What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-02-14 compared with 2022-02-14 · 170 added, 297 removed, 174 unchanged (73% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations, which we refer to as our “MD&A,” should be read in conjunction with our Consolidated Financial Statements and related notes thereto and other financial information appearing elsewhere in this Annual Report on Form 10-K.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties.

As a result of many important factors, including those set forth in the "Risk Factors" section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in, or implied, by these forward-looking statements.

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

for the years ended December 31, 2021 , 2020 and 2019 .

Unless the context otherwise requires, references to “Garrett,” “we,” “us,” “our,” and “the Company” refer to Garrett Motion Inc.

and its subsidiaries.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties.

As a result of many important factors, including those set forth in the "Risk Factors" section of this Annual Report, our actual results could differ materially from the results described in, or implied, by these forward-looking statements.

Overview and Business Trends

2 unchanged sentences

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

Additionally, we are currently in the development stage of turbochargers for internal combustion engines using hydrogen as fuel and other highly engineered components for zero emission vehicles.

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

The turbocharger industry is expected to increase from approximately 44 million units in 2021 to approximately 55 million units by 2026, according to IHS for light vehicle and KGP and PSR for commercial vehicle on-highway and off-highway.

The turbocharger industry growth is mainly driven by an expected increase in the penetration of hybrid vehicles, from 10 million hybrid cars globally in 2021 to an anticipated 31 million hybrid cars globally in 2026.

In 2021, a significant increase in BEV sales has been observed in Europe and China, with BEV representing, respectively 6% and 11% of vehicles sold.

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

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

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

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

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

The turbocharger industry is expected to increase from approximately 46 million units in 2022 to approximately 48 million units by 2024, then gradually plateau and drop to approximately 41 million units by 2028, according to S&P for light vehicles and KGP and PSR for on-highway and off-highway commercial vehicles.

The turbocharger industry growth in the short and medium term is mainly driven by an expected increase in the penetration of hybrid vehicles, from approximately 13 million hybrid cars globally in 2022 to an anticipated 29 million hybrid cars globally in 2026.

In 2022, a significant increase in BEV production has been observed in Europe and China, with BEV representing, respectively 8% and 18% of light vehicles produced.

In the long-te rm, the pr oposal in the European Union ("E.U.") for all new cars to be zero-emission at tail pipe by 2035, as well as local regulations, could drive a further increase of BEV penetration in Europe beyond currently forecasted levels.

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

The President of the United States signed an executive order with the goal of making half of all new vehicles sold in 2030 zero-emissions vehicles, including battery electric, plug-in hybrid electric, or fuel cell electric vehicles, which is expected to accelerate the electrification trend in the mid-to-long term.

Garrett's portfolio for hybrid powertrains includes new electric boosting solutions that leverage our unique technologies for electrical high speed boosting machinery.

Garrett's product portfolio also includes fuel cell compressors for which we are developing the third generation.

We are well positioned to take advantage of growing opportunities especially in the application of commercial vehicles.

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

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

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

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

In the commercial vehicle industry, we expect a slower transition to BEVs, due to specific mission profile and associated range and charging time constraints, which translates into more resilient turbocharger demand, as most commercial vehicles are turbocharged.

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

In the short to medium term, we continue to believe that turbocharger demand will grow as turbochargers remain one of the most cost-efficient levers to improve the fuel efficiency of gasoline, diesel and hybrid vehicles.

In 2021, Garrett won the prestigious Automotive News PACE™ award for the industry's first E-turbo that successfully launched in 2022.

The unique high speed electric motor technology developed for this product came from Garrett's fuel cell compressors that are required by fuel cell vehicles.

Additionally, this technology offers opportunities for new products to support all types of electrified drivetrains.

In the commercial vehicle industry, we expect a slower transition to BEVs due to the requirements of specific applications and associated range and charging time constraints, which translates into more resilient turbocharger demand, as most commercial vehicles are turbocharged.

In addition, low or zero emission alternative fuels for ICE, like natural gas or hydrogen, are expected to gain momentum in coming years, supporting continued turbocharger demand.

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

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

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

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

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

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

As of December 31, 2021, Garrett plants in China have not experienced power outage impacts at our own production facilities.

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

Any power outage impacts are closely monitored.

In addition, as of December 31, 2021, the global economy has experienced an increased risk of shortages and other disruptions to global supply chains as a result of the continuing impact of the COVID-19 pandemic.

Growth in the turbocharger industry is expected globally, with special mention for high-growth regions in Asia, where rising income levels continue to drive long-term automotive demand.

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

In addition, approximately 30% of our revenue comes from commercial vehicle and aftermarket sales that are less sensitive to the trend of electrification.

The global turbocharger industry is traditionally subject to inflationary pressures with respect to raw materials which place operational and profitability burdens on the entire supply chain.

We expect commodity cost volatility to continue to have an impact on future earnings.

Accordingly, we seek to mitigate both inflationary pressures and our material-related cost exposures by negotiating commodity cost contract escalation or pass-through agreements with customers and cost reductions with suppliers.

Given the recent macroeconomic disruptions including geopolitical tensions, we expect to see continued commodity cost volatility which could have an impact on future earnings.

Accordingly, we continue to seek to mitigate both inflationary pressures and our material-related cost exposures by negotiating commodity cost contract escalation or pass-through agreements with customers and cost reductions with suppliers.

Our sales predictability in the short term might also be impacted by sudden changes in customer demand, driven by their supply-chain management challenges.

Emergence from Chapter 11

On the “Petition Date, the Debtors each filed a voluntary petition for relief under 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 the effectiveness of the Plan were satisfied or waived and the Company emerged from bankruptcy.

In connection with its emergence from Chapter 11, the Company effected certain changes to its capital structure.

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 a cash-out election under the Plan, and issued 65,035,801 shares of new common stock, par value $0.001 per share (the "Common Stock") to holders of Old Common Stock who had not made such a cash-out election.

The Company issued 247,768,962 shares of its new convertible series A preferred stock, par value $0.001 per share (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 also issued 834,800,000 shares of its new Series B Preferred Stock, par value $0.001 per share (the "Series B Preferred Stock") to Honeywell, and paid Honeywell $375 million, in satisfaction and discharge of certain claims of Honeywell.

The obligations of the Debtors under the Company’s 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 payment in cash in an amount equal to such holder’s Allowed Pre-petition Credit Agreement Claim.

Additionally, the Company repaid its outstanding principal balance, accrued pre-petition and default interest of (i) $307 million on its five-year term A loan facility, (iii) $374 million with respect to the EUR tranche of its seven-year term B loan facility, and (iii) $422 million with respect to the USD tranche of its seven-year term B loan facility, and repaid $374 million on its revolving credit facility and repaid its accrued pre-petition hedge obligations of $20 million.

The Company also paid in full $101 million of interest and principal outstanding on, and terminated, its Senior Secured Super-Priority Debtor-in-Possession Credit Agreement entered into in connection with our Chapter 11 proceedings (the "DIP Credit Agreement").

The obligations of the Debtors under the indenture governing the Company’s 5.125% senior notes due 2026 notes were cancelled, the applicable agreements governing such obligations were terminated and holders of Allowed Pre-petition Credit Agreement Claims 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 governing the senior notes and the Allowed Senior Subordinated Noteholder Claims, the Company repaid its outstanding principal balance of €350 million, or $423 million, 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 seeking declaratory judgment on two claims for relief that the Debtors did not owe, and the holders of notes were not entitled to any make-whole premium under the indenture.

Additionally, the Company and certain of its subsidiaries entered into an agreement (the "Credit Agreement") providing 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 certain pre-petition claims, transaction fees, stock incentive payments and other expenses incurred in connection with the Plan.

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

Impact of COVID-19 Pandemic Update

Our sales were adversely affected in the fiscal year 2020 caused by the COVID-19 pandemic, however we observed a fast recovery in all geographies since mid-2020.

The direct adverse impact on our financial performance began to dissipate over the course of fiscal year 2021.

All our facilities are fully operational since the third quarter of 2020.

There is continued uncertainty related to variant strains that can have direct or indirect repercussions on our operations and ultimately financial performance which cannot be estimated at this time.

See " Item 1A.

Risk Factors - The COVID-19 pandemic has adversely impacted and is expected to further adversely impact our business and results of operations ."

On September 20, 2020, the Company filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code, which was administered under the caption “In re:

Garrett Motion Inc., 20-12212.” On April 20, 2021, a Revised Amended Plan of Reorganization (the "Plan") was filed and 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.

Results of Operations for the Years Ended December 31, 2022, 2021 and 2020

3 unchanged sentences

% change compared with prior period (0.8) % 19.7 % (6.6 %)

2021 compared with 2020

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

Our net sales for 2021 were $3,633 million, an increase of $599 million or 20% (including a positive impact of $132 million or 5% due to foreign currency translation driven by higher Euro-to-US dollar exchange rates).

For the year ended December 31, 2022, sales decreased compared to prior year by $30 million or 1%.

This decrease was primarily due to an unfavorable impact of $304 million or 8% due to foreign currency translation driven by a lower Euro-to-US dollar exchange rate.

This decrease was partially offset by $149 million of improved mix and $125 million of inflation recoveries net of pricing across all product lines.

Gasoline product sales increased by $64 million or 5% (including an unfavorable impact of $119 million or 8% due to foreign currency translation), primarily driven by new product launches in North America which delivered incremental sales year over year.

This increase was partially offset by lower Euro-to-dollar exchange rates and lower sales in China due to the increased Covid-related lockdown measures implemented by the Chinese government throughout 2022.

Diesel product sales decreased by $91 million or 9% (including an unfavorable impact of $103 million or 10% due to foreign currency translation).

While we saw lower volumes in 2022 due to the global semiconductor shortage and supply chain challenges at customers, this was offset by inflation pass-through and a favorable mix.

Commercial vehicle sales decreased by $32 million or 5% (including an unfavorable impact of $51 million or 8% due to foreign currency translation), primarily driven by lower volumes in China during the year after a strong pre-buy effect in the first half of 2021, more than offset by a favorable mix in the rest of the world.

Aftermarket sales improved by $36 million or 9% (including an unfavorable impact of $25 million or 6% due to foreign currency translation), primarily due to strong demand in North America and Europe related to favorable aftermarket conditions such as increased off-highway demand for new and service parts, increased revenues from our

Performance & Motorsport Turbo business, new distributor openings, as well as growth through new product introductions and favorable pricing impacts.

For the year ended December 31, 2021, net sales were $3,633 million, an increase compared to prior year of $599 million or 20% (including a positive impact of $132 million or 5% due to foreign currency translation driven by higher Euro-to-US dollar exchange rates).

Gasoline product sales increased by $245 million or 21% (including a favorable impact of $64 million or 6% due to foreign currency translation), primarily driven by program launches and ramp-ups in China and North America.

2 unchanged sentences

Aftermarket sales increased by $76 million or 23% (including a favorable impact of $7 million or 2% due to foreign currency translation), primarily due to continuing recovery in customer demand following the pandemic-related disruptions experienced in 2020, driven by service replacements and the development actions undertaken such as new distributor openings, new product introductions and targeted distribution channel strategy.

2020 compared with 2019

Our net sales for 2020 were $3,034 million, a decrease of $214 million or 6.6% (despite a positive impact of $43 million or 1% due to foreign currency translation driven by a higher Euro-to-US dollar exchange rate).

Gasoline products increased by $87 million or 8% (including a favorable impact of $20 million or 2% due to foreign currency translation), primarily driven by strong China demand and program launches and ramp-ups in North and South America.

Diesel products decreased by $165 million or 15% (partially offset by a favorable impact of $17 million or 2% due to foreign currency translation), primarily driven by disruptions in the industry from the COVID-19 pandemic.

Commercial Vehicles decreased by $75 million or 12% (partially offset by a favorable impact of $4 million or 1% due to foreign currency translation), primarily driven by COVID-19 pandemic-related disruptions in the industry.

Aftermarket sales decreased by $47 million or 12% (partially offset by a favorable impact of $1 million or 1% due to foreign currency translation), primarily driven by a decline in Europe and North America businesses due to pandemic-related soft demand and lower mileage driven.

Cost of Goods Sold

Cost of Goods Sold and Gross Profit

2022 2021 2020

3 unchanged sentences

Gross profit percentage 19.0 % 19.5 % 17.8 %

2021 compared with 2020

Cost of goods sold increased in 2021 compared to the prior year by $431 million or 17.3% (including an unfavorable impact of $99 million due to foreign exchange rates).

Cost of Goods Sold Gross Profit

(Dollars in millions)

2020 Full Year $ 2,495 $ 539

Cost of Goods Sold / Gross Profit for year ended December 31, 2021 $ 2,926 $ 707

Volume (19) (8)

Product mix 124 25

Price, net of inflation passthrough — (24)

Commodity & Transportation Inflation 71 (71)

Price, net of inflation pass-through — 125

Commodity, transportation and energy inflation 154 (154)

Productivity, net (58) 84

1 unchanged sentence

Foreign exchange rate impacts (224) (79)

2021 Full Year $ 2,926 $ 707

The increase in cost of goods sold was primarily driven by our higher sales volumes and foreign currency impacts which contributed to increases of $278 million and $99 million, respectively, in cost of goods sold.

Cost of goods sold further increased by $74 million due to an unfavorable product mix and $71 million due to inflation on commodities and transportation costs, partially offset by benefits from our continued focus on productivity.

R&D expenses increased by $17 million which reflects our shift in investment in new technologies and the temporary cost control actions taken in 2020 to mitigate the COVID-19 impact.

The increase in gross profit was mainly driven by the higher sales volumes and increased productivity.

These increases were partially offset by the unfavorable product mix and inflation as discussed above, as well as $24 million of pricing reductions net of inflation recoveries from customer pass-through agreements during the year and $17 million of higher R&D costs.

The impact of foreign currency translational, transactional and hedging effects further increased gross profit by $33 million.

2020 compared with 2019

Cost of goods sold for 2020 was $2,495 million, a decrease from prior year of $60 million or 2.3% (partially offset by an unfavorable impact of $25 million due to foreign exchange rates).

Cost of Goods Sold / Gross Profit for year ended December 31, 2022 $ 2,920 $ 2,920 $ 683

For the year ended December 31, 2022, cost of goods sold decreased by $6 million compared to prior year, primarily driven by our lower sales volumes and foreign currency impacts which contributed to decreases of $19 million and $224 million, respectively.

Our continued focus on productivity also contributed to a decrease in cost of goods sold of $58 million, net of $10 million of higher premium freight costs driven by supply chain disruptions, transportation constraints and volume volatility.

These decreases were partially offset by $154 million of inflation on commodities, transportation and energy costs, as well as $124 million due to an unfavorable product mix.

R&D expenses also increased by $17 million which reflects our shift in investment in electrification technologies.

Gross profit decreased by $24 million, mainly driven by the lower sales volumes, inflation on commodities, transportation and energy costs, as well as higher premium freight costs as discussed above.

Higher R&D costs and $79 million of unfavorable foreign currency translational, transactional and hedging effects also reduced our gross profit.

These decreases were partially offset by $84 million of higher productivity which includes the benefits from value engineering that are partially passed through to customers, $125 million of inflation recoveries from customer pass-through agreements net of pricing reductions, and $25 million of favorable product mix.

Cost of Goods Sold Gross Profit

(Dollars in millions)

2019 Full Year $ 2,555 $ 693

Cost of Goods Sold / Gross Profit for year ended December 31, 2020 $ 2,495 $ 539

Volume 278 135

1 unchanged sentence

Price, net of inflation pass-through — (24)

Commodity & transportation inflation 71 (71)

Productivity, net (108) 120

1 unchanged sentence

Foreign exchange rate impacts 99 33

2020 Full Year $ 2,495 $ 539

The decrease in cost of goods sold was primarily driven by our lower sales levels which contributed to a decrease of $183 million in cost of goods sold.

R&D expenses also decreased $19 million as a result of our cost saving actions implemented to ease the impact of COVID-19 on our financial performance, including temporary salary reductions and state funded lay-offs.

Additionally, cost of goods sold increased by $114 million from unfavorable product mix and premium freight as a result of high volume volatility, partially offset by benefits from productivity and the cost saving actions implemented as discussed above.

Foreign currency impacts from translational, transactional and hedging effects also increased cost of goods sold by $25 million.

The decrease in gross profit was mainly driven by the lower sales levels as well as the impacts of product mix.

In addition, we incurred higher premium freight cost and one time fixed costs, partially offset by benefits from productivity.

These decreases were partially offset by $19 million of lower R&D costs and $17 million from impacts from foreign currency effects.

Cost of Goods Sold / Gross Profit for year ended December 31, 2021 $ 2,926 $ 707

For the year ended December 31, 2021, cost of goods sold increased by $431 million or 17.3% (including an unfavorable impact of $99 million due to foreign exchange rates) compared to the prior year.

R&D expenses increased by $17 million which reflects our shift in investment in electrification technologies and the temporary cost control actions taken in 2020 to mitigate the Covid-19 impact.

The increase in gross profit was mainly driven by the higher sales volumes and increased productivity.

The impact of foreign currency translational, transactional and hedging effects further increased gross profit by $33 million.

Selling, General and Administrative Expenses

3 unchanged sentences

% of sales 6.0 % 5.9 % 8.6 %

2021 compared with 2020

Selling, general and administrative (“SG&A”) expenses decreased for 2021 compared to the prior year by $44 million, mainly driven by $52 million of strategic planning costs incurred in 2020, $11 million of bad debt recovery, $5 million of lower stock based compensation costs and a $2 million capital tax expense recorded in 2020.

For the year ended December 31, 2022, selling, general and administrative (“SG&A”) expenses remained flat compared to prior year.

We saw a $17 million benefit during the year from favorable foreign exchange rates compared to the prior year and $2 million of lower employee-related costs which mainly reflect lower expected employee incentive payouts partially offset by the impact of labor inflation.

These decreases were offset by $5 million of higher IT expenses in 2022, $4 million from increased travel expenses as Covid restrictions eased, $10 million of higher bad debt expenses due primarily to a non-recurring bad debt recovery recognized in 2021.

For the year ended December 31, 2021, SG&A expenses decreased for compared to prior year by $44 million, mainly driven by $52 million of strategic planning costs incurred in 2020, $11 million of bad debt recovery, $5 million of lower stock based compensation costs and a $2 million capital tax expense recorded in 2020.

These decreases were partially offset by $4 million in labor inflation, a $13 million increase in accruals for employees incentives which reflect the expected payouts in 2022, a $6 million increase in foreign exchange impacts and $3 million of cost savings initiatives undertaken in the prior year to mitigate the impact of Covid-19.

As a percentage of net sales, SG&A for 2021 was 5.9% versus 8.6% in the prior year.

2020 compared with 2019

SG&A expenses for 2020 were $260 million, an increase of $29 million compared to the prior year.

The increase was mainly driven by $52 million of professional service fees primarily related to the strategic planning activities before the decision to file for relief under Chapter 11 of the Bankruptcy Code in September 2020, $4 million of bad debt related to a customer bankruptcy, and a $3 million increase in pension costs.

These increases were partially offset by $31 million of cost saving actions implemented to ease the impact of COVID-19 on our financial performance, including merit freezes, state funded lay-offs, unpaid leaves and reductions in travel expenses and professional services, as well as one-time Spin-Off costs incurred in the prior year.

As a percentage of net sales, SG&A for the current year was 8.6% versus 7.1% in the prior year.

Other Expense, Net

3 unchanged sentences

% of sales 0.1 % — % 1.5 %

2021 compared with 2020

Other expense, net increased for 2022 compared to the prior year by $1 million and is attributable to an increase of expenses associated with the factoring of receivables.

Other expense, net decreased for 2021 compared to the prior year by $45 million.

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

2020 compared with 2019

Other expense, net increased in 2020 compared to 2019 by $6 million.

The increase was attributable to a $12 million increase in legal fees incurred in connection with the Honeywell Indemnity Agreement.

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

Interest Expense

2 unchanged sentences

Interest Expense $ 82 $ 93 $ 79

2021 compared with 2020

Interest expense increased in 2021 compared to the prior year by $14 million, mainly due to $29 million of interest accretion on the Series B Preferred Stock, partially offset by $16 million lower interest expense on our current credit facilities compared to our credit facility in the prior year before emergence from bankruptcy and prior year period fees related to amendments to our previous credit facilities.

2020 compared with 2019

Interest expense increased in 2020 compared to 2019 by $11 million, mainly due to $16 million of higher outstanding drawings under our prior revolving credit facility, additional fees associated with the amendment of our prior credit agreement, higher interest margins, post-petition banks’ cancellations of cross-currency interest rate swaps and supplementary financing under our prior DIP Credit Agreement, partially offset by $5 million of lower interest expense on our prior term loans due to voluntary prepayments thereunder in 2020.

Non-operating (income) expense

For the year ended December 31, 2022, interest expense decreased by $11 million compared to prior year, primarily due to $19 million less of interest accretion on our Series B Preferred Stock that was issued at Emergence and fully redeemed by June 2022, and $9 million of interest expense incurred on our pre-Emergence credit facilities.

These decreases in interest expense were partially offset by $14 million of additional interest expense in 2022 on our current Credit Facilities entered into at Emergence.

For the year ended December 31, 2021, interest expense increased by $14 million compared to prior year, primarily due to $29 million of interest accretion on the Series B Preferred Stock, partially offset by $16 million lower interest expense on our current Credit Facilities compared to our credit facility in the prior year before Emergence and prior year period fees related to amendments to our previous credit facilities.

Non-operating income

2022 2021 2020

(Dollars in millions)

Non-operating (income) expense $ (16) $ (38) $ 8

2021 compared with 2020

Non-operating (income) expense decreased by $22 million in 2021 from an income of $38 million in the prior year, primarily due to $47 million in foreign exchange impact on debt, which was unhedged as a consequence of restrictions placed on the Company during Chapter 11 proceedings, partially offset by $18 million higher non-service pension benefit in the current year and $8 million driven by interest income associated with unrealized marked-to-market gains on interest rate swaps.

2020 compared with 2019

Non-operating (income) expense in 2020 increased to an income of $38 million from an expense of $8 million in 2019, primarily due to a significant unhedged exposure driven by the termination of all derivatives and closing of the credit lines, as a consequence of the Chapter 11 filing.

Non-operating income $ (121) $ (16) $ (38)

For the year ended December 31, 2022, non-operating income increased by $105 million compared to prior year.

This increase was driven by $66 million of interest income primarily from unrealized marked-to-market gains on our interest rate swaps and $24 million related to non-service components of net periodic pension benefits, partially offset by $11 million of foreign exchange remeasurement losses.

For the year ended December 31, 2021, non-operating income decreased by $22 million compared to prior year and comprised $47 million in foreign exchange impact on debt, which was unhedged as a consequence of restrictions placed on the Company during the pendency of Chapter 11, partially offset by $18 million higher non-service pension benefit in the current year and $8 million driven by interest income associated with unrealized marked-to-market gains on interest rate swaps.

Reorganization items, net

2 unchanged sentences

Reorganization items, net $ 3 $ (125) $ 73

2021 compared with 2020

Reorganization items, net for 2021 were a $125 million gain, representing a $502 million gain on the settlement of Honeywell claims, partially offset by $119 million higher professional service fees related to the Chapter 11 Cases compared to the prior-year period, $79 million related to the termination and an expense reimbursement under a share and asset purchase agreement entered into on the Petition Date by the Debtors, AMP Intermediate B.V.

For the year ended December 31, 2022, reorganization items, net was an expense of $3 million related to professional service fees incurred for the remaining securities litigation from Chapter 11.

During the prior year, reorganization items, net amounted to a $125 million gain, representing a $502 million gain on the settlement of Honeywell claims, partially offset by $119 million higher professional service fees related to the Chapter 11 Cases compared to the prior-year period, $79 million related to the termination and an expense reimbursement under a share and asset purchase agreement entered into on the Petition Date by the Debtors, AMP Intermediate B.V.

Holdings, LLC (the “Stalking Horse Purchase Agreement”), $39 million in Directors and Officers insurance related to Chapter 11 Cases, a $19 million write off on debt issuance costs of the debt associated with our pre-petition credit agreement, $13 million in employee stock awards cancellation and $35 million in other costs mainly related to unsecured notes settlement.

2020 compared with 2019

Reorganization items, net for 2020 were $73 million, representing professional service fees related to Chapter 11 of $55 million, DIP Credit Agreement financing fees of $13 million and the write-off of the unamortized deferred high yield debt issuance cost of $6 million.

There were no Reorganization items, net for the year ended December 31, 2019, since these were new items related to the Chapter 11 Cases.

For the year ended December 31, 2021, reorganization items, net was a gain of $125 million, as explained above.

This is in comparison to the year ended December 31, 2020, where reorganization items, net were $73 million, representing professional fees related to Chapter 11 of $55 million, DIP Credit Agreement financing fees of $13 million and the unamortized deferred high yield debt issuance cost of $6 million.

2022 2021 2020

2 unchanged sentences

Effective tax rate 21.4 % 7.9 % 32.8 %

2021 compared with 2020

The effective tax rate increased by 13.5 percentage points in 2022 compared to 2021.

The increase was primarily attributable to the nontaxable gain on the settlement of the Honeywell claims (partially offset by non-deductible transaction costs) and increased tax benefits from an internal restructuring, both of which occurred in 2021 and are non-recurring.

This increase was partially offset by tax benefits in the current year due to release of reserves for statute of limitation expirations.

The effective tax rate decreased by 24.9 percentage points in 2021 compared to 2020.

1 unchanged sentence

partially offset by increases in withholding taxes on unrepatriated earnings.

The internal restructuring occurred predominantly in Q4 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.

2020 compared with 2019

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.

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 approximate 11 percentage point decrease to the effective tax rate during 2021.

The overall increase in earnings from 2020 was also a contributing factor to a lower effective tax rate because the tax impacts as a percentage to earnings is less sensitive.

2022 2021 2020

1 unchanged sentence

Net Income $ 390 $ 495 $ 80

2021 compared with 2020

Net income increased $415 million for 2021 as compared to 2020 primarily as result of higher gross profit of $168 million, lower SG&A expenses of $44 million, lower Other expenses of $45 million, and favorable Reorganisation items, net, of $198 million, as described above.

2020 compared with 2019

Net income decreased $233 million for 2020 as compared to 2019 primarily as result of lower gross profit of $154 million, higher SG&A expenses of $29 million, and unfavorable Reorganisation items, net, of $73 million, as described above.

For the year ended December 31, 2022, net income decreased $105 million compared to prior year primarily as result of lower gross profit of $24 million, a net benefit in 2021 of $125 million in Reorganization items, and higher tax expenses of $63 million, partially offset by higher non-operating income of $105 million, as described above.

For the year ended December 31, 2021, net income increased $415 million compared to prior year primarily as result of higher gross profit of $168 million, lower SG&A expenses of $44 million, lower Other expenses of $45 million, and favorable Reorganization items, net, of $198 million, as described above.

Non-GAAP Measures

4 unchanged sentences

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

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

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

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

We define “Adjusted EBITDA” as EBITDA, plus the sum of net reorganization items, stock compensation expense, repositioning costs, net foreign exchange loss on debt, loss on extinguishment on debt, discounting costs on factoring, other non-operating income and professional service costs and capital tax expense incurred in conjunction with our reorganization;

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

5 unchanged sentences

Net income — GAAP $ 390 $ 495 $ 80

$ 495 $ 80 $ 313

Net interest expense 6 82 76

Tax expense 106 43 39

Depreciation 84 92 86

EBITDA (Non-GAAP) $ 586 $ 712 $ 281

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

Other expense, net (1)

Non-operating (income) expense (2)

3 unchanged sentences

Foreign exchange loss (gain) on debt, net of related hedging loss (gain) — 9 (38)

Spin-off costs (7)

Professional service costs (6)

Capital tax expense (7)

Loss on extinguishment of debt 5 — —

Adjusted EBITDA (Non-GAAP) $ 570 $ 607 $ 607 $ 440

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

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

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

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

(2) The accounting for the majority of our asbestos-related liability payments and accounts payable reflect the terms of the Honeywell Indemnity Agreement.

The Plan as confirmed by the Bankruptcy Court includes 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.

See Emergence from Chapter 11 .

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

(4) The Company applied Accounting Standards Codification (“ASC”) 852 for periods subsequent to 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, certain expenses and gains incurred during the Chapter 11 Cases are recorded within Reorganization items, net in the Consolidated Statements of Operations.

The Company applied U.S.

GAAP for the period subsequent to the Effective Date.

See Note 1, Background and Basis of Presentation and Note 2, Plan of Reorganization of the Notes to the Consolidated Financial Statements.

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

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

(7) Spin-Off costs primarily include costs incurred for the set-up of the IT, Legal, Finance, Communications and human resources functions after the Spin-Off on October 1, 2018.

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

(1) Other expense, net includes factoring and notes receivable discount fees.

It also reflects, specifically for 2020, our accounting for the majority of our asbestos-related liability payments and accounts payable to Honeywell under the terms of the Honeywell Indemnity Agreement.

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 legacy agreements between the Company or its subsidiaries and Honeywell.

(2) The adjustment for non-operating (income) expense reflects the non-service component of net periodic pension costs and other income that are non-recurring or not considered directly related to the Company's operations.

(3) The Company applied ASC 852 for periods subsequent to 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, certain expenses and gains incurred during the Chapter 11 Cases are recorded within Reorganization

items, net in the Consolidated Statements of Operations.

See Note 2, Plan of Reorganization of the Notes to the Consolidated Financial Statements.

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

(5) Repositioning costs include severance costs related to restructuring projects to improve future productivity.

(6) Professional service costs consist of professional service fees related to strategic planning for the Company in the period prior to filing for relief under Chapter 11 of the Bankruptcy Code in September 2020.

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

1 unchanged sentence

There was no income tax payable for the year ended December 31, 2020 and therefore the 2020 capital tax due of $2 million was recorded in SG&A expenses.

2021 compared with 2020

Adjusted EBITDA for the year ended December 31, 2022 compared with year ended December 31, 2021

For the year ended December 31, 2022, net income decreased $105 million versus the prior year as discussed above within the Results of Operations section.

Our volumes for 2022 totaled 13.6 million units, representing a decrease of approximately 1% from the prior year.

Adjusted EBITDA decreased by $37 million compared to the prior year mainly due to unfavorable foreign exchange impacts.

While we saw increased inflation on commodities, transportation and energy, and we also increased our R&D spending on electrification technologies, this was more than offset by an improved product mix net of lower volumes, productivity, and inflation pass-through net of pricing.

Our Adjusted EBITDA margin decreased by 90 basis points, of which 80 basis points was driven by the unfavorable foreign exchange impacts and inflation pass-through to customers.

During 2022, we faced demand volatility driven mainly by the global semiconductor shortage, geopolitical tensions and ongoing impacts from Covid restrictions primarily in China, all of which resulted in supply chain disruptions.

We maintained our focus on productivity in 2022 as rising commodity prices led to higher raw material costs, particularly for nickel, aluminum and steel alloys.

We recovered the cost increases from our customer pass-through agreements, and continue to negotiate with our customers for further escalators while actively managing our supply base and cost recovery mechanisms to mitigate the impact of materials, transportation and energy cost inflation.

The increased productivity was partially offset by year-over-year labor inflation, increased travel expenses, higher bad debt expenses and increased premium freight costs driven by supply chain disruptions, transportation constraints and volume volatility.

R&D expenses increased $17 million which primarily reflects our increased investment in electrification technologies.

Adjusted EBITDA for the year ended December 31, 2021 compared with year ended December 31, 2020

As discussed above, Net income increased $415 million for 2021 as compared to 2020.

7 unchanged sentences

We also took a number of temporary cost control and cash management actions in the second and third quarters of 2020 to combat the Covid-19 crisis.

R&D expenses increased by $17 million which reflects our shift in investment in new technologies and the temporary cost control actions taken in 2020 to mitigate the COVID-19 impact.

R&D expenses increased by $17 million which reflects our shift in investment in electrification technologies and the temporary cost control actions taken in 2020 to mitigate the Covid-19 impact.

The benefit from foreign currency impacts from translational, transactional and hedging effects in 2021 was $28 million and was primarily driven by a higher Euro-to-US dollar exchange rate versus the prior-year period.

2020 compared with 2019

As discussed above, Net income decreased $233 million for 2020 as compared to 2019.

For 2020, Garrett’s Adjusted EBITDA of $440 million decreased by $143 million compared to the same period in 2019, mainly due to drop in customer demand, stemming from the COVID-19 pandemic related disruptions in the industry and a mix headwind, partially offset by productivity and benefits from foreign currency impacts.

In 2020, our volumes totaled 12.0 million units, a decrease of approximately 9% from 2019.

Our Adjusted EBITDA margin of 14.5% represented a year-over-year degradation of 340 basis points.

The 2020 performance was adversely affected by the COVID-19 related plant shutdowns in Mexico and India as well as production slowdowns across Europe, partially offset by increased recovery in China.

During 2020, we implemented numerous cost control actions such as furloughs, reduced work schedules, and state-funded-leaves, to mitigate the impact of COVID-19 pandemic on our margin and to ensure we adapt our cost structure to the revenue drop.

SG&A also increased by $9 million due primarily to $4 million of bad debt related to a customer bankruptcy and $3 million of increased pension costs.

R&D expenses decreased by $19 million mainly as a result of our cost saving actions implemented to ease the impact of COVID-19 on our financial performance, including temporary salary reductions and state funded lay-offs.

The benefit from foreign currency translational, transactional and hedging impacts in 2020 was $18 million and was primarily driven by a higher Euro-to-US dollar exchange rate versus the prior-year period.

Liquidity and Capital Resources

1 unchanged sentence

During the pendency of our bankruptcy proceedings, we financed our operations with funds generated from operating activities and available cash and cash equivalents, and also had in place debtor-in-possession financing arrangements.

At and following the completion of the Chapter 11 Cases and our emergence from bankruptcy, during the year ended December 31, 2021, we funded our operations primarily through the cash flows from operating activities, cash and cash equivalents, proceeds from the issuance of Series A Preferred Stock rights offerings and borrowings from Credit Facilities.

On December 31, 2021, the Company reported a cash and cash equivalents position of $423 million (not including $41 million in restricted cash as of December 31, 2021) as compared to $592 million on December 31, 2020 (not including $101 million in restricted cash as of December 31, 2020).

For 2022, we expect our capital spending to increase by approximately $20 million versus 2021 as we continue to increase our manufacturing capacity for new product launches and invest in strategic growth opportunities, in particular in the electrification of drivetrains.

We also expect to repay $7 million on our Dollar Facility and incur payments of $197 million related to our Series B Preferred Stock.

Additionally, we expect to pay $89 million related to purchase obligations which are entered into with various vendors in the normal course of business and are consistent with our expected requirements.

Finally, we expect to make contributions of $7 million to our non-U.S.

Following our emergence from bankruptcy and during the year ended December 31, 2022, we funded our operations primarily through the cash flows from operating activities, borrowings from our credit facilities and cash and cash equivalents.

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.

On December 31, 2022, the Company reported cash and cash equivalents position $246 million (not including $2 million in restricted cash as of December 31, 2022) as compared to $423 million on December 31, 2021 (not including $41 million in restricted cash as of December 31, 2021).

As of December 31, 2022, the Company had no borrowings or letters of credit outstanding under the Revolving Facility, and available capacity of $475 million.

In addition, as of December 31, 2022, the Company had $1,186 million of principal outstanding on its Term Loan Facilities and had utilized $14 million of the bilateral letter of credit facilities with $1 million remaining available capacity.

During the year ended December 31, 2022, we repaid $7 million of our Dollar Term Facility and $381 million related to our Series B Preferred Stock which included the final early redemption payment, following which no shares of our Series B Preferred Stock remain outstanding.

Additionally, holders of our Series A Preferred Stock are entitled to receive, when, as and if declared by a committee of disinterested directors of the Board 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.

These dividends accumulate whether or not declared.

During the year ended December 31, 2022, we declared two cash dividends of $0.17 per share, each (September 2022 and December 2022), on our Series Preferred A Stock, for a total aggregate dividend of $83 million.

As of December 31, 2022, the aggregate accumulated undeclared and unpaid dividend was approximately $171 million.

For 2023, we expect to maintain a similar level of capital spending as compared to 2022.

We expect to repay $7 million on our Dollar Term Facility.

We also expect to pay approximately $5 million related to purchase obligations which were entered into with various vendors in the normal course of business and are consistent with our expected requirements.

Finally, we expect to make contributions of approximately $7 million to our non-U.S.

pension plans.

Beyond 2022, we expect to make redemptions on our Series B Preferred Stock for each of the years 2024 to 2027 of $18 million, $100 million, $100 million and $54 million, respectively.

We may also be required to redeem the outstanding shares of Series B Preferred Stock on the exercise by holders of the Holder Put Right, following the occurrence of certain triggering events on or before December 30, 2022, which could increase our cash requirements by approximately $220 million.

Additionally, holders of our Series A Preferred Stock are entitled to receive, and, as and if declared by a committee of disinterested directors of the Board 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.

These dividends accumulate whether or not declared, and as of December 31, 2021, the aggregate accumulated dividend was approximately $97 million.

Our Board of Directors may elect to declare and settle dividends to the Holders of the Series A Preferred Stock in cash, subject to certain limitations in the Credit Agreement and to the funds legally available for such dividends.

We expect to make payments in 2027 of $670 million and $510 million on our Dollar Facility and Euro Facility, respectively.

Additionally, we expect to pay $5 million related to purchase obligations which are entered into with various vendors in the normal course of business and are consistent with our expected requirements.

We believe the combination of expected cash flows, the funding received from Series A Preferred Stock issuance, the US Dollar and Euro term loan borrowings and the revolving credit facilities being committed until 2026, will provide us with adequate liquidity to support the Company's operations.

Pre-Emergence DIP Credit Agreement

On October 6, 2020, the Bankruptcy Court entered an order granting interim approval of the Debtors’ entry into the DIP Credit Agreement, with the lenders party thereto and Citibank N.A.

as administrative agent.

The DIP Credit Agreement provided for a senior secured, super-priority term loan (the “DIP Term Loan Facility”) with a maximum principal amount of $200 million.

The proceeds of the DIP Term Loan Facility were used by the Debtors to (a) pay certain costs, premiums, fees and expenses related to the Chapter 11 Cases, (b) make payments pursuant to any interim or final order entered by the Bankruptcy Court pursuant to any “first day” motions permitting the payment by the Debtors of any prepetition amounts then due and owing;

(c) make certain adequate protection payments in accordance with the DIP Credit Agreement and (d) fund working capital needs of the Debtors and their subsidiaries to the extent permitted by the DIP Credit Agreement.

On the Effective Date, the Company paid in full $101 million of interest and principal outstanding on, and terminated, the DIP Credit Agreement.

Emergence - Exit Financing and Entry into Credit Facilities

Upon our emergence from Chapter 11 proceedings on the Effective Date, the Company completed the following transactions, which significantly improved the Company’s liquidity:

• Entered into new Term Loan Facilities which resulted in net proceeds of of $1,221 million;

• Obtained $300 million in commitments under the Revolving Facility, $125 million of which may be used for the issuance of letters of credit;

• Obtained a $35 million letter of credit facility for a term of five years from the Effective Date;

• Repaid $1,103 million of previously outstanding secured term loan facilities and accrued interest, repaid $374 million previously outstanding under its prior revolving credit facility, repaid $461 million in senior notes and accrued interest, and repaid $101 million of amounts owing under the DIP Credit Agreement and accrued interest;

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

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

In connection with our emergence from Chapter 11 proceedings, the Company and certain of its subsidiaries entered into the Credit Facilities.

As of 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.

In addition, on December 31, 2021, the Company had $1,223 million outstanding in Term Loan Facilities and $27 million in available letter of credit facilities.

On January 11, 2022, the Company amended the Credit Agreement to increase the amount of revolving loan commitments by $124 million to an aggregate amount of $424 million .

The amendment also implements certain changes to benchmark and successor rates applicable to revolving loans under the Credit Agreement, including the removal of LIBOR as an available rate at which revolving loans could accrue and the addition for such revolving loans new

benchmark rate options based on the term or 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.

For more information, see Note 16, Long-term Debt and Credit Agreements .

We expect to repay approximately $7 million on the Dollar Facility in 2022 and approximately $670 million and $510 million on our Dollar Facility and Euro Facility, respectively, in 2027.

See Note 16 , Long-term Debt and Credit Agreements of the Notes to the Consolidated Financial Statements for additional information regarding our Revolving Facility.

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 the Centerbridge Investors, the Oaktree Investors and certain other investors and parties.

All outstanding Series A Preferred Stock will convert into Common Stock of the Company automatically upon the occurrence of certain triggering events.

Additionally, holders of the Series A Preferred Stock have the right to convert their shares of Series A Preferred Stock into Common Stock at any time.

As the Certificate of Designations governing the Series A Preferred Stock prohibits the issuance of fractional shares of Common Stock upon the conversion of any shares of Series A Preferred Stock, the Company must pay a cash adjustment in respect of any such fractional share of Common Stock that would be issuable pursuant to a conversion.

See Note 21 , Equity of the Notes to the Consolidated Financial Statements for additional information regarding the Series A Preferred Stock.

Additionally, pursuant to the Plan, on the Effective Date the Company issued 834,800,000 shares of Series B Preferred Stock to Honeywell in satisfaction of its claims against the Company arising from certain historical agreements between Honeywell and the Company.

Under the terms of the Series B Preferred Stock issued to Honeywell pursuant to the Plan, we are obligated to pay an aggregate of $470 million to Honeywell, payable in annual cash instalments beginning in 2022 and ending in 2027, subject to various conditions and put and call rights set forth in the Certificate of Designations for the Series B Preferred Stock.

On December 28, 2021, we elected to complete an early partial redemption of 345,988,497 shares of Series B Preferred Stock for an aggregate price of approximately $211 million.

As of December 31, 2021, our liabilities with respect to our payment obligations to Honeywell under the terms of the Series B Preferred Stock were $395 million (representing the present value of all then remaining amortization payments due under the outstanding Series B Preferred Stock, discounted at a rate of 7.67% per annum).

On February 18, 2022 we will make an early partial redemption payment of $197 million, and effective with that payment we will make future scheduled redemptions of $18 million, $100 million, $100 million and $54 million, in the years 2024 to 2027, respectively.

Additionally, pursuant to the Certificate of Designations governing our Series B Preferred Stock, the holders of Series B Preferred Stock may, upon the occurrence of certain triggering events and subject to certain conditions, require us to redeem all shares of such holder's Series B Preferred Stock after December 30, 2022, which would increase our liquidity requirements by approximately $220 million.

See Note 17 , Mandatorily Redeemable Series B Preferred Stock of the Notes to the Consolidated Financial Statements for additional information regarding the Series B Preferred Stock.

Going Concern

Our ability to continue as a going concern was contingent upon the Company’s ability to successfully implement a Plan 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 we were operating as debtors-in-possession under the Bankruptcy Code, we sold or otherwise disposed of or liquidated assets or settled liabilities, with the approval of 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, as noted above, expected cash flows, and removal of the risks and uncertainties surrounding the Chapter 11 Cases, we anticipate having sufficient funding to support our operations, and substantial doubt no longer exists that we will be able to continue as a going concern.

Listing on NASDAQ

On September 20, 2020, we were notified by the New York Stock Exchange (the “NYSE”) that, as a result of the Chapter 11 Cases, the NYSE had commenced proceedings to delist our Common Stock from the NYSE.

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

Following our emergence from Chapter 11, our Common Stock commenced

trading on Nasdaq under the ticker symbol “GTX” on May 3, 2021.

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

We believe the combination of expected cash flows, the funding received from Series A Preferred Stock issuance, the term loan borrowings and the revolving credit facilities being committed until 2026, will provide us with adequate liquidity to support the Company's operations.

Share Repurchase Program

On November 16, 2021, the Company announced that it had 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.

On November 16, 2021, the Company announced that it had authorized a $100 million share repurchase program valid until November 15, 2022, providing for the purchase of shares of Series A Preferred Stock and Common Stock.

On November 2, 2022, the Board of Directors authorized the extension of the share repurchase program by one year, to November 15, 2023.

As of December 31, 2022, the Company had repurchased $26 million of its Series A Preferred Stock and Common Stock, with $74 million remaining under the share repurchase program.

2 unchanged sentences

Off-Balance Sheet Arrangement

As of December 31, 2021 and 2020 the Company does not have any off-balance sheet arrangements.

Honeywell Indemnity Agreement and Tax Matters Agreement

On September 12, 2018, Garrett ASASCO entered into the Honeywell Indemnity Agreement and we entered into a tax matters agreement (the "Tax Matters Agreement") which 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 were responsible and would indemnify Honeywell for all taxes, including income taxes, sales taxes, VAT and payroll taxes, relating to Garrett for all periods, including periods prior to the completion date of the Spin-Off.

The Plan, confirmed by the Bankruptcy Court, included a global settlement with Honeywell providing for (a) the full and final satisfaction, settlement, release, and discharge of all liabilities under or related to the Indemnity Agreements and the Tax Matters Agreement, and (b) the dismissal with prejudice of the Honeywell Litigation in exchange for (x) a $375 million cash payment at Emergence and (y) the Series B Preferred Stock.

See Note 2, Plan of Reorganization and Note 17, Mandatorily Redeemable Series B Preferred Stock , of the Notes to the Consolidated Financial Statements.

The Company did not have any off-balance sheet arrangements as of December 31, 2022 and 2021.

Cash Flow Summary for the Years Ended December 31, 2022, 2021 and 2020

Our cash flows from operating, investing and financing activities for the years ended December 31, 2021 , 2020 and 2019 , as reflected in the audited Consolidated Financial Statements included elsewhere in this Annual Report, are summarized as follows:

Our cash flows from operating, investing and financing activities for the years ended December 31, 2022, 2021 and 2020, as reflected in the Consolidated Financial Statements included in this Annual Report, are summarized as follows:

Year Ended December 31,

7 unchanged sentences

Net (decrease) increase in cash and cash equivalents $ (216) $ (229) $ 506

2021 compared with 2020

Cash Flow Summary for the year ended December 31, 2022

Cash provided by operating activities increased by $685 million for 2022 versus the prior year, primarily due to a $375 million payment made to Honeywell in 2021 pursuant to the Plan, and a decrease in net income of $105 million, net of a $393 million increase in non-cash adjustments which included a $435 million gain recognized in prior year on reorganization items, a $66 million increase in the fair value of our undesignated derivative instruments and $28 million of the redemption attributable to interest of Series B Preferred Stock.

We also saw favorable impacts from working capital of $46 million, partially offset by a $24 million decrease mainly driven by other assets and liabilities.

Cash used for investing activities increased by $20 million for 2022 versus the prior year, primarily due to an increase in expenditures for property, plant and equipment of $19 million.

Cash used for financing activities increased by $621 million for the year ended December 31, 2022 compared with the prior year.

The change was primarily driven by $180 million of additional early redemptions in 2022 of our Series B Preferred Stock (excluding amounts attributable to interest and included in cash used for operating activities), and $83 million for dividends on Series A Preferred Stock.

We also saw, in 2021 upon Emergence, net proceeds of $2,522 million from the issuance of our Series A Preferred Stock and new long-term debt, partially offset by net payments of $2,156 million related to our prior senior secured super-priority debtor-in-possession credit agreement, our pre-petition revolving credit facility, pre-petition long-term debt and payments made to holders of the Company's pre-emergence common stock who made a cash-out election under the Plan.

These increases in cash used for financing activities were partially offset by $12 million less of repurchases of Series A Preferred Stock and Common Stock in 2022 versus 2021.

Cash Flow Summary for the year ended December 31, 2021

Cash used for operating activities increased by $335 million for 2021 versus the prior year, primarily due to a $375 million payment to Honeywell pursuant to the Plan in the current year compared to a $6 million payment to Honeywell in the prior year.

4 unchanged sentences

The change was driven by $1,301 million in proceeds from the issuance of Series A Preferred Stock and $1,221 million in proceeds from the issuance of the new long-term debt, partially offset by $200 million of debt repayments compared to $200 million of proceeds in the prior year on the DIP Credit Agreement, $1,515 million payments of the old long-term debt and $69 million in payments for the Cash-Out election.

Additionally, payments of our revolving facilities were $730 million lower than in prior year, we redeemed $201 million of our Series B Preferred Stock (exclusive of $10 million of the redemption attributable to interest and included in cash used for operating activities), and repurchased $15 million of Series A Preferred Stock and $4 million of Common Stock.

2020 compared with 2019

Cash provided by operating activities decreased by $217 million for 2020 in comparison to 2019, primarily due to a decrease in net income, net of deferred taxes of $226 million, unfavorable impact from working capital of $194 million, partially offset by a decrease in obligations to Honeywell of $149 million and an increase of $54 million in other items (mainly accrued liabilities).

Cash used for investing activities decreased by $6 million in 2020 compared to 2019, primarily due to a favorable impact from expenditures for property, plant and equipment of $22 million, due to higher customer contribution and lower spend, partially offset by an unfavorable impact from a prior year settlement received on the re-couponing of our cross currency swap contract of $19 million.

Cash provided by financing activities increased by $693 million in 2020, as compared to 2019.

The change was driven by a draw down, net of payments, on our Pre-petition Credit Agreement revolving facility of $349 million, payments of long-term debt during 2020 totaling $2 million, as compared to $163 million of such payments during 2019 and proceeds from the debtor-in-possession credit agreement, net of financing fees of $187 million.

Cash flow from operations less Expenditures for property, plant and equipment (non-GAAP)

Cash flow from operations less Expenditures for property, plant and equipment is a non-GAAP financial measure that reflects an additional way of viewing our liquidity that, when viewed with our GAAP results, provides a supplemental

understanding of factors and trends affecting our cash flows.

Cash flow from operations less Expenditures for property, plant and equipment is calculated by subtracting Expenditures for property, plant and equipment from Net cash provided by (used for) operating activities.

Management believes it is a more conservative measure of cash flow, and therefore useful to investors, because purchases of fixed assets are necessary for ongoing operations.

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

Year Ended December 31,

2021 2020 2019

(Dollars in millions)

Net cash (used for) provided by operating activities — GAAP (310) 25 242

Expenditures for property, plant and equipment (72) (80) (102)

Cash flow from operations less Expenditures for property, plant and equipment (Non-GAAP) $ (382) $ (55) $ 140

Cash flow from operations less Expenditures for property, plant and equipment (non-GAAP) decreased by $327 million for 2021 versus the prior-year period, primarily due to a $375 million payment to Honeywell pursuant to the Plan in the current-year period compared to a $6 million payment to Honeywell in the prior-period.

Additionally, there was an increase in net loss, net of deferred taxes and non-cash gains related to the reorganization of $66 million, partially offset by a favorable impact from working capital of $47 million and $65 million mainly driven by prepayments made in 2020 for directors' and officers' insurance in relation to our Chapter 11 Cases.

Additionally, Expenditures for property, plant and equipment expenses decreased by $8 million.

Capital Expenditures

We believe our capital spending in recent years has been sufficient to maintain efficient production capacity, to implement important product and process redesigns and to expand capacity to meet increased demand.

We expect to increase our capital expenditures in 2022 by approximately $20 million compared to those made in 2021 as we continue to increase our manufacturing capacity for new product launches and invest in strategic growth opportunities, in particular in the electrification of drivetrains .

Productivity projects have freed up capacity in our manufacturing facilities and are expected to continue to do so.

We expect to continue investing to expand and modernize our existing facilities and invest in our facilities to create capacity for new product development.

We expect to maintain a similar level of capital expenditures in 2023 as compared to 2022, increasing investment in electrification technologies while offsetting with investment on core technologies.

Critical Accounting Policies and Estimates

2 unchanged sentences

Actual results could differ from our estimates and assumptions, and any such differences could be material to our Consolidated Financial Statements.

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 ASC Topic No.

852, Reorganizations .

At the Effective Date, we did not meet the requirements under ASC 852 for fresh start accounting.

Background and Basis of Presentation , of the Notes to the Consolidated Financial Statements for further details.

Revenue 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, adjusted for any variable consideration such as price concessions or annual price adjustments as estimated at contract inception.

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.

Contingent Liabilities — We are subject to lawsuits, investigations and claims that arise out of the conduct of our global business operations or those of previously owned entities, including matters relating to commercial transactions, government contracts, product liability, prior acquisitions and divestitures, employee benefit plans, intellectual property, legal and environmental, health and safety matters.

We continually assess the likelihood of any adverse judgments or outcomes to our contingencies, as well as potential amounts or ranges of probable losses, and recognize a liability, if any, for these contingencies based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts.

Such analysis includes making judgments concerning matters such as the costs associated with environmental matters, the outcome of negotiations, the number and cost of pending and future asbestos claims, and the impact of evidentiary requirements.

Such analysis includes making judgments concerning matters such as the costs associated with environmental matters, the outcome of negotiations, and the impact of evidentiary requirements.

Because most contingencies are resolved over long periods of time, liabilities may change in the future due to new developments (including new discovery of facts, changes in legislation and outcomes of similar cases through the judicial system), changes in assumptions or changes in our settlement strategy.

6 unchanged sentences

Pension Benefits — We sponsor defined benefit pension plans covering certain employees, primarily in Switzerland, the U.S.

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 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 expense (income).

The key assumptions used in developing our 2021 and 2020 net periodic pension (income) expense included the following:

Plans Non-U.S.

Discount Rate:

Projected benefit obligation 2.65 % 0.46 % 3.30 % 0.79 %

Service Cost 3.37 % 0.23 % 4.47 % 1.20 %

Interest cost 2.86 % 0.63 % 4.06 % 1.74 %

Expected rate of return 4.88 % 3.60 % 5.49 % 3.79 %

Actual rate of return 6.63 % 9.27 % 12.49 % 5.19 %

The MTM Adjustment represents the recognition of net actuarial gains or losses in excess of 10% of the greater of the fair value of plan assets or the plans’ projected benefit obligation (the corridor).

The pension cost and liabilities for these plans are developed from actuarial valuations.

Inherent in these valuations are key assumptions including discount rates, expected return on plan assets, mortality rates, and compensation increases.

The Company is required to consider current market conditions, including changes in interest rates, and employee demographics such as retirement patterns, in making its assumptions.

Changes in the related pension benefit costs or liabilities may occur in the future due to changes in the assumptions.

The discount rate reflects the market rate on December 31 (the measurement date) for high-quality fixed-income investments with maturities corresponding to our pension obligations and is subject to change each year.

The discount rate can be volatile from year to year as it is determined based upon prevailing interest rates as of the measurement date.

The assumptions as to the expected long-term rates of return on plan assets are based upon historical plan asset returns over varying long-term periods combined with our expectations of future market conditions and asset mix considerations.

Net actuarial gains and losses occur when the actual experience differs from any of the various assumptions used to value our pension plans or when assumptions change.

The primary factors contributing to actuarial gains and losses are changes in the discount rate used to value pension obligations as of the measurement date each year and the difference between expected and actual returns on plan assets.

The mark-to-market accounting method results in the potential for volatile and difficult to forecast MTM Adjustments.

There were no MTM adjustments for our U.S.

Plans and non-U.S.

Plans for the year ended December 31, 2021.

We determine the expected long-term rate of return on plan assets utilizing historical plan asset returns over varying long-term periods combined with our expectations of future market conditions and asset mix considerations (see Note 26, Defined Benefit Pension Plans of the Notes to the Consolidated Financial Statements for details on the actual various asset classes and targeted asset allocation percentages for our pension plans).

We plan to use an expected rate of return on plan assets of 3.97% for our U.S.

Plans and 3.35% for our non-U.S.

Plans for 2022 as this is a long-term rate based on historical plan asset returns over varying long-term periods combined with our expectations of future market conditions and the asset mix of the plan’s investments.

The discount rate reflects the market rate on December 31 (measurement date) for high-quality fixed-income investments with maturities corresponding to our benefit obligations and is subject to change each year.

The discount rate can be volatile from year to year as it is determined based upon prevailing interest rates as of the measurement date.

We used a 2.95% discount rate to determine benefit obligations for our U.S.

Plans and 0.86% for our non-U.S.

Plans as of December 31, 2021.

Pension ongoing expense (income) for all of our pension plans is expected to be pension income of $1 million in 2022 compared with pension income of $2 million in 2021.

Also, if required, a MTM Adjustment will be recorded in the fourth quarter of 2022 in accordance with our pension accounting method as previously described.

It is difficult to reliably forecast or predict whether there will be a MTM Adjustment in 2022, and if one is required, what the magnitude of such adjustment will be.

MTM Adjustments are primarily driven by events and circumstances beyond the control of the Company such as changes in interest rates and the performance of the financial markets.

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.

The mark-to-market accounting method results in the potential for volatile and difficult to forecast MTM Adjustments as the adjustments are primarily driven by events and circumstances beyond the control of the Company such as changes in interest rates and the performance of the financial markets.

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.

14 unchanged sentences

Litigation and Environmental Matters

See Note 25, Commitments and Contingencies of the Notes to the Consolidated Financial Statements for a discussion of environmental and other litigation matters.

See Note 25, Commitments and Contingencies of the Notes to the Consolidated Financial Statements for a discussion of litigation matters.

Recent Accounting Pronouncements

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis