Garrett Motion Inc. 10-Q

Item 1. Financial Statements GARRETT MOTION INC. CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, 2023 2022 (Dollars in millions, except per share amounts) Net sales (Note 3) $ 970 $ 901 Cost of goods sold 781 726 Gross profit 189 175 Selling, general and administrative expenses 56 53 Other expense, net 1 1 Interest expense 28 23 Non-operating income ( 4 ) ( 28 ) Reorganization items, net — 1 Income before taxes 108 125 Tax expense (Note 5) 27 37 Net income 81 88 Less: preferred stock dividend (Note 18) ( 40 ) ( 38 ) Net income available for distribution $ 41 $ 50 Earnings per common share Basic $ 0.13 $ 0.15 Diluted $ 0.13 $ 0.15 Weighted average common shares outstanding Basic 64,896,081 64,538,527 Diluted 65,970,723 64,732,090 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 March 31, 2023 2022 (Dollars in millions) Net income $ 81 $ 88 Foreign exchange translation adjustment 2 2 Changes in fair value of effective cash flow hedges, net of tax (Note 16) ( 3 ) 8 Changes in fair value of net investment hedges, net of tax (Note 16) ( 5 ) 13 Total other comprehensive (loss) income, net of tax ( 6 ) 23 Comprehensive income $ 75 $ 111 The Notes to the Consolidated Interim Financial Statements are an integral part of this statement. 3 GARRETT MOTION INC. CONSOLIDATED INTERIM BALANCE SHEETS (Unaudited) March 31, 2023 December 31, 2022 (Dollars in millions) ASSETS Current assets: Cash and cash equivalents $ 291 $ 246 Restricted cash 1 2 Accounts, notes and other receivables – net (Note 6) 888 803 Inventories – net (Note 8) 301 270 Other current assets 124 110 Total current assets 1,605 1,431 Investments and long-term receivables 32 30 Property, plant and equipment – net 462 470 Goodwill 193 193 Deferred income taxes 240 232 Other assets (Note 9) 259 281 Total assets $ 2,791 $ 2,637 LIABILITIES Current liabilities: Accounts payable $ 1,123 $ 1,048 Current maturities of long-term debt (Note 14) 7 7 Accrued liabilities (Note 11) 348 320 Total current liabilities 1,478 1,375 Long-term debt (Note 14) 1,157 1,148 Deferred income taxes 28 25 Other liabilities (Note 12) 208 205 Total liabilities $ 2,871 $ 2,753 COMMITMENTS AND CONTINGENCIES (Note 20) EQUITY (DEFICIT) Series A Preferred Stock, par value $ 0.001 ; 245,045,431 and 245,089,671 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively $ — $ — Common Stock, par value $ 0.001 ; 1,000,000,000 and 1,000,000,000 shares authorized, 65,099,244 and 64,943,238 issued and 64,959,553 and 64,832,609 outstanding as of March 31, 2023 and December 31, 2022, respectively — — Additional paid–in capital 1,336 1,333 Retained deficit ( 1,446 ) ( 1,485 ) Accumulated other comprehensive income (Note 17) 30 36 Total deficit ( 80 ) ( 116 ) Total liabilities and deficit $ 2,791 $ 2,637 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) Three Months Ended March 31, (Dollars in millions) 2023 2022 Cash flows from operating activities: Net income $ 81 $ 88 Adjustments to reconcile net income to net cash provided by operating activities Deferred income taxes 3 13 Depreciation 21 22 Amortization of deferred issuance costs 2 2 Interest payments, net of debt discount accretion — ( 6 ) Foreign exchange loss ( 2 ) ( 4 ) Stock compensation expense 3 2 Change in fair value of derivatives 10 ( 17 ) Other 12 ( 1 ) Changes in assets and liabilities: Accounts, notes and other receivables ( 77 ) ( 61 ) Inventories ( 30 ) ( 62 ) Other assets ( 18 ) ( 10 ) Accounts payable 62 116 Accrued liabilities 20 ( 2 ) Other liabilities 5 ( 7 ) Net cash provided by operating activities $ 92 $ 73 Cash flows from investing activities: Expenditures for property, plant and equipment ( 8 ) ( 29 ) Net cash used for investing activities $ ( 8 ) $ ( 29 ) Cash flows from financing activities: Payments of long-term debt ( 2 ) ( 2 ) Redemption of Series B Preferred stock — ( 186 ) Payments for share repurchases — ( 2 ) Payments for dividends ( 42 ) — Debt financing costs — ( 6 ) Net cash used for financing activities $ ( 44 ) $ ( 196 ) Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash 4 8 Net increase (decrease) in cash, cash equivalents and restricted cash 44 ( 144 ) Cash, cash equivalents and restricted cash at beginning of the period 248 464 Cash, cash equivalents and restricted cash at end of the period $ 292 $ 320 Supplemental cash flow disclosure: Income taxes paid (net of refunds) $ 19 $ 14 Interest paid 10 21 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, 2022 246 $ — 64 $ — $ 1,333 $ ( 1,485 ) $ 36 $ ( 116 ) Net income — — — — — 81 — 81 Other comprehensive loss, net of tax — — — — — — ( 6 ) ( 6 ) Dividends — — — — — ( 42 ) — ( 42 ) Stock-based compensation — — — — 3 — — 3 Balance at March 31, 2023 246 — 64 — $ 1,336 $ ( 1,446 ) $ 30 $ ( 80 ) 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 ) 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, 2022 included in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on February 14, 2023 (our “2022 Form 10-K”). The results of operations and cash flows for the three months ended March 31, 2023 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 March 31, 2023. Our actual closing dates for the three months ended March 31, 2023 and 2022 were April 1, 2023 and April 2, 2022 , 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. Actual results could differ from the original estimates, requiring adjustments to these balances in future periods. 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, 2022 included in our 2022 Form 10-K. 7 Recently Adopted 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 Company adopted the new guidance as of January 1, 2023. See Note 10, Supplier Financing for disclosure related to the Company's supplier financing program obligations. 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 March 31, 2023 Three Months Ended March 31, 2022 OEM Aftermarket Other Total OEM Aftermarket Other Total (Dollars in millions) United States $ 123 $ 49 $ 1 $ 173 $ 102 $ 51 $ — $ 153 Europe 446 43 8 497 406 38 7 451 Asia 267 12 3 282 266 10 6 282 Other 12 6 — 18 9 6 — 15 $ 848 $ 110 $ 12 $ 970 $ 783 $ 105 $ 13 $ 901 Contract Balances The following table summarizes our contract assets and liabilities balances: 2023 2022 (Dollars in millions) Contract assets—January 1 $ 46 $ 63 Contract assets—March 31 66 60 Change in contract assets—(Decrease)/Increase $ 20 $ ( 3 ) Contract liabilities—January 1 $ ( 8 ) $ ( 5 ) Contract liabilities—March 31 ( 10 ) ( 9 ) Change in contract liabilities—(Increase)/Decrease $ ( 2 ) $ ( 4 ) 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: Three Months Ended March 31, 2023 2022 (Dollars in millions) Research and development costs $ 40 $ 36 Engineering-related expenses (1) ( 1 ) 6 $ 39 $ 42 8 (1) Engineering-related expenses include customer reimbursements of $ 11 million and $ 3 million for the three months ended March 31, 2023 and 2022, respectively. Note 5. Income Taxes Three Months Ended March 31, 2023 2022 (Dollars in millions) Tax expense $ 27 $ 37 Effective tax rate 25.0 % 29.6 % The effective tax rates for the three months ended March 31, 2023 and 2022 were 25.0 % and 29.6 %, respectively. The change in the effective tax rate for the three months ended March 31, 2023 compared to the prior period is primarily related to a decrease in tax reserve true ups and additional global research and development benefits. The effective tax rate for the three months ended March 31, 2023 was higher than the U.S. federal statutory rate of 21% primarily because of U.S. taxes on international operations and withholding taxes, partially offset by lower taxes on non-U.S. earnings and global research and development benefits. 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 March 31, 2023 December 31, 2022 (Dollars in millions) Trade receivables $ 682 $ 619 Notes receivable 117 105 Other receivables 98 88 897 812 Less—Allowance for expected credit losses ( 9 ) ( 9 ) $ 888 $ 803 Trade receivables include $ 66 million and $ 46 million of unbilled customer contract asset balances as of March 31, 2023 and December 31, 2022, 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 . 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. 9 Three Months Ended March 31, 2023 2022 (Dollars in millions) Eligible receivables sold without recourse $ 182 $ 143 Guaranteed bank notes sold without recourse — 28 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 months ended March 31, 2023 and 2022. March 31, 2023 December 31, 2022 (Dollars in millions) Receivables sold but not yet collected by the bank from the customer $ 3 $ 5 Guaranteed bank notes sold but not yet collected by the bank from the customer — — As of March 31, 2023 and December 31, 2022, the Company has no guaranteed bank notes pledged as collateral . Note 8. Inventories—Net March 31, 2023 December 31, 2022 (Dollars in millions) Raw materials $ 208 $ 203 Work in process 21 18 Finished products 108 80 337 301 Less—Reserves ( 36 ) ( 31 ) $ 301 $ 270 Note 9. Other Assets March 31, 2023 December 31, 2022 (Dollars in millions) Advanced discounts to customers, non-current $ 50 $ 51 Operating right-of-use assets (Note 13) 44 44 Income tax receivable 22 22 Pension and other employee related 4 4 Designated cross-currency swaps 60 74 Designated and undesignated derivatives 69 76 Other 10 10 $ 259 $ 281 Note 10. Supplier Financing The Company has supplier financing arrangements with two third-party financial institutions under which certain suppliers may factor their receivables from Garrett. The Company also enters into arrangements with banking institutions to issue bankers acceptance drafts in settlement of accounts payables, primarily in the Asia Pacific region. The bankers acceptance drafts, or guaranteed bank notes, have a contractual maturity of six months or less, and may be held by suppliers until maturity, transferred to their suppliers, or discounted with financial institutions in exchange for cash. The 10 supplier financing obligations and guaranteed bank notes outstanding are recorded within Accounts payable in our Consolidated Interim Balance Sheet. March 31, 2023 December 31, 2022 (Dollars in millions) Supplier financing obligations outstanding with financial institutions $ 60 $ 33 Guaranteed bank notes outstanding 218 171 Note 11. Accrued Liabilities March 31, 2023 December 31, 2022 (Dollars in millions) Customer pricing reserve $ 56 $ 50 Compensation, benefit and other employee related 65 69 Repositioning 12 9 Product warranties and performance guarantees - short-term (Note 20) 19 18 Income and other taxes 58 39 Advanced discounts from suppliers, current 7 8 Customer advances and deferred income (1) 26 29 Accrued interest 15 13 Short-term lease liability (Note 13) 9 9 Accrued freight 10 9 Dividends payable (Note 15) 42 42 Other (primarily operating expenses) (2) 29 25 $ 348 $ 320 (1) Customer advances and deferred inco me include $ 10 million and $ 8 million of contract liabilities as of March 31, 2023 and December 31, 2022, respectively. See Note 3, Revenue Recognition and Contracts with Customers . (2) Includes $ 4 million and $ 3 million of environmental liabilities as of March 31, 2023 and December 31, 2022, 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 Other Costs Total (Dollars in millions) Balance at December 31, 2022 $ 9 $ — $ 9 Charges 5 2 7 Usage—cash ( 2 ) — ( 2 ) Non-cash asset write-offs — ( 2 ) ( 2 ) Balance at March 31, 2023 $ 12 $ — $ 12 Severance Costs Other Costs Total (Dollars in millions) Balance at December 31, 2021 $ 10 $ — $ 10 Charges 1 — 1 Usage—cash ( 3 ) — ( 3 ) Balance at March 31, 2022 $ 8 $ — $ 8 11 Note 12. Other Liabilities March 31, 2023 December 31, 2022 (Dollars in millions) Income taxes $ 102 $ 99 Pension and other employee related 20 21 L ong-term lease liability (Note 13) 36 36 Advanced discounts from suppliers 5 6 Product warranties and performance guarantees – long-term (Note 20) 10 10 Environmental remediation – long term 14 14 Long-term accounts payable 8 8 Other 13 11 208 205 Note 13. 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. The components of lease expense are as follows: Three Months Ended March 31, 2023 2022 (Dollars in millions) Operating lease cost $ 4 $ 4 Supplemental cash flow information related to operating leases is as follows: Three Months Ended March 31, 2023 2022 (Dollars in millions) Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 4 $ 3 Right-of-use assets obtained in exchange for lease obligations: Operating leases — 1 Supplemental balance sheet information related to operating leases is as follows: March 31, 2023 December 31, 2022 (Dollars in millions) Other assets $ 44 $ 44 Accrued liabilities 9 9 Other liabilities 36 36 March 31, 2023 December 31, 2022 Weighted-average remaining lease term (in years) 8.33 8.41 Weighted-average discount rate 5.59 % 5.61 % 12 Maturities of operating lease liabilities as of March 31, 2023 were as follows: (Dollars in millions) 2023 $ 8 2024 9 2025 7 2026 6 2027 5 Thereafter 20 Total lease payments 55 Less imputed interest ( 10 ) $ 45 Note 14. Long-term Debt and Credit Agreements The principal outstanding and carrying amounts of our long-term debt as of March 31, 2023 and December 31, 2022 are as follows: Due Interest Rate March 31, 2023 December 31, 2022 Dollar Term Facility 4/30/2028 LIBOR plus 325 bps $ 704 $ 706 Euro Term Facility 4/30/2028 EURIBOR plus 350 bps 489 480 Total principal outstanding 1,193 1,186 Less: unamortized deferred financing costs ( 29 ) ( 31 ) Less: current portion of long-term debt ( 7 ) ( 7 ) Total long-term debt $ 1,157 $ 1,148 Credit Facilities On April 30, 2021, 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 Term 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 re volving loans, (the “Revolving Facility,” and together with the Term Loan Facilities, the “Credit Facilities”). Following amendments to the Credit Agreement in 2022, the maximum amount of borrowings available under the Revolving Facility is $ 475 million, and the Company may use up to $ 125 million for the issuance of letters of credit to 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. The Revolving Facility matures on April 30, 2026, with certain extension rights at the discretion of each lender. As of March 31, 2023 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 March 31, 2023, the Company had $ 12 million utilized and $ 3 million of remaining available capacity under such facility. 13 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 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 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 March 31, 2023, the Company was in compliance with all covenants. Note 15. Series A Preferred Stock On March 8, 2023, 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 March 22, 2023, a total of 245,045,431 shares of Series A Preferred Stock were outstanding, resulting in an aggregate dividend amount of $ 42 million. Cash was transferred on March 29, 2023 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 April 3, 2023. As of March 31, 2023, 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 March 31, 2023, the remaining unpaid cumulative dividends not yet declared on the shares of Series A Preferred Stock outstanding as of that date was $ 169 million . 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, 2022 included in our 2022 Form 10-K. As of March 31, 2023 and December 31, 2022, we had contracts with aggregate gross notional amounts of $ 2,734 million and $ 2,621 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. 14 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 March 31, 2023 and December 31, 2022: Fair Value Notional Amounts Assets Liabilities March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022 Designated instruments: Designated forward currency exchange contracts $ 529 $ 565 $ 18 $ 22 (a) $ 6 $ 6 (c) Designated cross-currency swap 715 715 60 74 (b) — — Total designated instruments 1,244 1,280 78 96 6 6 Undesignated instruments: Undesignated interest rate swap 1,043 1,024 69 76 (b) — — Undesignated forward currency exchange contracts 447 317 2 4 (a) 6 2 (c) Total undesignated instruments 1,490 1,341 71 80 6 2 Total designated and undesignated instruments $ 2,734 $ 2,621 $ 149 $ 176 $ 12 $ 8 (a) Recorded within Other current assets (b) Recorded within Other assets (c) Recorded within Accrued liabilities As of March 31, 2023, the Company had outstanding interest rate swaps with an aggregate notional amount of € 960 million, with maturities of April 2023, April 2024, April 2025, April 2026, April 2027 and April 2028. 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. The cross-currency swaps have been designated as net investment hedges of its Euro-denominated operations. As of March 31, 2023, 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 $ 60 million at March 31, 2023. Our Consolidated Interim Statements of Comprehensive Income include Changes in fair value of net investment hedges, net of tax, of $( 5 ) million and $ 13 million, during the three months ended March 31, 2023 and 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 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. 15 The following table sets forth the Company’s financial assets and liabilities that were not carried at fair value: March 31, 2023 December 31, 2022 Carrying Value Fair Value Carrying Value Fair Value (Dollars in millions) Term Loan Facilities $ 1,164 $ 1,168 $ 1,156 $ 1,151 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 The changes in Accumulated Other Comprehensive Income 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 (Dollars in millions) Balance at December 31, 2022 $ ( 44 ) $ 13 $ 85 $ ( 18 ) $ 36 Other comprehensive income before reclassifications 2 5 ( 5 ) — 2 Amounts reclassified from accumulated other comprehensive income — ( 8 ) — — ( 8 ) Net current period other comprehensive income 2 ( 3 ) ( 5 ) — ( 6 ) Balance at March 31, 2023 $ ( 42 ) $ 10 $ 80 $ ( 18 ) $ 30 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 (Dollars in millions) Balance at December 31, 2021 $ ( 43 ) $ 7 $ 41 $ ( 9 ) $ ( 4 ) Other comprehensive income before reclassifications 2 13 13 — 28 Amounts reclassified from accumulated other comprehensive income — ( 5 ) — — ( 5 ) Net current period other comprehensive income 2 8 13 — 23 Balance at March 31, 2022 $ ( 41 ) $ 15 $ 54 $ ( 9 ) $ 19 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. 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 16 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 months ended March 31, 2023 and 2022 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. The details of the EPS calculations for the three months ended March 31, 2023 and 2022 are as follows: Three Months Ended March 31, 2023 2022 (Dollars in millions except per share) Basic earnings per share: Net income $ 81 $ 88 Less: preferred stock dividend ( 40 ) ( 38 ) Net income available for distribution 41 50 Less: earnings allocated to participating securities ( 32 ) ( 40 ) Net income available to common shareholders $ 9 $ 10 Weighted average common shares outstanding - Basic 64,896,081 64,538,527 EPS – Basic $ 0.13 $ 0.15 Diluted earnings per share: Method used: Two-class Two-class Weighted average common shares outstanding - Basic 64,896,081 64,538,527 Dilutive effect of unvested RSUs and other contingently issuable shares 1,074,642 193,563 Weighted average common shares outstanding – Diluted 65,970,723 64,732,090 EPS – Diluted $ 0.13 $ 0.15 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. 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 March 31, 2023 2022 (Dollars in millions) Payments under agreements with Honeywell $ 2 $ 2 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 March 31, 2023 and our Consolidated Balance Sheet at December 31, 2022 includes liabilities of $ 9 million and $ 10 million, respectively. Liability balances are primarily related to lease contracts of $ 7 million and $ 7 million as of March 31, 2023 and December 31, 2022, respectively. 17 Note 20. Commitments and Contingencies 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 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 18 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. On March 31, 2023, the action was dismissed with prejudice and the plaintiffs have 30 days to file an appeal. 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 March 31, 2023 was $ 35 million including penalties and interest. 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 March 31, 2023 2022 (Dollars in millions) Warranty and product performance guarantees at beginning of period $ 28 $ 32 Accruals for warranties/guarantees issued during the year 3 3 Settlement of warranty/guarantee claims ( 3 ) ( 3 ) Warranty and product performance guarantees at end of period $ 28 $ 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. 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 2023. 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 2023, of which $ 1 million has been contributed as of March 31, 2023. 19 Net periodic benefit costs for our significant defined benefit plans include the following components: Three Months Ended March 31, U.S. Plans Non-U.S. Plan 2023 2022 2023 2022 (Dollars in millions) Service cost $ — $ — $ 1 $ 2 Interest cost 2 1 1 — Expected return on plan assets ( 2 ) ( 2 ) ( 2 ) ( 2 ) Amortization of prior service (credit) — — — — $ — $ ( 1 ) $ — $ — 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. Note 22. Subsequent Events On April 12, 2023, the Company entered into separate definitive agreements (the “Agreements”) with each of Centerbridge Partners, L.P. (“Centerbridge”) and funds managed by Oaktree Capital Management, L.P. (“Oaktree”) to effect a series of integrated transactions designed to increase the attractiveness of the Company to investors, including by simplifying the Company’s capital stock by converting all outstanding Series A Preferred Stock into a single class of Common Stock, on or about July 3, 2023, subject to certain conditions. Pursuant to the Agreements and subject to the completion of the debt financing described below, the Company’s Series A Preferred Stock will convert into shares of the Company’s Common Stock in a manner similar to the conversion procedures of an Automatic Conversion Event set forth in the existing Certificate of Designations for the Series A Preferred Stock. The conversion will occur pursuant to an amendment and restatement of the Certificate of Designations for the Series A Preferred Stock, which has been approved by the Board of Directors and consented to by Centerbridge and Oaktree as the holders of a majority of the Series A Preferred Stock. The Company will repurchase approximately $ 280 million and $ 290 million of Series A Preferred Stock from Centerbridge and Oaktree, respectively, for a total of $ 570 million, at a cash price of $ 8.10 per share which will be adjusted to equal the volume-weighted average price of the Common Stock for the fifteen trading days following the announcement of the transactions, subject to a minimum price of $ 7.875 per share and a maximum price of $ 8.50 per share. In addition, all holders of Series A Preferred Stock will receive an amount equal to: • $ 0.17 per share, representing the preference dividends that will accrue on the Series A Preferred Stock from April 1, 2023 through June 30, 2023; plus • Approximately $ 0.6835 per share, representing other accrued and unpaid preference dividends on the Series A Preferred Stock; and • $ 0.144375 per share, representing the preference dividends that would have accrued on the Series A Preferred Stock from July 1, 2023 through September 30, 2023. Other than the preference dividend that would have accrued through September 30, 2023, which will be paid in cash, these amounts may be paid to all holders in cash, stock, or a combination of cash and stock, at the election of the Company, and any stock issued will be valued at the adjusted purchase price paid to Centerbridge and Oaktree. The repurchases will be funded with approximately $ 700 million of new debt, which is expected to be in the form of a new term loan B under the Company’s existing credit agreement, subject to certain modifications related to the transaction, and is expected to be consummated in Q2 2023. The repurchase of the shares of Series A Preferred Stock from Centerbridge and Oaktree pursuant to the Agreements is subject to the completion of the debt financing, the effectiveness of the amended and restated Certificate of Designations for the Series A Preferred Stock, and certain other customary conditions. The conversion of the Series A Preferred Stock 20 into shares of Common Stock pursuant to the amended and restated Certificate of Designations for the Series A Preferred Stock is subject to the completion of the repurchases of the shares of Series A Preferred Stock from Centerbridge and Oaktree. The Company has also announced an increase in its share repurchase authorization to $ 250 million. Under the share repurchase program, the Company may repurchase shares of Series A Preferred Stock or Common Stock in open market transactions, privately negotiated purchases and other transactions from time to time. As part of the Agreements, Centerbridge and Oaktree have also agreed with the Company to certain changes to their governance rights under the Company’s governance documents, including a reduction of their existing board nomination rights, as well as lock-up restrictions on their equity securities of the Company for up to twelve months , and certain limits on their ability to purchase additional equity securities of the Company and to voting limitations, in each case for a period of up to eighteen months . 21