Garrett Motion Inc. 10-Q

Item 1. Financial Statements GARRETT MOTION INC. CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (Dollars in millions, except per share amounts) Net sales (Note 3) $ 960 $ 945 $ 2,941 $ 2,705 Cost of goods sold 784 767 2,374 2,183 Gross profit 176 178 567 522 Selling, general and administrative expenses 59 57 178 164 Other expense, net 1 1 3 2 Interest expense 50 18 108 61 Loss on extinguishment of debt — — — 5 Non-operating income ( 4 ) ( 29 ) ( 1 ) ( 73 ) Reorganization items, net — — — 2 Income before taxes 70 131 279 361 Tax expense (Note 5) 13 26 70 83 Net income 57 105 209 278 Less: preferred stock dividends (Note 15) — ( 40 ) ( 80 ) ( 117 ) Less: preferred stock deemed dividends (Note 15) — — ( 232 ) — Net income (loss) available for distribution $ 57 $ 65 $ ( 103 ) $ 161 Earnings (loss) per common share Basic $ 0.23 $ 0.21 $ ( 0.73 ) $ 0.52 Diluted 0.23 0.21 ( 0.73 ) 0.52 Weighted average common shares outstanding Basic 250,888,716 64,820,887 141,745,701 64,834,298 Diluted 252,381,719 65,250,287 141,745,701 65,118,021 The Notes to the Consolidated Interim Financial Statements are an integral part of this statement. 2 GARRETT MOTION INC. CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (Dollars in millions) Net income $ 57 $ 105 $ 209 $ 278 Foreign exchange translation adjustment 14 10 8 13 Changes in fair value of effective cash flow hedges, net of tax (Note 16) ( 2 ) 9 ( 3 ) 26 Changes in fair value of net investment hedges, net of tax (Note 16) 20 45 18 87 Total other comprehensive income, net of tax 32 64 23 126 Comprehensive income $ 89 $ 169 $ 232 $ 404 The Notes to the Consolidated Interim Financial Statements are an integral part of this statement. 3 GARRETT MOTION INC. CONSOLIDATED INTERIM BALANCE SHEETS (Unaudited) September 30, 2023 December 31, 2022 (Dollars in millions) ASSETS Current assets: Cash and cash equivalents $ 162 $ 246 Restricted cash 1 2 Accounts, notes and other receivables – net (Note 6) 860 803 Inventories – net (Note 8) 294 270 Other current assets 73 110 Total current assets 1,390 1,431 Investments and long-term receivables 32 30 Property, plant and equipment – net 437 470 Goodwill 193 193 Deferred income taxes 225 232 Other assets (Note 9) 255 281 Total assets $ 2,532 $ 2,637 LIABILITIES Current liabilities: Accounts payable $ 1,066 $ 1,048 Current maturities of long-term debt (Note 14) 7 7 Accrued liabilities (Note 11) 312 320 Total current liabilities 1,385 1,375 Long-term debt (Note 14) 1,622 1,148 Deferred income taxes 21 25 Other liabilities (Note 12) 196 205 Total liabilities $ 3,224 $ 2,753 COMMITMENTS AND CONTINGENCIES (Note 20) EQUITY (DEFICIT) Series A Preferred Stock, par value $ 0.001 ; zero and 245,089,671 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively $ — $ — Common Stock, par value $ 0.001 ; 1,000,000,000 and 1,000,000,000 shares authorized, 243,305,848 and 64,943,238 issued and 243,011,280 and 64,832,609 outstanding as of September 30, 2023 and December 31, 2022, respectively — — Additional paid–in capital 1,188 1,333 Retained deficit ( 1,939 ) ( 1,485 ) Accumulated other comprehensive income (Note 17) 59 36 Total deficit ( 692 ) ( 116 ) Total liabilities and deficit $ 2,532 $ 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) Nine Months Ended September 30, 2023 2022 (Dollars in millions) Cash flows from operating activities: Net income $ 209 $ 278 Adjustments to reconcile net income to net cash provided by operating activities Deferred income taxes 13 16 Depreciation 66 64 Amortization of deferred issuance costs 17 6 Interest payments, net of debt discount accretion — ( 19 ) Loss on extinguishment of debt — 5 Loss on remeasurement of forward purchase contract 13 — Foreign exchange loss — 4 Stock compensation expense 12 8 Pension expense 1 — Change in fair value of derivatives 21 ( 54 ) Other 7 2 Changes in assets and liabilities: Accounts, notes and other receivables ( 76 ) ( 166 ) Inventories ( 30 ) ( 80 ) Other assets 2 13 Accounts payable 57 180 Accrued liabilities 26 ( 2 ) Other liabilities ( 8 ) ( 17 ) Net cash provided by operating activities $ 330 $ 238 Cash flows from investing activities: Expenditures for property, plant and equipment ( 57 ) ( 78 ) Re-couponing of cross-currency swap contract 9 — Net cash used for investing activities $ ( 48 ) $ ( 78 ) Cash flows from financing activities: Proceeds from issuance of long-term debt, net of debt financing costs 667 — Payments of long-term debt ( 205 ) ( 5 ) Redemption of Series B Preferred Stock — ( 381 ) Repurchases of Series A Preferred Stock ( 580 ) ( 4 ) Repurchases of Common Stock ( 178 ) — Payments of Additional Amounts for conversion of Series A Preferred Stock ( 25 ) — Payments for preference dividends ( 42 ) ( 42 ) Payments for debt and revolving facility financing costs ( 2 ) ( 4 ) Other ( 1 ) — Net cash used for financing activities $ ( 366 ) $ ( 436 ) Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash ( 1 ) ( 27 ) Net decrease in cash, cash equivalents and restricted cash ( 85 ) ( 303 ) Cash, cash equivalents and restricted cash at beginning of the period 248 464 Cash, cash equivalents and restricted cash at end of the period $ 163 $ 161 Supplemental cash flow disclosure: Income taxes paid (net of refunds) $ 38 $ 38 Interest paid 45 56 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 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 ) Net income — — — — — 71 — 71 Repurchases of Series A Preferred Stock ( 70 ) — — — ( 366 ) ( 201 ) — ( 567 ) Repurchases of Common Stock — — ( 2 ) — — ( 18 ) — ( 18 ) Excise tax on share repurchases — — — — — ( 6 ) — ( 6 ) Other comprehensive loss, net of tax — — — — — — ( 3 ) ( 3 ) Issuance of Common Stock for preference dividends — — 26 — 209 ( 209 ) — — Conversion of Series A Preferred Stock to Common Stock ( 176 ) — 176 — — ( 25 ) — ( 25 ) Stock-based compensation — — — — 5 — — 5 Balance at June 30, 2023 — $ — 264 $ — $ 1,184 $ ( 1,834 ) $ 27 $ ( 623 ) Net income — — — — — 57 — 57 Repurchases of Common Stock — — ( 21 ) — — ( 161 ) — ( 161 ) Excise tax on share repurchases — — — — — ( 1 ) — ( 1 ) Other comprehensive loss, net of tax — — — — — — 32 32 Stock-based compensation — — — — 4 — — 4 Balance at September 30, 2023 — $ — 243 $ — $ 1,188 $ ( 1,939 ) $ 59 $ ( 692 ) 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 Repurchases of Series A Preferred Stock — — — — ( 1 ) ( 1 ) — ( 2 ) Other comprehensive income, net of tax — — — — — — 23 23 Stock-based compensation — — — — 2 — — 2 Balance at March 31, 2022 246 — 64 — $ 1,327 $ ( 1,703 ) $ 19 $ ( 357 ) Net income — — — — — 85 — 85 Repurchases of Series A Preferred Stock — — — — ( 1 ) — — ( 1 ) Other comprehensive income, net of tax — — — — — — 39 39 Stock-based compensation — — — — 3 — — 3 Balance at June 30, 2022 246 $ — 64 $ — $ 1,329 $ ( 1,618 ) $ 58 $ ( 231 ) Net income — — — — — 105 — 105 Repurchases of Series A Preferred Stock — — — — ( 1 ) — — ( 1 ) Other comprehensive income, net of tax — — — — — — 64 64 Dividends declared — — — — — ( 42 ) — ( 42 ) Stock-based compensation — — — — 3 — — 3 Balance at September 30, 2022 246 $ — 64 $ — $ 1,331 $ ( 1,555 ) $ 122 $ ( 102 ) The Notes to the Consolidated Interim Financial Statements are an integral part of this statement. 6 GARRETT MOTION INC. NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Unaudited) (Dollars in millions, except per share amounts) Note 1. Background and Basis of Presentation Background Garrett Motion Inc., (the “Company” or “Garrett”) designs, manufactures and sells highly engineered turbocharger and electric-boosting technologies for light and commercial vehicle original equipment manufacturers (“OEMs”) and the global vehicle independent aftermarket, as well as automotive software solutions. These OEMs in turn ship to consumers globally. We are a global technology leader with significant expertise in delivering products across gasoline, diesel, natural gas and electric (hybrid and fuel cell) power trains. These products are key enablers for fuel economy and emission standards compliance. Basis of Presentation The accompanying unaudited Consolidated Interim Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission applicable to interim financial statements. While these statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by United States generally accepted accounting principles (“GAAP”) for complete financial statements. The unaudited Consolidated Interim Financial Statements should therefore be read in conjunction with the Consolidated Financial Statements and accompanying notes for the year ended December 31, 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 for the three and nine months ended September 30, 2023 and cash flows for the nine months ended September 30, 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, such differences have been adjusted for the three months ended September 30, 2022. Our actual closing date for the three months ended September 30, 2022 was October 1, 2022 . There was no difference in actual closing date for the three months ended September 30, 2023. 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. Capital Structure Transformation Transaction On April 12, 2023, the Company entered into the Transaction (as defined in Note 15 below) to increase the attractiveness of the Company to investors, including simplifying the Company’s capital stock by converting all outstanding Series A Preferred Stock into a single class of Common Stock, subject to certain conditions. In the Transaction, the Company repurchased and aggregate of 69,707,719 shares of Series A Preferred Stock from the C&O Investors (as defined below), and converted all remaining outstanding 175,337,712 shares of Series A Preferred Stock into an equivalent number of shares of Common Stock. The total amounts paid to holders of Series A Preferred Stock in connection with the Transaction included aggregate cash payments of $ 605 million and the issuance of an 7 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. See Note 15, Series A Preferred Stock . The Company recorded the following amounts in the Consolidated Interim Financial Statements related to the repurchase and conversion of its Series A Preferred Stock: Movements for the Nine Months Ended September 30, 2023 Consolidated Interim Balance Sheet: (Dollars in millions) Cash and cash equivalents $ ( 605 ) Preferred stock, Common stock and Additional Paid-in capital ( 157 ) Retained earnings ( 441 ) Nine Months Ended September 30, 2023 Consolidated Interim Statement of Operations: (Dollars in millions) Non-operating expenses $ 13 The Company also incurred $ 9 million of Transaction-related costs for the nine months ended September 30, 2023, primarily for legal and advisory services that are included in Selling, general and administrative expenses in the Consolidated Interim Statement of Operations. See Note 14, Long-term Debt and Credit Agreement for discussion on the new Term Loan B and Note 15, Series A Preferred Stock for further discussion of the Transaction. 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. 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. 8 Note 3. Revenue Recognition and Contracts with Customers Disaggregated Revenue Net sales by region (determined based on country of shipment) and channel are as follows: Three Months Ended September 30, 2023 Three Months Ended September 30, 2022 OEM Aftermarket Other Total OEM Aftermarket Other Total (Dollars in millions) United States $ 147 $ 54 $ 2 $ 203 $ 134 $ 54 $ 1 $ 189 Europe 382 45 9 436 381 41 6 428 Asia 287 13 5 305 288 14 6 308 Other 9 6 1 16 14 6 — 20 $ 825 $ 118 $ 17 $ 960 $ 817 $ 115 $ 13 $ 945 Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022 OEM Aftermarket Other Total OEM Aftermarket Other Total (Dollars in millions) United States $ 412 $ 150 $ 4 $ 566 $ 354 $ 159 $ 2 $ 515 Europe 1,265 136 26 1,427 1,181 117 21 1,319 Asia 846 38 12 896 765 34 18 817 Other 33 18 1 52 36 18 — 54 $ 2,556 $ 342 $ 43 $ 2,941 $ 2,336 $ 328 $ 41 $ 2,705 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—September 30 44 51 Change in contract assets—(Decrease)/Increase $ ( 2 ) $ ( 12 ) Contract liabilities—January 1 $ ( 8 ) $ ( 5 ) Contract liabilities—September 30 ( 12 ) ( 9 ) Change in contract liabilities—(Increase)/Decrease $ ( 4 ) $ ( 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: 9 Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (Dollars in millions) Research and development costs $ 42 $ 38 $ 128 $ 112 Engineering-related expenses, net of customer (reimbursements) (1) ( 3 ) 4 ( 8 ) 13 $ 39 $ 42 $ 120 $ 125 (1) Engineering-related expenses include customer reimbursements of $ 10 million and $ 6 million for the three months ended September 30, 2023 and 2022, respectively, and $ 34 million and $ 15 million for the nine months ended September 30, 2023 and 2022, respectively. Note 5. Income Taxes Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (Dollars in millions) Tax expense $ 13 $ 26 $ 70 $ 83 Effective tax rate 18.6 % 19.8 % 25.1 % 23.0 % The effective tax rate for the three months ended September 30, 2023 is lower than the effective rate for the three months ended September 30, 2022 primarily related to an increase in global research and development benefits, lower taxes on non-U.S. earnings partially offset by nondeductible expenses, and a prior year non-recurring decrease in withholding taxes on undistributed earnings. The effective tax rate for the nine months ended September 30, 2023 is higher than the effective rate for the nine months ended September 30, 2022 primarily related to a prior year non-recurring decrease in withholding taxes on undistributed earnings and nondeductible expenses, partially offset by increase in global research and development benefit and lower taxes on non-U.S. earnings. The effective tax rate for the three months ended September 30, 2023 was lower than the U.S. federal statutory rate of 21% primarily related to a decrease in the annual effective tax rate driven by lower taxes on international operations, partially offset by nondeductible transaction costs. The effective tax rate for the nine months ended September 30, 2023 was higher than the U.S. federal statutory rate of 21% primarily related to nondeductible expenses and tax reserves, partially offset by lower taxes on non-U.S. earnings and global research and development benefits. Note 6. Accounts, Notes and Other Receivables—Net September 30, 2023 December 31, 2022 (Dollars in millions) Trade receivables $ 667 $ 619 Notes receivable 111 105 Other receivables 89 88 867 812 Less—Allowance for expected credit losses ( 7 ) ( 9 ) $ 860 $ 803 10 Trade receivables include $ 44 million and $ 46 million of unbilled customer contract asset balances as of September 30, 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. Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (Dollars in millions) Eligible receivables sold without recourse $ 184 $ 112 $ 584 $ 481 Guaranteed bank notes sold without recourse 41 35 41 102 The expenses related to the sale of trade receivables and guaranteed bank notes are recognized within Other expense, net in the Consolidated Interim Statements of Operations. Such expenses amounted to $ 1 million and $ 3 million for the three and nine months ended September 30, 2023, respectively, and were immaterial for the three and nine months ended September 30, 2022. September 30, 2023 December 31, 2022 (Dollars in millions) Receivables sold but not yet collected by the bank from the customer $ 7 $ 5 Guaranteed bank notes sold but not yet collected by the bank from the customer — — As of September 30, 2023 and December 31, 2022, the Company had no guaranteed bank notes pledged as collateral . Note 8. Inventories—Net September 30, 2023 December 31, 2022 (Dollars in millions) Raw materials $ 197 $ 203 Work in process 24 18 Finished products 110 80 331 301 Less—Reserves ( 37 ) ( 31 ) $ 294 $ 270 11 Note 9. Other Assets September 30, 2023 December 31, 2022 (Dollars in millions) Advanced discounts to customers, non-current $ 41 $ 51 Operating right-of-use assets (Note 13) 40 44 Income tax receivable 22 22 Pension and other employee related 4 4 Designated cross-currency swaps 71 74 Designated and undesignated derivatives 66 76 Other 11 10 $ 255 $ 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 supplier financing obligations and guaranteed bank notes outstanding are recorded within Accounts payable in our Consolidated Interim Balance Sheet. September 30, 2023 December 31, 2022 (Dollars in millions) Supplier financing obligations outstanding with financial institutions $ 67 $ 33 Guaranteed bank notes outstanding 172 171 Note 11. Accrued Liabilities September 30, 2023 December 31, 2022 (Dollars in millions) Customer pricing reserve $ 64 $ 50 Compensation, benefit and other employee related 74 69 Repositioning 12 9 Product warranties and performance guarantees - short-term (Note 20) 17 18 Income and other taxes 55 39 Advanced discounts from suppliers, current 4 8 Customer advances and deferred income (1) 18 29 Accrued interest 25 13 Short-term lease liability (Note 13) 9 9 Accrued freight 13 9 Dividends payable — 42 Designated and undesignated derivatives 8 8 Other (primarily operating expenses) (2) 13 17 312 320 (1) Customer advances and deferred inco me include $ 12 million and $ 8 million of contract liabilities as of September 30, 2023 and December 31, 2022, respectively. See Note 3, Revenue Recognition and Contracts with Customers . 12 (2) Includes $ 3 million and $ 3 million of environmental liabilities as of September 30, 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 13 2 15 Usage—cash ( 10 ) — ( 10 ) Non-cash asset write-offs — ( 2 ) ( 2 ) Balance at September 30, 2023 $ 12 $ — $ 12 Severance Costs Other Costs Total (Dollars in millions) Balance at December 31, 2021 $ 10 $ — $ 10 Charges 4 — 4 Usage—cash ( 5 ) — ( 5 ) Balance at September 30, 2022 $ 9 $ — $ 9 Note 12. Other Liabilities September 30, 2023 December 31, 2022 (Dollars in millions) Income taxes $ 104 $ 99 Pension and other employee related 17 21 L ong-term lease liability (Note 13) 33 36 Advanced discounts from suppliers 3 6 Product warranties and performance guarantees – long-term (Note 20) 9 10 Environmental remediation – long term 12 14 Long-term accounts payable 7 8 Other 11 11 196 205 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (Dollars in millions) Operating lease cost $ 4 $ 4 $ 12 $ 12 13 Supplemental cash flow information related to operating leases is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (Dollars in millions) Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 3 $ 3 $ 10 $ 9 Right-of-use assets obtained in exchange for lease obligations: Operating leases — 2 2 4 Supplemental balance sheet information related to operating leases is as follows: September 30, 2023 December 31, 2022 (Dollars in millions) Other assets $ 40 $ 44 Accrued liabilities 9 9 Other liabilities 33 36 September 30, 2023 December 31, 2022 Weighted-average remaining lease term (in years) 8.14 8.41 Weighted-average discount rate 5.69 % 5.61 % Maturities of operating lease liabilities as of September 30, 2023 were as follows: (Dollars in millions) 2023 $ 3 2024 10 2025 8 2026 6 2027 5 Thereafter 20 Total lease payments 52 Less imputed interest ( 11 ) $ 41 14 Note 14. Long-term Debt and Credit Agreements The principal outstanding and carrying amounts of our long-term debt as of September 30, 2023 and December 31, 2022 are as follows: Due Interest Rate September 30, 2023 December 31, 2022 2021 Dollar Term Facility 4/30/2028 SOFR plus 351 bps $ 700 $ 706 2023 Dollar Term Facility 4/30/2028 SOFR plus 450 bps 500 — Euro Term Facility 4/30/2028 EURIBOR plus 350 bps 477 480 Total principal outstanding 1,677 1,186 Less: unamortized deferred financing costs ( 48 ) ( 31 ) Less: current portion of long-term debt ( 7 ) ( 7 ) Total long-term debt $ 1,622 $ 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 “2021 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 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”). The maximum amount of borrowings available under the Revolving Facility was increased to $ 475 million in 2022. On April 27, 2023, the Company entered into Amendment No. 3 (the "Third Amendment") to the Credit Agreement, which provided for additional financing consisting of a five-year secured first-lien U.S. Dollar term loan facility initially in the amount of $ 700 million (the “2023 Dollar Term Facility”, together with the 2021 Dollar Term Facility and Euro Term Facility, the "Term Loan Facilities", and together with the Revolving Facility, the "Credit Facilities"). The full amount of the 2023 Dollar Term Facility was drawn on June 6, 2023 (the "Closing Date"), and the proceeds were primarily used to finance the repurchases of the 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 will mature 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. The Term Borrowers may also prepay the 2023 Dollar Term Facility at any time in whole or in part without premium or penalty, subject to certain exceptions (including for (i) customary breakage and redeployment costs in the case of prepayment of term benchmark rate loans and (ii) 2023 Dollar Term Facility repricing events occurring during the period from the Closing Date to the date that is twelve months following the Closing Date). The Third Amendment also provided for (i) an increase in the maximum borrowing amount under the Revolving Facility by $ 95 million (the “Incremental Revolving Commitment”) to an aggregate amount of $ 570 million; and (ii) an extension of the maturity date for the Revolving Facility by two years from April 30, 2026 to April 30, 2028 (or January 30, 2028 if any of the currently outstanding term loans or term loans under the 2023 Dollar Term Facility maturing as of April 30, 2028 remain outstanding as of such date). The Incremental Revolving Commitment has the same terms and is generally subject to the same conditions applicable to the existing revolving facility under the Credit Agreement, except for fees paid in connection with the arrangement of the increased amount. Under the Revolving Facility, 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. As of September 30, 2023, the Company had no loans outstanding under the Revolving Facility, no outstanding letters of credit, and available borrowing capacity of approximately $ 570 million. Separate from the Revolving Facility, the Company has a bilateral letter of credit facility in the amount of $ 15 million, which matures on April 30, 2026. As of September 30, 2023, the Company had $ 12 million utilized and $ 3 million of remaining available capacity under such facility. 15 Minimum scheduled principal repayments of the Credit Facilities as of September 30, 2023 are as follow: September 30, 2023 (Dollars in millions) 2023 $ 2 2024 7 2025 7 2026 17 2027 77 Thereafter 1,567 Total debt payments $ 1,677 Interest Rate and Fees The 2021 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 SOFR rate (“SOFR”) (which shall not be less than 0.50 %), in each case, plus an applicable margin equal to 3.51 % in the case of SOFR 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 2021 Dollar and Euro Term Facilities are required either on a quarterly basis (for ABR loans) or at the end of each interest period (for SOFR and EURIBOR loans) or, if the duration of the applicable interest period exceeds three months, then every three months . The 2023 Dollar Term Facility will bear interest, at the Term Borrowers’ election, at a rate per annum equal to (i) SOFR (subject to a 0.50 % floor) plus the applicable margin or (ii) the base rate plus the applicable margin. The applicable margin for loans under the 2023 Dollar Term Facility is 4.50 % for SOFR loans and 3.50 % for base rate loans. 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 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. On July 31, 2023, the Company made an early repayment in the amount of $ 200 million on the 2023 Dollar Term Facility. The early repayment resulted in incremental amortization on debt issuance cost in the amount of $ 9 million, included within Interest Expense in the Consolidated Interim Statement of Operations . Certain Covenants The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type. The Revolving Facility also contains a financial covenant requiring the maintenance of a consolidated total leverage ratio of not greater than 4.7 times as of the end of each fiscal quarter if, on the last day of any such fiscal quarter, the aggregate amount of loans and letters of credit (excluding backstopped or cash collateralized letters of credit and other letters of credit with an aggregate face amount not exceeding $ 30 million) outstanding under the Revolving Facility exceeds 35 % of the aggregate commitments in effect thereunder on such date. As of September 30, 2023, the Company was in compliance with all covenants. 16 Note 15. Series A Preferred Stock On April 12, 2023 (the “Transaction Date”), the Company entered into separate definitive agreements (the “Agreements”) 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 (collectively the “Transaction”) designed to increase the attractiveness of the Company to investors, including by simplifying the Company’s capital structure by converting all outstanding Series A Preferred Stock into a single class of Common Stock, subject to certain conditions. As part of the Agreements, the holders of a majority of the outstanding shares of the Series A Preferred Stock authorized and approved the amendment and restatement of the certificate of designations for the Series A Preferred Stock (as amended, the “Certificate of Designations”) to, among other things, require the conversion of all shares of Series A Preferred Stock into shares of the Company’s common stock (the “2023 Conversion”), subject to the repurchase by the Company of a portion of the shares of Series A Preferred Stock held by the C&O Investors (the “Series A Repurchase”). Under the terms of the Agreements, the Company agreed to repurchase a total of $ 570 million (“Base Repurchase Price”) of shares of Series A Preferred Stock from the C&O Investors at a cash price of $ 8.10 per share which was subsequently adjusted to equal the volume-weighted average price of the Common Stock for the fifteen trading days following the announcement of the transactions (the “ 15 Days VWAP”), subject to a minimum price of $ 7.875 per share and a maximum price of $ 8.50 per share. The 15 Days VWAP was subsequently established at a value of $ 8.177 per share. As part of the Transaction, all holders of Series A Preferred Stock, including the C&O Investors, received approximately 0.104379 shares of Common Stock, being an amount equal to $ 0.853509 per share of Series A Preferred Stock, valued at the 15 Days VWAP, representing accumulated and unpaid preference dividends on each share of Series A Preferred Stock through June 30, 2023 (the “Accumulated Dividends”), as well as $ 0.144375 per share of Series A Preferred Stock, representing the preference dividends that would have accrued on the Series A Preferred Stock through September 30, 2023 (the “Additional Amounts”). As part of the Transaction, following the effectiveness of the Certificate of Designations which occurred on June 6, 2023, the Company completed all steps of the Transaction as follows: • The Company paid $ 580 million to the C&O Investors in connection with the repurchase of 69,707,719 shares of Series A Preferred Stock, comprising of the Base Repurchase Price as well as $ 10 million ($ 0.144375 for each repurchased share) in consideration of the Additional Amounts on the repurchased shares of Series A Preferred Stock. • The remaining 175,337,712 shares of Series A Preferred Stock outstanding following such repurchase were converted into 175,337,712 shares of Common Stock (in accordance with the customary procedures of the Company’s transfer agent, for shares held in registered form, and of the Depository Trust Company, for shares held in street name). Following the completion of the 2023 Conversion, trading of the Series A Preferred Stock on Nasdaq was suspended; • As part of the 2023 Conversion, the Company also paid $ 25 million ($ 0.144375 for each converted share) to the holders of Series A Preferred Stock in consideration of the Additional Amounts on the shares of Series A Preferred Stock that were converted; and • Issued 25,577,517 shares of Common Stock to all holders of Series A Preferred Stock (equal to $ 0.853509 per share, valued at the 15 Days VWAP, adjusted to avoid the issuance of fractional shares of Common Stock), in consideration of the Accumulated Dividends of an aggregate amount of $ 209 million. Cash payments for fractional shares were immaterial. The Agreements were accounted for as freestanding physically settled forward purchase contracts. The Agreements were initially recorded at fair value and then remeasured through earnings until the establishment of the 15 Days VWAP, whereupon the Agreements were subsequently measured based on the amount of consideration to be paid at settlement. A Monte-Carlo simulation model was used to determine the Transaction Date fair value of the Agreements by simulating a range of possible future stock prices for the Company through the expected settlement date of the Agreements. The significant assumptions utilized in estimating the fair value of the Agreements include: (i) a dividend yield of 0.0 %; (ii) an expected volatility of 40.0 %; (iii) a risk-free interest rate of 4.23 % based on observed interest rates from the Treasury Constant Maturity yield curve consistent with the simulation term; and (iv) a starting share price of $ 8.25 based on the market price of the Company’s common stock as of the Transaction Date. 17 The initial fair value of the Agreements represented a forward purchase liability of $ 4 million. A loss of $ 13 million was recognized in Non-operating expense in the Consolidated Interim Statement of Operations to reflect the subsequent remeasurement of fair value of the Agreements due to changes in the market price of the Company’s Common Stock. The difference between the fair value of consideration transferred under the Agreements and the carrying value of the repurchased Series A Preferred Stock, amounting to $ 201 million, was recorded to Retained Deficit as a deemed dividend on the repurchase of shares of Series A Preferred Stock from the C&O Investors as part of the Transaction. A liability for excise tax, amounting to $ 6 million, was also recorded to Retained Deficit as a deemed dividend. In connection with the 2023 Conversion, the Company also recognized a deemed dividend on the 2023 Conversion for $ 25 million, corresponding to the Additional Amounts paid to the holders of Series A Preferred Stock on the shares of Series A Preferred Stock that were converted. As part of the Agreements, the C&O Investors have 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 . On April 12, 2023, the Company also announced an increase in its share repurchase authorization to $ 250 million. Under the share repurchase program, the Company may repurchase shares of Common Stock in open market transactions, privately negotiated purchases and other transactions from time to time. The following table summarizes the effects of the Transaction on the Consolidated Interim Balance Sheet as of September 30, 2023 and the Consolidated Interim Statement of Operations and Consolidated Interim Statement of Cash Flows for the nine months ended September 30, 2023 : Series A Repurchase 2023 Conversion Settlement of Accumulated Dividends Excise tax on share repurchase Total (Dollars in millions) Consolidated Interim Balance Sheet - increase/(decrease): Cash and cash equivalents $ ( 580 ) $ ( 25 ) $ — $ — $ ( 605 ) Accrued liabilities — — — 6 6 Preferred Stock — — — — — Common Stock — — — — — Additional Paid-in capital ( 366 ) — 209 — ( 157 ) Retained earnings ( 201 ) ( 25 ) ( 209 ) ( 6 ) ( 441 ) Consolidated Interim Statement of Operations: Non-operating expenses 13 — — — 13 Consolidated Interim Statement of Cash Flows Repurchases of Series A Preferred Stock ( 580 ) — — — ( 580 ) Payments for Additional Amounts for conversion of Series A Preferred Stock — ( 25 ) — — ( 25 ) The Company has also incurred $ 9 million of Transaction-related costs for the nine months ended September 30, 2023, primarily for legal and advisory services that are included in Selling, general and administrative expenses in the Consolidated Interim Statement of Operations. 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 September 30, 2023 and December 31, 2022, we had contracts with aggregate gross notional amounts of $ 2,884 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. 18 Fair Value of Financial Instruments The FASB’s accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Financial and nonfinancial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table sets forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2023 and December 31, 2022: Fair Value Notional Amounts Assets Liabilities September 30, 2023 December 31, 2022 September 30, 2023 December 31, 2022 September 30, 2023 December 31, 2022 Designated instruments: Designated forward currency exchange contracts $ 449 $ 565 $ 15 $ 22 (a) $ 6 $ 6 (c) Designated cross-currency swaps 1,015 715 71 74 (b) — — Designated interest-rate swaps 200 — 1 — (b) — — Total designated instruments 1,664 1,280 87 96 6 6 Undesignated instruments: Undesignated interest rate swaps 879 1,024 65 76 (b) — — Undesignated forward currency exchange contracts 341 317 3 4 (a) 2 2 (c) Total undesignated instruments 1,220 1,341 68 80 2 2 Total designated and undesignated instruments $ 2,884 $ 2,621 $ 155 $ 176 $ 8 $ 8 (a) Recorded within Other current assets (b) Recorded within Other assets (c) Recorded within Accrued liabilities As of September 30, 2023, the Company had outstanding interest rate swaps with aggregate notional amounts of € 830 million ($ 879 million based on September 30, 2023 foreign exchange rates) and $ 200 million, with maturities of April 2024, July 2024, October 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. The $ 200 million interest rate swaps have been designated as cash flow hedges. The designated interest rate swaps' fair value were net assets of $ 1 million as of September 30, 2023. The Company executed cross-currency swaps which have been designated as net investment hedges of its Euro-denominated operations and cash flow hedges to hedge the foreign currency exposure from foreign currency-denominated debt. In May 2023, the Company re-couponed the cross-currency swap contracts which have been designated as net investment hedges and received a cash settlement of $ 9 million. As of September 30, 2023, an aggregate notional amount of € 615 million was designated as net investment hedges of the Company’s investment in Euro-denominated operations and € 280 million was designated as cash flow hedges. The cross-currency swaps’ fair values were net assets o f $ 71 million as of September 30, 2023. Our Consolidated Interim Statements of Comprehensive Income include Changes in fair value of net investment hedges and cash flow hedges, net of tax, of $ 20 million and $ 18 million, during the three and nine months ended September 30, 2023, respectively, related to these designated cross-currency swaps. No ineffectiveness has been recorded on the designated cross-currency hedges. The Company's forward currency exchange contract 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. 19 The carrying value of Cash, cash equivalents and restricted cash, Account receivables and Notes and Other receivables contained in the Consolidated Interim Balance Sheet approximates fair value. The following table sets forth the Company’s financial assets and liabilities that were not carried at fair value: September 30, 2023 December 31, 2022 Carrying Value Fair Value Carrying Value Fair Value (Dollars in millions) Term Loan Facilities $ 1,629 $ 1,671 $ 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 8 17 18 — 43 Amounts reclassified from accumulated other comprehensive income — ( 20 ) — — ( 20 ) Net current period other comprehensive income 8 ( 3 ) 18 — 23 Balance at September 30, 2023 $ ( 36 ) $ 10 $ 103 $ ( 18 ) $ 59 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 13 43 87 — 143 Amounts reclassified from accumulated other comprehensive income — ( 17 ) — — ( 17 ) Net current period other comprehensive income 13 26 87 — 126 Balance at September 30, 2022 $ ( 30 ) $ 33 $ 128 $ ( 9 ) $ 122 20 Note 18. Earnings Per Share For the three months ended September 30, 2023, basic earnings per share ("EPS") is computed using the weighted-average number of common shares outstanding during the period. For the nine months ended September 30, 2023 as well as the three and nine months ended September 30, 2022, basic earnings per share is calculated using the two-class method as our Series A Preferred Stock, which was converted into Common Stock pursuant to the Transaction, was considered a participating security. The two-class method requires an allocation of earnings to all securities that participate in dividends with common shares, such as our Series A Preferred Stock, to the extent that each security may share in the entity’s earnings. Basic earnings per share are then calculated by dividing undistributed earnings allocated to common stock by the weighted average number of common shares outstanding for the period. The Series A Preferred Stock was 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 was not contractually obligated to share in our net losses. Diluted earnings per share for the three months ended September 30, 2023 is calculated based on the weighted-average number of common shares outstanding for the period plus the dilutive effect of common stock equivalents using the treasury stock method. Diluted earnings per share for the nine months ended September 30, 2023 as well as the three and nine months ended September 30, 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 and nine months ended September 30, 2023 and 2022 are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (Dollars in millions except per share) Basic earnings per share: Net income $ 57 $ 105 $ 209 $ 278 Less: preferred stock dividend — ( 40 ) ( 80 ) ( 117 ) Less: preferred stock deemed dividends — — ( 232 ) — Net (loss) income available for distribution 57 65 ( 103 ) 161 Less: earnings allocated to participating securities — ( 51 ) — ( 127 ) Net (loss) income available to common shareholders $ 57 $ 14 $ ( 103 ) $ 34 Weighted average common shares outstanding - Basic 250,888,716 64,820,887 141,745,701 64,834,298 EPS – Basic $ 0.23 $ 0.21 $ ( 0.73 ) $ 0.52 Diluted earnings per share: Method used: Two-class Two-class Two-class Weighted average common shares outstanding - Basic 250,888,716 64,820,887 141,745,701 64,834,298 Dilutive effect of unvested RSUs and other contingently issuable shares 1,493,003 429,400 — 283,723 Weighted average common shares outstanding – Diluted 252,381,719 65,250,287 141,745,701 65,118,021 EPS – Diluted $ 0.23 $ 0.21 $ ( 0.73 ) $ 0.52 For the periods where a net loss attributable to common shareholders is present, dilutive securities have been excluded from the calculation of diluted net loss per share attributable to common stockholders as including them would have been anti-dilutive. For the nine months ended September 30, 2023, the weighted-average number of unvested RSUs and other contingently issuable shares excluded from the computations was 1,349,442 shares. 21 Note 19. Related Party Transactions We lease certain facilities and receive property maintenance services from Honeywell International Inc. (“Honeywell”), which is a holder of our Common Stock and was also a holder of our Series A Preferred Stock prior to the 2023 Conversion as discussed below and in Note 15, 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. Honeywell is not considered a related party subsequent to the 2023 Conversion. Our payments under the agreements with Honeywell during the period that Honeywell was considered a related party are as follow: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (Dollars in millions) Payments under agreements with Honeywell $ — $ 2 $ 2 $ 6 Our payments under the agreements with Honeywell are 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 Balance Sheet at December 31, 2022 includes liabilities of $ 10 million. Liability balances are primarily related to lease contracts of $ 7 million as of December 31, 2022. As discussed in Note 15, Series A Preferred Stock , in order to effect the Transaction, on April 12, 2023, the Company entered into separate definitive agreements with each of Centerbridge Partners, L.P. (“Centerbridge”) and funds managed by Oaktree Capital Management, L.P. (“Oaktree”), each of which is a holder of our Common Stock and appoints a director to our Board of Directors. Additionally, Mr. Kevin Mahony, who serves as a Managing Director of Centerbridge, and Mr. Steven Tesoriere, who serves as a Managing Director of Oaktree, have been appointed to our Board of Directors as designees of Centerbridge and Oaktree, respectively. As described more fully in Note 15, Series A Preferred Stock , in connection with the Transaction, we paid to Centerbridge and Oaktree an aggregate of approximately $ 570 million for the repurchase of shares of Series A Preferred Stock, plus an aggregate of approximately $ 10 million and 7,276,036 shares of Common Stock representing the Additional Amounts and Accumulated Dividends in respect of the repurchased shares of Series A Preferred Stock. Additionally, in connection with the conversion of the Series A Preferred Stock, we issued to Centerbridge and Oaktree an aggregate of 65,334,277 shares of Common Stock, plus Additional Amounts and Accumulated Dividends of approximately $ 9 million and 6,819,540 shares of Common Stock. In connection with the conversion of our Series A Preferred Stock, we issued to Honeywell, as a holder of our Series A Preferred Stock, 4,196,330 shares of Common Stock upon the conversion of an equivalent number of shares of Series A Preferred Stock, plus Additional Amounts and Accumulated Dividends of approximately $ 1 million and 438,009 shares of Common Stock. Additionally, Mr. John Petry, a director on our Board, serves as Managing Member of Sessa Capital (Master), L.P., which indirectly held shares of our Series A Preferred Stock prior to the conversion. In connection with the conversion of our Series A Preferred Stock, we issued to Sessa Capital and its affiliates, as holder of our Series A Preferred Stock, 16,592,384 shares of Common Stock upon the conversion of an equivalent number of shares of Series A Preferred Stock, plus Additional Amounts and Accumulated Dividends of approximately $ 2 million and 1,731,900 shares of Common Stock. 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 22 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 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. The plaintiffs filed an appeal and the defendants' opposition is due on October 31, 2023. 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 23 estimated total amount of the contingency as of September 30, 2023 was $ 37 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (Dollars in millions) Warranty and product performance guarantees at beginning of period $ 27 $ 30 $ 28 $ 32 Accruals for warranties/guarantees issued during the year 2 3 8 10 Settlement of warranty/guarantee claims ( 2 ) ( 2 ) ( 9 ) ( 10 ) Foreign currency translation ( 1 ) ( 2 ) ( 1 ) ( 3 ) Warranty and product performance guarantees at end of period $ 26 $ 29 $ 26 $ 29 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 $ 6 million has been contributed as of September 30, 2023. 24 Net periodic benefit costs for our significant defined benefit plans include the following components: Three Months Ended September 30, Nine Months Ended September 30, U.S. Plans Non-U.S. Plan U.S. Plans Non-U.S. Plan 2023 2022 2023 2022 2023 2022 2023 2022 (Dollars in millions) Service cost $ — $ — $ 1 $ 2 $ — $ 1 $ 4 $ 5 Interest cost 2 1 1 — 6 4 4 1 Expected return on plan assets ( 2 ) ( 2 ) ( 2 ) ( 2 ) ( 6 ) ( 6 ) ( 6 ) ( 5 ) Amortization of prior service (credit) — — — — — — ( 1 ) — $ — $ ( 1 ) $ — $ — $ — $ ( 1 ) $ 1 $ 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. 25