Item 2. Management’s Discussion and Analysis
Item 2. 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 Interim Financial Statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q as well as the audited annual Consolidated Financial Statements 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”). Some of the information contained in this MD&A or set forth elsewhere in this Quarterly Report on Form 10-Q, 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 our 2022 Form 10-K and this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in, or implied, by these forward-looking statements.
The following MD&A is intended to help you understand the results of operations and financial condition of Garrett Motion Inc., for the three and six months ended June 30, 2023.
Executive Summary
For the three months ended June 30, 2023, net sales were $1,011 million, an increase compared to prior year of $152 million or 18%, including an unfavorable impact of $7 million or 1% due to foreign currency translation. The increase was driven by strong performance from the ramp up of new products, inflation recoveries net of pricing impacting all product lines and the lifting of COVID-related lockdown measures in China which impacted the prior year.
Our light vehicle product sales (which comprise diesel and gasoline products, including products for passenger cars, SUVs, light trucks, and other products) accounted for approximately 71% of our revenues. Commercial vehicle product sales (products for on- and off-highway trucks, construction, agriculture and power-generation machines) accounted for 17% of our revenues while our aftermarket and other products contributed 12% of our revenues. Approximately 49% of our revenues came from sales to customers located in Europe, 30% from sales to customers located in Asia, 19% from sales to customers in North America, and 2% from sales to customers in other international markets.
On April 12, 2023, we entered into separate definitive agreements (the "Agreements") with with each of Centerbridge Partners, L.P. and funds managed by Oaktree Capital Management, L.P. (collectively, the "C&O Investors") to effect a series of integrated transactions (the "Transaction") designed to increase the attractiveness of the Company to investors, including simplifying our capital structure through a conversion of all shares of the Series A Preferred Stock into shares of Common Stock.
Under the Transaction, the Company repurchased 69,707,719 shares of Series A Preferred Stock and converted 175,337,712 shares of Series A Preferred Stock into an equivalent number of Common Stock. Total consideration paid to the holders of Series A Preferred Stock under the Transaction amounted to cash payments of $605 million and the issuance of an additional 25,577,517 shares of Common Stock in settlement of accumulated and unpaid preference dividends on the Series A Preferred Stock through June 30, 2023. The Transaction was financed through a new Term Loan B for an aggregate principal amount of $700 million under the framework of the Company's existing credit agreement.
As part of the Agreements, the C&O Investors agreed with the Company to certain changes to each of their respective 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. The foregoing description of the Transaction does not purport to be complete and is qualified in its entirety by reference to the full text of the Agreements which we have previously filed with the SEC, and which are incorporated by reference herein.
On April 12, 2023, the Board of Directors also authorized an increase in our share repurchase program to an aggregate amount of $250 million available as of that date.
On July 26, 2023, the Board of Directors approved the early repayment of approximately $200 million of our Term Loan Facilities. The Company expects the repayment to occur in the third quarter of 2023.
Disaggregated Revenue
The following tables show our revenues by geographic region and product line for the three and six months ended June 30, 2023 and 2022, respectively.
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By Region
Three Months Ended
June 30,
Six Months Ended
June 30,
2023 2022 2023 2022
(Dollars in millions)
United States
$ 190 19% $ 173 20% $ 363 18% $ 326 18%
Europe
494 49% 440 51% 991 50% 891 51%
Asia
309 30% 227 26% 591 30% 509 29%
Other
18 2% 19 2% 36 2% 34 2%
Total
$ 1,011 $ 859 $ 1,981 $ 1,760
By Product Line
Three Months Ended
June 30,
Six Months Ended
June 30,
2023 2022 2023 2022
(Dollars in millions)
Diesel $ 260 26% $ 237 27% $ 522 27% $ 491 28%
Gas 455 45% 345 40% 858 43% 708 40%
Commercial Vehicle 168 17% 154 18% 351 18% 320 18%
Aftermarket 114 11% 108 13% 224 11% 213 12%
Other 14 1% 15 2% 26 1% 28 2%
Total $ 1,011 $ 859 $ 1,981 $ 1,760
Results of Operations for the Three and Six Months Ended June 30, 2023
Net Sales
Three Months Ended
June 30,
Six Months Ended
June 30,
2023 2022 2023 2022
(Dollars in millions)
Net sales $ 1,011 $ 859 $ 1,981 $ 1,760
% change compared with prior period 17.7 % 12.6 %
For the three months ended June 30, 2023, net sales increased compared to prior year by $152 million or 18%, including an unfavorable impact of $7 million or 1% due to foreign currency translation driven by lower Chinese yuan-to-US dollar exchange rates, partially offset by higher Euro-to-US dollar exchange rates. The increase was driven by strong performance from the ramp up of new products, inflation recoveries net of pricing impacting all product lines and the lifting of COVID-related lockdown measures in China which impacted the prior year.
Gasoline product sales increased by $111 million or 32% (including an unfavorable impact of $7 million or 2% due to foreign currency translation), primarily due to strong performance in China related to new product launches combined with
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lower prior year net sales in China due to the COVID-related lockdown measures implemented by the Chinese government which were lifted in June 2022.
Diesel product sales increased by $23 million or 10% (including a favorable impact of $2 million or 1% due to foreign currency translation), primarily driven by growth in Europe where diesel is essential to meet fleet CO2 regulation targets, and strong light commercial vehicle sales on incumbent platforms.
Commercial vehicle sales increased by $14 million or 9% (including an unfavorable impact of $1 million or 1% due to foreign currency translation), primarily driven by more favorable product mix in North America and Eur ope on both on- and off-highway platforms.
Aftermarket sales improved by $6 million or 6%, primarily due to strong demand in Europe and Asia Pacific related to favorable aftermarket conditions such as continued high demand for replacement and performance parts, recovery in China from the end of the Chinese government's zero COVID-19 policy, as well as growth through new product introductions, favorable pricing impacts and improved shipment performance.
For the six months ended June 30, 2023, net sales increased compared to prior year by $221 million or 13%, including an unfavorable impact of $54 million or 3% due to foreign currency translation driven by lower Chinese yuan-to-US dollar exchange rates and lower Euro-to-US dollar exchange rates. This increase was driven by higher volumes as markets recover from the semiconductor shortages experienced in the prior year and strong performance from new product launches and ramp ups, combined with prior year COVID-related lockdown measures in China and inflation recoveries net of pricing across all product lines.
Gasoline product sales increased by $150 million or 21% (including an unfavorable impact of $29 million or 4% due to foreign currency translation), primarily driven by industry recovery from the prior year’s global semiconductor shortages and COVID-related lockdown measures in China combined with new product launches and ramp ups across all regions.
Diesel product sales increased by $31 million or 6% (including an unfavorable impact of $11 million or 2% due to foreign currency translation), due to strong performance in Europe where diesel is essential to meet fleet CO2 regulations target, and strong light commercial vehicle sales on incumbent platforms.
Commercial vehicle sales increased by $31 million or 10% (including an unfavorable impact of $10 million or 3% due to foreign currency translation), primarily driven by strong performance in North America and Europe due to new product launches combined with favorable global product mix.
Aftermarket sales improved by $11 million or 5% (including an unfavorable impact of $3 million or 1% due to foreign currency translation), primarily due to strong demand in Europe and Asia Pacific related to favorable aftermarket conditions such as continued high demand for replacement parts, recovery in China from the end of the Chinese government's zero COVID-19 policy, as well as growth through new product introductions and favorable pricing impacts and improved shipment performance.
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Cost of Goods Sold and Gross Profit
Three Months Ended
June 30,
Six Months Ended
June 30,
2023 2022 2023 2022
(Dollars in millions)
Cost of goods sold $ 809 $ 690 $ 1,590 $ 1,416
% change compared with prior period 17.2 % 12.3 %
Gross profit percentage 20.0 % 19.7 % 19.7 % 19.5 %
Cost of Goods Sold Gross Profit
(Dollars in millions)
Cost of Goods Sold / Gross Profit for the three months ended June 30, 2022
$ 690 $ 169
Increase/(decrease) due to:
Volume 108 46
Product mix 1 (27)
Price, net of inflation pass-through — 28
Commodity, transportation & energy inflation 16 (16)
Productivity, net (4) 7
Research & development 7 (7)
Foreign exchange rate impacts (9) 2
Cost of Goods Sold / Gross Profit for the three months ended June 30, 2023
$ 809 809 $ 202
For the three months ended June 30, 2023, cost of goods sold increased by $119 million, primarily driven by our higher sales volumes and an unfavorable product mix, which contributed to increases of $108 million and $1 million, respectively. Cost of goods sold further increased due to $16 million of inflation on commodities, energy and transportation, as well as a $7 million increase in Research and development ("R&D") costs which reflects our continued investment in new technologies and headcount increase year-over-ye ar. Our continued focus on productivity, net of labor inflation and one-time expenses, contributed to a decrease in cost of goods sold of $4 million. Foreign currency impacts from transactional, translational and hedging effects also contributed to decreases in cost of goods sold of $9 million.
Gross profit increased by $33 million, mainly driven by the higher sales volumes of $46 million and $28 million of inflation recoveries from customer pass-through agreements net of pricing reductions. Furthermore, gross profit increased by $7 million from higher productivity net of labor inflation and one-time expenses as discussed above. Gross profit also increased by $2 million due to foreign currency impacts from transactional, translational and hedging effects. These increases were partially offset by $27 million of unfavorable product mix, $16 million of inflation on commodities, energy and transportation costs, as well as $7 million of higher R&D costs as discussed above.
Cost of Goods Sold Gross Profit
(Dollars in millions)
Cost of Goods Sold / Gross Profit for the six months ended June 30, 2022
$ 1,416 $ 344
Increase/(decrease) due to:
Volume 149 64
Product mix 36 (23)
Price, net of inflation pass-through — 51
Commodity, transportation & energy inflation 42 (42)
Productivity, net (18) 15
Research & development 10 (10)
Foreign exchange rate impacts (45) (8)
Cost of Goods Sold / Gross Profit for the six months ended June 30, 2023
$ 1,590 1590 $ 391
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For the six months ended June 30, 2023, cost of goods sold increased by $174 million, primarily driven by our higher sales volumes and an unfavorable product mix, which contributed to increases of $149 million and $36 million, respectively. Cost of goods sold further increased due to $42 million of inflation on commodities, energy and transportation, as well as a $10 million increase in R&D costs which reflects our continued investment in new technologies and headcount increase year-over-year. Our continued focus on productivity, net of labo r inflation and one-time expenses, contributed to a decrease in cost of goods sold of $18 million. Foreign currency impacts from transactional, translational and hedging effects also contributed to decreases in cost of goods sold of $45 million.
Gross profit increased by $47 million, mainly driven by the higher sales volumes of $64 million and $51 million of inflation recoveries from customer pass-through agreements net of pricing reductions. Furthermore, gross profit increased $15 million from higher productivity net of labor inflation and one-time expenses as discussed above. These increases were partially offset by $42 million inflation on commodities, energy costs and transportation, as discussed above, $23 million of unfavorable product mix, $10 million of higher R&D costs and $8 million from foreign currency impacts from transactional, translational and hedging effects.
Selling, General and Administrative Expenses
Three Months Ended
June 30,
Six Months Ended
June 30,
2023 2022 2023 2022
(Dollars in millions)
Selling, general and administrative expense $ 63 $ 54 $ 119 $ 107
% of sales 6.2 % 6.3 % 6.0 % 6.1 %
Selling, general and administrative (“SG&A”) expenses for the three months ended June 30, 2023 increased by $9 million compared with the prior year, primarily due to $5 million of legal and advisory fees related to our capital structure transformation Transaction, $1 million of unfavorable impacts from foreign exchange rates an d $2 million of labor-related expenses.
SG&A expenses for the six months ended June 30, 2023 increased by $12 million compared with the prior year, primarily due to $7 million of legal and advisory fees related to our capital structure transformation Transaction, $3 million of labor inflation impacts, and $3 million of lower incentive compensation expense in 2022. These increases were partially offset by $1 million of favorable impacts from foreign exchange rates.
Interest Expense
Three Months Ended
June 30,
Six Months Ended
June 30,
2023 2022 2023 2022
(Dollars in millions)
Interest expense $ 30 $ 20 $ 58 $ 43
For the three months ended June 30, 2023, interest expense increased by $10 million compared to the prior year, due to $21 million of higher interest expense primarily driven by the new $700 million U.S. Dollar term loan and increased interest rates, partially offset by $7 million from unrealized marked-to-market gains on our interest rate swaps and $4 million of interest accretion in the prior year on our Series B Preferred Stock that was fully redeemed by June 2022.
For the six months ended June 30, 2023, interest expense increased by $15 million compared to prior year, due to $30 million of higher interest expense primarily driven by the aforementioned $700 million U.S. Dollar term loan and increased market interest rates. These increases in interest expense were partially offset by $10 million of interest accretion in the prior year on our Series B Preferred Stock that was fully redeemed in June 2022 and $4 million of unrealized marked-to-market gains on our interest rate swaps.
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Non-operating expense (income)
Three Months Ended
June 30,
Six Months Ended
June 30,
2023 2022 2023 2022
(Dollars in millions)
Non-operating expense (income) $ 7 $ (16) $ 3 $ (44)
For the three months ended June 30, 2023, non-operating expense was $7 million, from an income of $16 million in the prior year, due to a $13 million loss on the remeasurement of the Series A Preferred Stock Agreement related to our capital structure transformation Transaction and $8 million of interest income recorded in 2022 for unrealized marked-to-market gains on our interest rate swaps, partially offset by $2 million of foreign exchange remeasurement gains.
For the six months ended June 30, 2023, non-operating expense was $3 million, from an income of $44 million in the prior year period, driven by $33 million of interest income recorded in 2022 for unrealized marked-to-market gains on our interest rate swaps and a $13 million loss on the remeasurement of the aforementioned Series A Preferred Stock Agreement. These decreases were partially offset by $5 million of foreign exchange remeasurement gains.
Tax Expense
Three Months Ended
June 30,
Six Months Ended
June 30,
2023 2022 2023 2022
(Dollars in millions)
Tax expense $ 30 $ 20 $ 57 $ 57
Effective tax rate 29.7 % 19.0 % 27.3 % 24.8 %
The change in the effective tax rate for the three and six months ended June 30, 2023 compared to the prior period is primarily related to non-deductible Transaction-related expenses and a one-time benefit in 2022 related to a change in assertion to permanently reinvest a portion of undistributed earnings in China.
Net Income
Three Months Ended
June 30,
Six Months Ended
June 30,
2023 2022 2023 2022
(Dollars in millions)
Net income $ 71 $ 85 $ 152 $ 173
Net income margin 7.0 % 9.9 % 7.7 % 9.8 %
Net income for the three months ended June 30, 2023 decreased by $14 million compared with the prior year, primarily due to $23 million of higher non-operating expenses as discussed above, $10 million of higher interest expense and $10 million of higher tax expense, partially offset by $33 million increase in gross profit.
Net income for the six months ended June 30, 2023 decreased by $21 million compared with the prior year, primarily due to $47 million higher of non-operating expenses as discussed above, $15 million of higher interest expense, and $12 million of higher SG&A expenses, partially offset by a $47 million increase in gross profit and a $5 million loss on extinguishment of debt recorded in the prior year.
Non-GAAP Measures
It is management’s intent to provide non-GAAP financial information to supplement the understanding of our business operations and performance, and it should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Each non-GAAP financial measure is presented along with the most directly comparable GAAP measure so as not to imply that more emphasis should be placed on the non-GAAP measure. The non-GAAP financial information presented may be determined or calculated differently by other companies and may not be comparable to other similarly titled measures used by other companies. Additionally, the non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for an analysis of the Company’s operating results as reported under GAAP.
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EBITDA and Adjusted EBITDA (1)
Three Months Ended
June 30,
Six Months Ended
June 30,
2023 2022 2023 2022
(Dollars in millions)
Net income (GAAP) $ 71 $ 85 $ 152 $ 173
Interest expense, net of interest income
24 8 51 4
Tax expense 30 20 57 57
Depreciation 22 21 43 43
EBITDA (Non-GAAP) 147 134 303 277
Reorganization items, net (2)
— 1 — 2
Stock compensation expense (3)
5 3 8 5
Repositioning costs (4)
1 2 8 3
Loss on extinguishment of debt
— 5 — 5
Discounting costs on factoring
1 — 2 1
Other non-operating income (5)
(2) (7) (3) (9)
Capital structure transformation expenses (6)
18 — 20 —
Adjusted EBITDA (Non-GAAP) $ 170 $ 138 $ 338 $ 284
(1) We evaluate performance on the basis of EBITDA and Adjusted EBITDA. 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, loss on extinguishment of debt, discounting costs on factoring, other non-operating income and capital structure transformation expenses. 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; and
• 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.
In addition, our management may use Adjusted EBITDA in setting performance incentive targets to align performance measurement with operational performance.
(2) The Company applied ASC 852 for periods subsequent to September 20, 2020, the date the Company and certain of its subsidiaries each filed a voluntary petition for relief under Chapter 11 of title 11 of the United States Code, 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 related to these transactions and events were recorded within Reorganization items, net in the Consolidated Interim Statements of Operations.
(3) Stock compensation expense includes only non-cash expenses.
(4) Repositioning costs includes severance costs related to restructuring projects to improve future productivity.
(5) 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.
(6) Includes the loss on remeasurement of the Series A Preferred Stock Agreement as well as third-party legal and advisory fees that are directly attributable to the Company's capital structure transformation Transaction.
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Adjusted EBITDA for the Three Months Ended June 30, 2023
For the three months ended June 30, 2023 , net income decreased by $14 million versus the prior year as discussed above within the Results of Operations for the Three and Six Months Ended June 30, 2023 section.
Adjusted EBITDA increased by $32 million compared to the prior year, mainly due to volume increases, increased productivity, inflation pass-through net of pricing, as well as favorable foreign exchange impacts. These increases in Adjusted EBITDA were partially offset by product mix, as well as inflation on commodities, transportation and energy costs.
During the three months ended June 30, 2023, we saw strong customer demand increases across all product lines, in a less disruptive supply chain environment, with strong performance from new product launches and ramping up on incumbent platforms, combined with prior year COVID-related lockdown measures in China . We also saw ramp up to peak volumes on programs in commercial vehicles and favorable aftermarket conditions such as continued high demand for replacement parts.
We maintained our focus on productivity in the current year as rising commodity prices led to higher raw material costs, particularly for nickel, aluminum and steel alloys. We recovered a majority of the increases from our customer pass-through agreements, especially for nickel, and continue to negotiate with our customers for further pass-through while actively managing our supply base and cost recovery mechanisms to minimize the impact of materials cost inflation. The increased productivity was partially offset by year-over-year labor inflation and increases in our SG&A expenses due primarily to lower incentive compensation expense in the prior year.
R&D expenses increased $7 million which reflects our continued investment in new technologies, increased hiring to accelerate growth in the new technologies and year-over-year labor inflation.
Gains in foreign currency from translational, transactional and hedging effects in the three months ended June 30, 2023, primarily driven by a higher Euro-to-US dollar exchange rate versus the prior-year period, also accounted for a $4 million increase in Adjusted EBITDA.
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Adjusted EBITDA for the Six Months Ended June 30, 2023
For the six months ended June 30, 2023 , net income decreased by $21 million versus the prior year as discussed above within the Results of Operations for the Three and Six Months Ended June 30, 2023 section.
Adjusted EBITDA increased by $54 million compared to the prior year, mainly due to volume increases, increased productivity and inflation pass-through net of pricing. These increases in Adjusted EBITDA were partially offset by inflation on commodities, energy and transportation, product mix, as well as unfavorable foreign exchange impacts.
During the six months ended June 30, 2023, we saw strong customer demand increases in all product lines, in a less disruptive supply chain environment, as the industry recovers and the semiconductor shortages experienced in the prior year abate, as well as favorable impacts from new product launches in gasoline. We also saw ramp up to peak volumes on programs in commercial vehicles and favorable aftermarket conditions such as continued high demand for replacement parts and recovery in China from the end of their zero COVID-19 policy .
We maintained our focus on productivity in the current year as rising commodity prices led to higher raw material costs, particularly for nickel, aluminum and steel alloys. We recovered a majority of the increases from our customer pass-through agreements, especially for nickel, and continue to negotiate with our customers for further pass-through while actively managing our supply base and cost recovery mechanisms to minimize the impact of materials cost inflation. The increased productivity was partially offset by year-over-year labor inflation and increases in our SG&A expenses due primarily to lower incentive compensation expense in the prior year.
R&D expenses increased $10 million which reflects our continued investment in new technologies, increased hiring to accelerate growth in the new technologies and year-over-year labor inflation.
Losses in foreign currency from translational, transactional and hedging effects in the six months ended June 30, 2023, primarily driven by lower Euro-to-US dollar exchange rates, also accounted for a $2 million decrease in Adjusted EBITDA.
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Liquidity and Capital Resources
We employ several means to manage our liquidity, and our sources of financing include cash flows from operations, cash and cash equivalents, our Term Loan Facilities, and Revolving Facility.
June 30,
2023 December 31,
2022
(Dollars in millions)
Cash and cash equivalents $ 478 $ 246
Restricted cash 1 2
Revolving Facility - available borrowing capacity 570 475
Revolving Facility - borrowings or letters of credit outstanding — —
Term Loan Facilities - principal outstanding 1,891 1,186
Bilateral letter of credit facility - available capacity 3 1
Bilateral letter of credit facility - utilized capacity 12 14
On April 27, 2023, the Company entered into the Third Amendment to the Credit Agreement, which provided for additional financing of $700 million through the 2023 Dollar Term Facility and an increase of $95 million in maximum borrowings available under the Revolving Facility. The proceeds from the 2023 Dollar Term Facility were primarily used to finance the repurchase from the C&O Investors of shares of Series A Preferred Stock as part of the Transaction, and pay fees and expenses incurred in connection with the Third Amendment. The 2023 Dollar Term Facility matures on April 30, 2028. Prior to maturity, the 2023 Dollar Term Facility will be repaid quarterly in an amount equal to, during the first two years occurring after the Closing Date, 7.50% per annum of the aggregate principal amount, and thereafter, 10.00% per annum.
During the six months ended June 30, 2023, we repaid $4 million on our 2021 Dollar Term Facility. The Company entered into the Agreements with the C&O Investors to repurchase certain shares and convert all remaining Series A Preferred Stock. As part of the Transaction, all holders of Series A Preferred Stock, including the C&O Investors, received an amount equal to the Accumulated Dividends and Additional Amounts outstanding at repurchase or conversion date. As of June 30, 2023, all Series A Preferred Stock had either been repurchased or converted and there are no accumulated unpaid dividends on the Series A Preferred Stock. Refer to Note 15, Series A Preferred Stock of the Notes to the Consolidated Interim Financial Statements for further details regarding the Transaction.
On July 26, 2023, the Board of Directors of the Company approved the early repayment of approximately $200 million of our Term Loan Facilities. The Company expects the repayment to occur in the third quarter of 2023.
As previously disclosed, we expect to continue investing in our facilities as we expand our manufacturing capacity for new product launches and invest in new technologies and strategic growth opportunities, in particular in the electrification of drivetrains. We believe the combination of expected cash flows, the term loan borrowings, and the Revolving Facility being committed until 2028, will provide us with adequate liquidity to support the Company's operations.
Share Repurchase Program
On November 16, 2021, the Board of Directors authorized a $100 million share repurchase program for one year, providing for the purchase of shares of Series A Preferred Stock and Common Stock. On November 2, 2022, the Directors authorized the extension of he share repurchase program. On April 12, 2023, the Board of Directors further authorized an increase in the size of the share repurchase program to an aggregate amount of $250 million available as of that date.
As of June 30, 2023, the Company had repurcha sed $17 million of Common Stock, w ith $233 million remaining under the share repurchase program. An a dditional 8,464,906 shares of Common Stock were repurchased from July 1, 2023 through July 25, 2023 for an amount of $63 million. For more information, see Item 2. Unregistered Sales of Equity Securities and Use of Proceeds .
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Cash Flow Summary for the Six Months Ended June 30, 2023
Six Months Ended
June 30,
2023 2022
(Dollars in millions)
Cash provided by (used for):
Operating activities $ 256 $ 177
Investing activities (24) (52)
Financing activities (2) (393)
Effect of exchange rate changes on cash and restricted cash 1 (17)
Net increase (decrease) in cash, cash equivalents and restricted cash
$ 231 $ (285)
Cash provided by op erating activities increased by $79 million for the six months ended June 30, 2023 versus the prior year. The increase was primarily driven by an increase in net income, excluding the effects of non-cash items, of $58 million and favorable impacts from other assets and liabilities of $21 million.
Cash used for investing activities decreased by $28 million for the six months ended June 30, 2023 versus the prior year due to $19 million of decreased expenditures for property, plant and equipment and $9 million of cash settlement received on the re-couponing of our cross currency swap contracts which have been designated as net investment hedges of our Euro-denominated operations.
Cash used for financing activities decreased by $391 million for the six months ended June 30, 2023 compared with the prior year. Cash flows for financing activities during the six months ended June 30, 2023 included $667 million from the 2023 Dollar Term Facility net of debt financing costs. We paid an aggregate amount of $605 million to holders of the Series A Preferred Stock related to the Transaction, including conversion of the Series A Preferred Stock as discussed above and in Note 15, Series A Preferred Stock of the Notes to the Consolidated Interim Financial Statements . We also made payments of $15 million for the repurchase of Common Stock under our share repurchase program and debt repayments of $4 million on our 2021 Dollar Term Facility. In comparison, cash used for financing activities for the six months ended June 30, 2022 was primarily related to the Company's payment of $381 million for the final early redemption of our Series B Preferred Stock (exclusive of $28 million attributable to interest and included in cash from operating activities).
Off-Balance Sheet Arrangements
We do not engage in any off-balance sheet financial arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
The preparation of our Consolidated Interim Financial Statements in accordance with generally accepted accounting principles is based on the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of matters that are inherently uncertain. Actual results could differ from our estimates and assumptions, and any such differences could be material to our financial statements. Our critical accounting policies are summarized in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our 2022 Form 10-K.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies of the Notes to the Consolidated Interim Financial Statements for further discussion of recent accounting pronouncements.
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Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including without limitation statements regarding the following, are forward-looking statements: statements regarding our future results of operations and financial position, results of operations and financial position, expectations regarding the growth of the turbocharger and electric vehicle markets and other industry trends, the sufficiency of our cash and cash equivalents, anticipated sources and uses of cash, anticipated investments in our business, our business strategy, pending litigation, anticipated interest expense, and the plans and objectives of management for future operations and capital expenditures are forward-looking statements . These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including:
• increases in the costs and availability of raw materials, components, energy and transportation and our ability to offset inflation;
• sales to major customers as well as a network of independent dealers to manage the distribution of our products, and we could be adversely impacted by the loss of any of our such major customers or dealers, changes in their requirements for our products or changes in their financial condition.
• the negotiating positions of our customers and our ability to negotiate favorable pricing terms;
• risks associated with changes in the automotive industry and our inability, or a perception that we are unable, to respond appropriately to such changes, our financial condition and results of operations could be adversely impacted;
• risks associated with any program launch difficulties and inaccuracies in estimates of volumes of awarded business;
• changes in the automotive industry and economic or competitive conditions;
• risks related to economic, political, regulatory and foreign exchange;
• geopolitical conditions, such as the ongoing conflict between Russia and Ukraine, and catastrophic events, such as the COVID-19 pandemic;
• risks related to international operations and our investment in foreign markets;
• risks of increased scrutiny from customers, investors, regulators and others regarding sustainability/ESG practices, as well as the climate-related risks we may face, each of which could expose us to liabilities, including reputational harm, impact demand for our products, lead to increased costs and have other adverse effects on our business, supply chain and results of operations;
• risks associated with joint venture partnerships and joint development projects;
• any failure to protect our intellectual property or allegations that we have infringed the intellectual property of others; and our ability to license necessary intellectual property from third parties;
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• work stoppages, other disruptions or the need to relocate any of our facilities;
• inability to recruit and retain qualified personnel;
• any failure to increase productivity or successfully execute repositioning projects or manage our workforce;
• potential material losses and costs as a result of any warranty claims and product liability actions brought against us;
• the commencement of any lawsuits, investigations and disputes arising out of our current and historical businesses, and the consequences thereof;
• potential material environmental liabilities and hazards;
• risks of changes in the effective tax rates
• the effects of any deterioration on industry, economic or financial conditions on our ability to access the capital markets on favorable terms;
• quality control and creditworthiness of the suppliers on which we rely;
• risks for system or service failures, including cyber or other security incidents, each of which could disrupt business operations, result in loss of critical and confidential information and adversely impact our reputation and results of operations; and
• the other factors described under the caption “Risk Factors” in our 2022 Form 10-K, as updated in this Quarterly Report on Form 10-Q, and our other filings with the SEC.
You should read this Quarterly Report on Form 10-Q and the documents that we reference herein completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.