2022 Three Months Ended September 30, 2021 OEM Aftermarket Other Total OEM Aftermarket Other Total (Dollars in millions) United States $ 134 $ 54 $ 1 $ 189 $ 92 $ 49 $ 2 $ 143 Europe 381 41 6 428 348 40 5 393 Asia 288 14 6 308 271 12 6 289 Other 14 6 — 20 8 6 — 14 $ 817 $ 115 $ 13 $ 945 $ 719 $ 107 $ 13 $ 839 Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 OEM Aftermarket Other Total OEM Aftermarket Other Total (Dollars in millions) United States $ 354 $ 159 $ 2 $ 515 $ 290 $ 129 $ 4 $ 423 Europe 1,181 117 21 1,319 1,263 117 21 1,401 Asia 765 34 18 817 853 36 20 909 Other 36 18 — 54 20 18 — 38 $ 2,336 $ 328 $ 41 $ 2,705 $ 2,426 $ 300 $ 45 $ 2,771 Contract Balances The following table summarizes our contract assets and liabilities balances: 2022 2021 (Dollars in millions) Contract assets—January 1 $ 63 $ 61 Contract assets—September 30 51 56 Change in contract assets—(Decrease)/Increase $ ( 12 ) $ ( 5 ) Contract liabilities—January 1 $ ( 5 ) $ ( 2 ) Contract liabilities—September 30 ( 9 ) ( 4 ) Change in contract liabilities—(Increase)/Decrease $ ( 4 ) $ ( 2 ) Note 4. Research, Development & Engineering Garrett conducts research, development and engineering (“RD&E”) activities, which consist primarily of the development of new products and product applications. RD&E costs are charged to expense as incurred unless the Company has a contractual guarantee for reimbursement from the customer. Customer reimbursements are netted against gross RD&E expenditures as they are considered a recovery of cost. Such costs are included in Cost of goods sold as follows: 9 Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (Dollars in millions) Research and development costs $ 38 $ 33 $ 112 $ 99 Engineering-related expenses 4 5 13 16 $ 42 $ 38 $ 125 $ 115 Note 5. Income Taxes Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (Dollars in millions) Tax expense $ 26 $ 28 $ 83 $ 82 Effective tax rate 19.8 % 30.8 % 23.0 % 18.3 % The effective tax rate for the three months ended September 30, 2022 is lower than the effective tax rate for the three months ended September 30, 2021 primarily related to lower nondeductible expenses in addition to a decrease in withholding taxes on undistributed earnings. The effective tax rate for the nine months ended September 30, 2022 is higher than the effective rate for the nine months ended September 30, 2021 primarily related to the nontaxable gain recognized in 2021 on the settlement of the Honeywell claims partially offset by nondeductible expenses recorded in the prior period and a decrease in withholding taxes on undistributed earnings. The effective tax rate for the three months ended September 30, 2022 was lower than the U.S. federal statutory rate of 21% primarily due to a decrease in the withholding taxes on undistributed earnings. The effective tax rate for the nine months ended September 30, 2022 is higher than the U.S. federal statutory rate of 21% primarily due to tax reserves, partially offset by lower taxes on non-U.S. earnings and the previously mentioned decrease in withholding taxes on undistributed earnings. The effective tax rate can vary from quarter to quarter due to changes in the Company’s global mix of earnings, the resolution of income tax audits, changes in tax laws (including updated guidance on U.S. tax reform), deductions related to employee share-based payments, internal restructurings, and pension mark-to-market adjustments. Note 6. Accounts, Notes and Other Receivables—Net September 30, 2022 December 31, 2021 (Dollars in millions) Trade receivables $ 645 $ 553 Notes receivable 85 121 Other receivables 75 78 805 752 Less—Allowance for expected credit losses ( 8 ) ( 5 ) $ 797 $ 747 Trade receivables include $ 51 million and $ 63 million of unbilled customer contract asset balances as of September 30, 2022 and December 31, 2021, respectively. These amounts are billed in accordance with the terms of customer contracts to which they relate. See Note 3 , Revenue Recognition and Contracts with Customers . 10 Notes receivable is related to guaranteed bank notes without recourse that the Company receives in settlement of accounts receivables, primarily in the Asia Pacific region. See Note 7, Factoring and Notes Receivable for further information. Note 7. Factoring and Notes Receivable The Company enters into arrangements with financial institutions to sell eligible trade receivables. The receivables are sold without recourse and the Company accounts for these arrangements as true sales. The Company also receives guaranteed bank notes 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. Bank notes sold to third-party financial institutions without recourse are likewise accounted for as true sales. Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (Dollars in millions) Eligible receivables sold without recourse $ 112 $ 104 $ 481 $ 437 Guaranteed bank notes sold without recourse 35 — 102 — The expenses related to the sale of trade receivables and guaranteed bank notes are recognized within Other expense, net in the consolidated interim statements of operations, and were immaterial for the three and nine months ended September 30, 2022. September 30, 2022 December 31, 2021 (Dollars in millions) Receivables sold but not yet collected by the bank from the customer $ 12 $ 26 Guaranteed bank notes sold but not yet collected by the bank from the customer 1 — As of September 30, 2022 the Company has no guaranteed bank notes pledged as collateral and at December 31, 2021, the Company has pledged as collateral $ 5 million of guaranteed bank notes, which have not been sold in order to be able to issue bank notes as payment to certain suppliers. Such pledged amounts are included as Notes receivable in our Consolidated Interim Balance Sheet. Note 8. Inventories—Net September 30, 2022 December 31, 2021 (Dollars in millions) Raw materials $ 203 $ 162 Work in process 19 19 Finished products 90 92 312 273 Less—Reserves ( 29 ) ( 29 ) $ 283 $ 244 11 Note 9. Other Assets September 30, 2022 December 31, 2021 (Dollars in millions) Advanced discounts to customers, non-current $ 50 $ 61 Operating right-of-use assets (Note 12) 43 51 Income tax receivable 27 27 Pension and other employee related 15 15 Designated cross-currency swaps 131 30 Designated and undesignated derivatives 64 7 Other 8 9 $ 338 $ 200 Note 10. Accrued Liabilities September 30, 2022 December 31, 2021 (Dollars in millions) Customer pricing reserve $ 61 $ 72 Compensation, benefit and other employee related 67 76 Repositioning 9 10 Product warranties and performance guarantees - short-term (Note 20) 19 21 Income and other taxes 42 25 Advanced discounts from suppliers, current 9 14 Customer advances and deferred income (1) 28 23 Accrued interest 10 8 Short-term lease liability (Note 12) 9 9 Accrued freight 9 11 Dividends payable (Note 14) 42 — Other (primarily operating expenses) (2) 26 26 $ 331 $ 295 (1) Customer advances and deferred income include $ 9 million and $ 5 million of contract liabilities as of September 30, 2022 and December 31, 2021, respectively. See Note 3, Revenue Recognition and Contracts with Customers . (2) Includes $ 4 million and $ 3 million of environmental liabilities as of September 30, 2022 and December 31, 2021, respectively. The Company accrues repositioning costs related to projects to optimize its product costs and right-size our organizational structure. Expenses related to the repositioning accruals are included in Cost of goods sold and Selling, general and administrative expenses in our Consolidated Interim Statements of Operations. Severance Costs Exit Costs Total (Dollars in millions) Balance at December 31, 2021 $ 10 $ — $ 10 Charges 4 — 4 Usage—cash ( 5 ) — ( 5 ) Balance at September 30, 2022 $ 9 $ — $ 9 12 Severance Costs Exit Costs Total (Dollars in millions) Balance at December 31, 2020 $ 7 $ — $ 7 Charges 14 — 14 Usage—cash ( 7 ) — ( 7 ) Balance at September 30, 2021 $ 14 $ — $ 14 Note 11. Other Liabilities September 30, 2022 December 31, 2021 (Dollars in millions) Income taxes $ 107 $ 106 Pension and other employee related 48 61 L ong-term lease liability (Note 12) 36 42 Advanced discounts from suppliers 8 16 Product warranties and performance guarantees – long-term (Note 20) 10 11 Environmental remediation – long term 13 15 Other 19 18 $ 241 $ 269 Note 12. Leases We have operating leases that primarily consist of real estate, machinery and equipment. Our leases have remaining lease terms of up to 15 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. 13 The components of lease expense are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (Dollars in millions) Operating lease cost $ 4 $ 4 $ 12 $ 12 Supplemental cash flow information related to operating leases is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (Dollars in millions) Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 3 $ 3 $ 9 $ 9 Right-of-use assets obtained in exchange for lease obligations: Operating leases 2 18 4 23 Supplemental balance sheet information related to operating leases is as follows: September 30, 2022 December 31, 2021 (Dollars in millions) Other assets $ 43 $ 51 Accrued liabilities 9 9 Other liabilities 36 42 September 30, 2022 December 31, 2021 Weighted-average remaining lease term (in years) 8.43 8.88 Weighted-average discount rate 5.61 % 5.65 % Maturities of operating lease liabilities as of September 30, 2022 were as follows: (Dollars in millions) 2022 $ 3 2023 10 2024 8 2025 7 2026 5 Thereafter 22 Total lease payments 55 Less imputed interest ( 11 ) $ 44 14 Note 13. Long-term Debt and Credit Agreements The principal outstanding and carrying amounts of our long-term debt as of September 30, 2022 are as follows: Due Interest Rate September 30, 2022 Dollar Facility 4/30/2028 LIBOR plus 325 bps $ 708 Euro Facility 4/30/2028 EURIBOR plus 350 bps 438 Total principal outstanding 1,146 Less: unamortized deferred financing costs ( 31 ) Less: current portion of long-term debt ( 7 ) Total long-term debt $ 1,108 Credit Facilities On the Effective Date, in accordance with the Plan, the Company entered into a credit agreement (as amended from time to time, the "Credit Agreement") providing for senior secured financing, consisting of a seven-year secured first-lien U.S. Dollar term loan facility initially in the amount of $ 715 million (the “Dollar Term Facility”), a seven-year secured first-lien Euro term loan facility initially in the amount of € 450 million (the “Euro Term Facility,” and together with the Dollar Facility, the “Term Loan Facilities”); and a five-year senior secured first-lien revolving credit facility initially 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”) . On January 11, 2022 and March 22, 2022, the Company amended the Credit Agreement, increasing the maximum amount of borrowings available under the Revolving Facility from $ 300 million to approximately $ 475 million. The maturity date of the Revolving Facility remains unchanged at April 30, 2026, with certain extension rights at the discretion of each lender. Under the first amendment, London Inter-bank Offered Rate ("LIBOR") was replaced as an available rate at which borrowings under the Revolving Facility could accrue with, for loans borrowed in U.S. Dollars, the daily overnight secured financing rate (“SOFR”) published by the Federal Reserve Bank of New York and for loans borrowed in Australian Dollars, the average bid reference rate administered by ASX Benchmarks Pty Limited. The Term Loan Facilities under the Credit Agreement continue to be able to accrue interest under the LIBOR, but will switch to an alternative benchmark rate upon the cessation of LIBOR after June 30, 2023. The Euro Facilities under the Credit Agreement continue to accrue interest under the Euro Interbank Offered Rate (“EURIBOR”). The second amendment also removed the requirement that payments made in cash for the benefit of holders of shares of the Company's Series A Preferred Stock, par value $ 0.001 per share (the "Series A Preferred Stock") on or before December 31, 2022 be made on a ratable basis to the holders of the Common Stock, and made additional clarifying amendments to certain provisions. The amendments to our Credit Agreement as described above were accounted under ASC 470-50, Debt Modifications and Extinguishments as a debt modification that did not result in an extinguishment or have a material impact on our Consolidated Interim Financial Statements. Under the Revolving Facility, the Company may use up to $ 125 million 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 reduce availability under the Revolving Facility. As of September 30, 2022 the Company had no loans outstanding under the Revolving Facility, no outstanding letters of credit, and available borrowing capacity of approximately $ 475 million. Separate from the Revolving Facility, the Company has a bilateral letter of credit facility, which also matures on April 30, 2026. On September 14, 2022, the Company amended the bilateral letter of credit agreement to reduce the available capacity from $ 35 million to $ 15 million. The maturity date and other terms of the amended agreement remained the same. As of September 30, 2022, the Company had $ 12 million utilized and $ 3 million of remaining available capacity under such facility. Interest Rate and Fees The Dollar Term 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 LIBOR rate (“LIBOR”) (which shall not be less than 0.50 %), in 15 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 Term Facility is subject to an interest rate equal to an adjusted EURIBOR rate (which shall not be less than zero ) plus an applicable margin equal to 3.50 %. Interest payments with respect to the Dollar and Euro Term 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 . The Revolving Facility is subject to an interest rate comprised of an applicable benchmark rate as provided under the Credit Agreement (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, that may vary based on our leverage ratio. In addition to paying interest on outstanding borrowings under the Revolving Facility, we are also required to pay a quarterly commitment fee based on the average daily unused portion of the Revolving Facility during such quarter, which is determined by our leverage ratio and ranges from 0.25 % to 0.50 % per annum. Prepayments 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, have excess cash flow (calculated on an annual basis with the required prepayment equal to 50 %, 25 % or 0 % of such excess cash flow, subject to compliance with certain leverage ratios), in each case subject to terms and conditions customary for financings of this kind. Certain Covenants The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type. The Revolving Facility also contains a financial covenant requiring the maintenance of a consolidated total leverage ratio of not greater than 4.7 times 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 in effect thereunder on such date. As of September 30, 2022, the Company was in compliance with all covenants. The Credit Agreement also contained certain restrictions on 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) was made to holders of our common equity and such payments would otherwise be permitted under the terms of the Credit Agreement. These restrictions were removed as part of the credit amendments noted above. The Company's ability to pay cash dividends on shares of Common Stock is also subject to conditions set forth in the Certificate of Designations for the Series A Cumulative Convertible Preferred Stock (the "Series A Certificate of Designations") as described in Note 21, Equity , of the Consolidated Financial Statements and accompanying notes for the year ended December 31, 2021 included in our 2021 Form 10-K. On March 3, 2022, the terms of the Series A Certificate of Designations were further amended to (i) expand the scope of permitted Distributions on Dividend Junior Stock (each as defined in the Series A Certificate of Designations) to include purchases by the Company of shares of Dividend Junior Stock in individually negotiated transactions, (ii) remove the requirement that dividends or Distributions on Dividend Junior Stock must occur on or prior to December 31, 2022, and (iii) expressly permit the purchase, redemption or other acquisition for cash by the Company of shares of Dividend Junior Stock without requiring ratable participation by holders of Series A Preferred Stock. Note 14. Series A Preferred Stock On September 8, 2022, the Disinterested Directors Committee of the board of directors (the "Board") of the Company declared a cash divide nd of $ 0.17 per share on the Company's Series A Preferred Stock. As of the record date of September 23, 2022, a total of 245,413,317 shares of Series A Preferred Stock were outstanding, resulting in an aggregate dividend amount of $ 42 million. Cash was transferred on Septe mber 28, 2022, to the transfer agent for the Series A Preferred Stock in the amount of $ 42 million for the settlement of the dividend which occurred on October 3, 2022. As of September 30, 16 2022, a dividend payable of $ 42 million was recorded within Accrued liabilities, and the cash held by the transfer agent was recorded within Other Current Assets. As of September 30, 2022, the remaining unpaid cumulative dividends not yet declared on the shares of Series A Preferred Stock outstanding as of that date was $ 172 million. Note 15. Mandatorily Redeemable Series B Preferred Stock On June 28, 2022, the Company completed the early redemption of its remaining outstanding Series B Preferred Stock. Under this final early redemption, the Company redeemed 271,628,259 shares of its Series B Preferred Stock for an aggregate price of $ 212 million. The Company recognized a loss on extinguishment of debt of $ 5 million within the Condensed Interim Statement of Operations related to the early redemption. Note 16. Financial Instruments and Fair Value Measures Our credit, market and foreign currency risk management policies are described in Note 19, Financial Instruments and Fair Value Measures , to the Consolidated Financial Statements for the year ended December 31, 2021 included in our 2021 Form 10-K. As of September 30, 2022 and December 31, 2021, we had contracts with aggregate gross notional amounts of $ 2,451 million and $ 2,788 million, respectively, to hedge interest rates and 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. 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 September 30, 2022 and December 31, 2021: Fair Value Notional Amounts Assets Liabilities September 30, 2022 December 31, 2021 September 30, 2022 December 31, 2021 September 30, 2022 December 31, 2021 Designated instruments: Designated forward currency exchange contracts $ 501 $ 382 $ 41 $ 9 (a) $ 4 $ 1 (c) Designated cross-currency swap 715 715 131 30 (b) — — Total designated instruments 1,216 1,097 172 39 4 1 Undesignated instruments: Undesignated interest rate swap 809 940 64 7 (b) — — Undesignated forward currency exchange contracts 426 751 5 2 (a) 6 4 (c) Total undesignated instruments 1,235 1,691 69 9 6 4 Total designated and undesignated instruments $ 2,451 $ 2,788 $ 241 $ 48 $ 10 $ 5 (a) Recorded within Other current assets (b) Recorded within Other assets (c) Recorded within Accrued liabilities As of September 30, 2022, the Company had outstanding interest rate swaps with an aggregate notional amount of € 830 million, with 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. 17 The cross-currency swaps have been designated as net investment hedges of its Euro-denominated operations. As of September 30, 2022, 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 $ 131 million at September 30, 2022. Our Consolidated Interim Statements of Comprehensive Income include Changes in fair value of net investment hedges, net of tax, of $ 45 million and $ 87 million, during the three and nine months ended September 30, 2022, respectively, related to these net investment hedges. No ineffectiveness has been recorded on the net investment hedges. The Company's forward currency exchange contracts under our cash flow hedging program 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 the 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 Interim Balance Sheet approximates fair value. The following table sets forth the Company’s financial assets and liabilities that were not carried at fair value: September 30, 2022 December 31, 2021 Carrying Value Fair Value Carrying Value Fair Value (Dollars in millions) Term Loan Facilities $ 1,115 $ 1,071 $ 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 17. Accumulated Other Comprehensive Income (Loss) The changes in Accumulated Other Comprehensive Income (Loss) by component are set forth below: 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, 2020 $ ( 81 ) $ ( 3 ) $ — $ ( 45 ) $ ( 129 ) Other comprehensive income before reclassifications 37 5 27 — 69 Amounts reclassified from accumulated other comprehensive income — 2 — — 2 Net current period other comprehensive income 37 7 27 — 71 Balance at September 30, 2021 $ ( 44 ) $ 4 $ 27 $ ( 45 ) $ ( 58 ) 18 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, 2021 $ ( 43 ) $ 7 $ 41 $ ( 9 ) $ ( 4 ) Other comprehensive income before reclassifications 13 43 87 — 143 Amounts reclassified from accumulated other comprehensive income — ( 17 ) — — ( 17 ) Net current period other comprehensive income 13 26 87 — 126 Balance at September 30, 2022 $ ( 30 ) $ 33 $ 128 $ ( 9 ) $ 122 Note 18. Earnings Per Share Earnings per share ("EPS") 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 three and nine months ended September 30, 2022 and 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. As previously disclosed in our 2021 Form 10-K, the basic and diluted earnings per share for the three and nine months ended September 30, 2021 have been restated in the table below as compared to the previously filed Quarterly Report on Form 10-Q for the corresponding period to correct for the calculation using the two-class and if-converted methods. 19 The details of the EPS calculations for the three and nine months ended September 30, 2022 and 2021 are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (Dollars in millions except per share) Basic earnings per share: Net income $ 105 $ 63 $ 278 $ 367 Less: preferred stock dividend ( 40 ) ( 36 ) ( 117 ) ( 60 ) Net income available for distribution 65 27 161 307 Less: earnings allocated to participating securities ( 51 ) ( 21 ) ( 127 ) ( 203 ) Net income available to common shareholders $ 14 $ 6 $ 34 $ 104 Weighted average common shares outstanding- Basic 64,820,887 65,056,274 64,834,298 70,802,999 EPS – Basic $ 0.21 $ 0.09 $ 0.52 $ 1.46 Diluted earnings per share: Method used: Two-class Two-class Two-class If-converted Weighted average common shares outstanding - Basic 64,820,887 65,056,274 64,834,298 70,802,999 Dilutive effect of unvested RSUs and other contingently issuable shares 429,400 25,069 283,723 8,289 Dilutive effect of participating securities — — — 247,768,962 Weighted average common shares outstanding – Diluted 65,250,287 65,081,343 65,118,021 318,580,250 EPS – Diluted $ 0.21 $ 0.09 $ 0.52 $ 1.15 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. There were no options outstanding as of or during the three and nine months ended September 30, 2022 or during the three months ended September 30, 2021. For the nine months ended September 30, 2021, the weighted average number of stock options excluded from the computations was 175,497 . Note 19. Related Party Transactions We lease certain facilities and receive property maintenance services from Honeywell, which was the owner of our Series B Preferred Stock that was fully redeemed by the Company on June 28, 2022, is a holder of our common stock and Series A Preferred Stock and has a director on our board of directors (the “Board”). We also contract with Honeywell for the occasional purchase of certain goods and services. Lease and service agreements were made at commercial terms prevalent in the market at the time they were executed. Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (Dollars in millions) Payments under agreements with Honeywell $ 2 $ 2 $ 6 $ 6 Our payments under the agreements with Honeywell were included in Cost of goods sold and Selling, general and administrative expenses in our Consolidated Interim Statements of Operations. Related to the agreements with Honeywell, our Consolidated Interim Balance Sheet at September 30, 2022 and our Consolidated Balance Sheet at December 31, 2021 includes liabilities of $ 9 million and $ 15 million, respectively. Liability balances are primarily related to lease contracts of $ 6 million and $ 12 million as of September 30, 2022 and December 31, 2021, respectively. 20 Note 20. Commitments and Contingencies Chapter 11 Cases 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. Refer to Note 1, Background and Basis of Presentation , for additional information. 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 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. The actions were assigned to Judge John P. Cronan. 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. 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 21 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. On March 31, 2022, the judge dismissed the complaints entirely - Su Ping Lu's motion to dismiss was granted with prejudice while the court granted the plaintiffs 30 days to file a third amended complaint against the Company and the other defendants. On May 2, 2022, the plaintiffs filed a Third Amended Complaint (“TAC”) against all of the foregoing Defendants apart from Alessandro Gili and Su Ping Lu. On June 24, 2022, defendants moved to dismiss the TAC in its entirety, with prejudice. Plaintiffs filed their opposition on August 16, 2022, and defendants filed their reply brief on September 23, 2022. On September 22, 2022, the action was reassigned from Judge John P. Cronan to Judge Jennifer L. Rochon, who was recently appointed. Brazilian Tax Matter 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 September 30, 2022 was $ 31 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 $ 31 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. In August 2021, the $ 31 million claim was however suspended until Garrett Motion Brazil receives a final judicial decision. 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. 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. Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (Dollars in millions) Warranty and product performance guarantees at beginning of period $ 30 $ 32 $ 32 $ 14 Accruals for warranties/guarantees issued during the year 3 5 10 16 Settlement of warranty/guarantee claims ( 2 ) ( 5 ) ( 10 ) ( 14 ) Amounts reclassified from Liabilities subject to compromise — — — 16 Foreign currency translation ( 2 ) — ( 3 ) — Warranty and product performance guarantees at end of period $ 29 $ 32 $ 29 $ 32 Other Commitments and Contingencies 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 occurring 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. 22 Note 21. Pension Benefits We sponsor several funded U.S. and non-U.S. defined benefit pension plans. Significant plans outside the U.S. are in Switzerland and Ireland. Other pension plans outside the U.S. are not material to the Company, either individually or in the aggregate. 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 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 in 2022, of which $ 5 million has been contributed as of September 30, 2022. Net periodic benefit costs for our significant defined benefit plans include the following components: Three Months Ended September 30, Nine Months Ended September 30, U.S. Plans Non-U.S. Plan U.S. Plans Non-U.S. Plan 2022 2021 2022 2021 2022 2021 2022 2021 (Dollars in millions) Service cost $ — $ — $ 2 $ 3 $ 1 $ 1 $ 5 $ 8 Interest cost 1 1 — — 4 3 1 1 Expected return on plan assets ( 2 ) ( 3 ) ( 2 ) ( 2 ) ( 6 ) ( 8 ) ( 5 ) ( 5 ) Amortization of prior service (credit) — — — — — — — ( 1 ) $ ( 1 ) $ ( 2 ) $ — $ 1 $ ( 1 ) $ ( 4 ) $ 1 $ 3 For both our U.S. and non-U.S. defined benefit pension plans, we estimate the service and interest cost components of net periodic 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. 23