Garrett Motion Inc. 10-Q

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 nine months ended September 30, 2023. Executive Summary For the three months ended September 30, 2023, net sales were $960 million, an increase compared to prior year of $15 million or 2%, including a favorable impact of $21 million or 3% from foreign currency translation. The increase was driven by ramp up of new products in small gasoline engine applications, offset by unfavorable product mix dynamics from demand softness for diesel and commercial vehicle applications due to global macro economic conditions. Light vehicle product sales (which were comprised of diesel and gasoline products, including products for passenger cars, SUVs, light trucks, and other products) accounted for approximately 70% of our revenues. Commercial vehicle product sales (products for on- and off- highway trucks, construction, agriculture and power-generation machines) accounted for 16% of our revenues, while aftermarket and other products contributed 14% of our revenues. Approximately 45% of our revenues came from sales to customers located in Europe, 32% from sales to customers located in Asia, 21% from sales to customers in North America, and 2% from sales to customers in other international markets. For the three months ended September 30, 2023, we repurchased $161 million of Common Stock in connection with our share repurchase program. As of September 30, 2023, we had $72 million of the authorized repurchase value remaining under our share repurchase program. On July 31, 2023, we made an early debt repayment in the amount of $200 million on our 2023 Dollar Term Facility. Disaggregated Revenue The following tables show our revenues by geographic region and product line for the three and nine months ended September 30, 2023 and 2022, respectively. By Region Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (Dollars in millions) United States $ 203 21% $ 189 20% $ 566 19% $ 515 19% Europe 436 45% 428 45% 1,427 49% 1,319 49% Asia 305 32% 308 33% 896 30% 817 30% Other 16 2% 20 2% 52 2% 54 2% Total $ 960 $ 945 $ 2,941 $ 2,705 26 By Product Line Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (Dollars in millions) Diesel $ 229 24% $ 238 25% $ 751 26% $ 729 27% Gas 441 46% 401 43% 1,299 44% 1,109 41% Commercial Vehicle 156 16% 178 19% 507 17% 498 18% Aftermarket 118 12% 115 12% 342 12% 328 12% Other 16 2% 13 1% 42 1% 41 2% Total $ 960 $ 945 $ 2,941 $ 2,705 Results of Operations for the Three and Nine Months Ended September 30, 2023 Net Sales Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (Dollars in millions) Net sales $ 960 $ 945 $ 2,941 $ 2,705 % change compared with prior period 1.6 % 8.7 % For the three months ended September 30, 2023, net sales increased compared to prior year by $15 million or 2%, including a favorable impact of $21 million or 3% due to foreign currency translation driven by higher Euro-to-US dollar exchange rates and partially offset by lower Chinese yuan-to-US dollar exchange rates. The increase was driven by ramp up of new products in small gasoline engine applications, offset by unfavorable product mix from demand softness for diesel and commercial vehicle applications due to global macro economic conditions. Gasoline product sales increased by $40 million or 10% (including a favorable impact of $3 million or 1% due to foreign currency translation), primarily due to strong performance in Asia and North America related to product ramp-ups. Diesel product sales decreased by $9 million or 4% (including a favorable impact of $12 million or 5% due to foreign currency translation), primarily driven by demand softness in India and China, due to program phase out and the negative impact of macro economic dynamics, respectively. Commercial vehicle sales decreased by $22 million or 13% (including a favorable impact of $2 million or 1% due to foreign currency translation), primarily driven by demand softness influenced by the global economic environment combined with inventory build-up by some customers during prior quarters. Aftermarket sales improved by $3 million or 3% (including a favorable impact of $3 million or 3% due to foreign currency translation), primarily due to favorable aftermarket conditions and demand for replacement parts in Europe and Asia Pacific, offset by softer sales in North America and Brazil. 27 For the nine months ended September 30, 2023, net sales increased compared to prior year by $236 million or 9%, including an unfavorable impact of $32 million or 1% due to foreign currency translation driven by lower Chinese yuan-to-US dollar and lower Euro-to-US dollar exchange rates. This increase was driven by higher volumes as markets recovered from the semiconductor shortages experienced in the prior year coupled with strong demand for new product launches and ramp ups, and inflation recoveries net of pricing across all product lines. Gasoline product sales increased by $190 million or 17% (including an unfavorable impact of $25 million or 2% due to foreign currency translation), primarily driven by the industry recovery from 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 $22 million or 3% (including a favorable impact of $1 million or 0% due to foreign currency translation), driven by performance in Europe where diesel is essential to meet fleet CO2 regulations targets coupled with light commercial vehicle sales on incumbent platforms. Commercial vehicle sales increased by $9 million or 2% (including an unfavorable impact of $8 million or 1% due to foreign currency translation), primarily driven by performance in North America and Europe on new product launches and combined with favorable global product mix dynamics. Aftermarket sales improved by $14 million or 4%, primarily on strong demand in Europe and Asia Pacific related to favorable aftermarket conditions including the continued high demand for replacement parts. Recovery in China from the end of the Chinese government's zero COVID-19 policy as well as new product introductions and favorable pricing impact also contributed to the growth. Cost of Goods Sold and Gross Profit Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (Dollars in millions) Cost of goods sold $ 784 $ 767 $ 2,374 $ 2,183 % change compared with prior period 2.2 % 8.7 % Gross profit percentage 18.3 % 18.8 % 19.3 % 19.3 % Cost of Goods Sold Gross Profit (Dollars in millions) Cost of Goods Sold / Gross Profit for the three months ended September 30, 2022 $ 767 $ 178 Increase/(decrease) due to: Volume 12 5 Product mix 5 (23) Price, net of inflation pass-through — (5) Productivity, net (12) 12 Research & development 2 (2) Foreign exchange rate impacts 10 11 Cost of Goods Sold / Gross Profit for the three months ended September 30, 2023 $ 784 784 $ 176 28 For the three months ended September 30, 2023, cost of goods sold increased by $17 million, primarily driven by higher sales volumes and an unfavorable product mix which contributed to increases of $12 million and $5 million, respectively. Cost of goods sold further increased by $2 million related to Research and development ("R&D") costs reflecting the continued commitment to investment in new technologies and $10 million from foreign currency impacts from transactional, translational and hedging effects. Our continued focus on productivity, net of labor inflation and repositioning costs, contributed to a decrease in cost of goods sold of $12 million. Gross profit decreased by $2 million, mainly driven by $23 million of unfavorable product mix from the decline of high margin products, $5 million of pricing net of inflation recovery from customer pass-through agreements, and $2 million of higher R&D costs as discussed above. These decreases were partially offset by $12 million of higher productivity net of labor inflation and repositioning costs, coupled with higher sales volumes of $5 million. Furthermore, foreign currency impacts from transactional, translational and hedging effects also contributed to increases in gross profit of $11 million. Cost of Goods Sold Gross Profit (Dollars in millions) Cost of Goods Sold / Gross Profit for the nine months ended September 30, 2022 $ 2,183 $ 522 Increase/(decrease) due to: Volume 162 69 Product mix 40 (46) Inflation pass-through, net of price — 46 Commodity, transportation & energy inflation 42 (42) Productivity, net (29) 27 Research & development 12 (12) Foreign exchange rate impacts (36) 3 Cost of Goods Sold / Gross Profit for the nine months ended September 30, 2023 $ 2,374 2374 $ 567 For the nine months ended September 30, 2023, cost of goods sold increased by $191 million, primarily driven by our higher sales volumes and unfavorable product mix which contributed to increases of $162 million and $40 million, respectively. Cost of goods sold further increased $42 million from inflation of commodities, energy and transportation and $12 million from increased R&D costs which reflects the continued investment in new technologies and headcount year-over-year. Our focus on productivity, net of labor inflation, one-time expenses and higher repositioning costs, contributed to a decrease in cost of goods sold of $29 million. Foreign currency impacts from transactional, translational and hedging effects reduced cost of goods sold by $36 million. Gross profit increased by $45 million, mainly driven by the higher sales volumes of $69 million and $46 million of inflation recovery from customer pass-through agreements net of pricing reductions. Furthermore, gross profit increased $27 million from higher productivity net of labor inflation, one-time expenses and higher repositioning costs as discussed above, and $3 million from foreign currency impacts from transactional, translational and hedging effects. These increases were partially offset by $42 million inflation on commodities, energy costs and transportation, as discussed above, $46 million of unfavorable product mix and a $12 million increase in R&D costs. Selling, General and Administrative Expenses Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (Dollars in millions) Selling, general and administrative expense $ 59 $ 57 $ 178 $ 164 % of sales 6.1 % 6.0 % 6.1 % 6.1 % Selling, general and administrative (“SG&A”) expenses for the three months ended September 30, 2023 increased by $2 million compared with the prior year primarily driven by a $2 million increase in legal and advisory fees following the completion of our Transaction and $1 million of labor inflation impact. 29 SG&A expenses for the nine months ended September 30, 2023 increased by $14 million compared with the prior year, primarily driven by $9 million of legal and advisory fees related to our Transaction, $4 million of labor inflation impact, and $3 million of higher incentive compensation expense. Interest Expense Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (Dollars in millions) Interest expense $ 50 $ 18 $ 108 $ 61 For the three months ended September 30, 2023, interest expense increased by $32 million compared to the prior year due to $25 million of higher interest expense driven by the new 2023 Dollar Term Facility and increased interest rates, and $10 million of debt issuance cost amortization primarily due to the $200 million early repayment on our 2023 Dollar Term Facility, partially offset by $3 million from unrealized marked-to-market gains on our interest rate swaps. For the nine months ended September 30, 2023, interest expense increased by $47 million compared to prior year due to $55 million of higher interest expense driven by the new 2023 Dollar Term Facility and increased interest rates, and $11 million of debt issuance cost amortization mainly due to the $200 million early repayment on our 2023 Dollar Term Facility. 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 $7 million decrease in unrealized marked-to-market losses on our interest rate swaps. Non-operating income Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (Dollars in millions) Non-operating income $ (4) $ (29) $ (1) $ (73) For the three months ended September 30, 2023, non-operating income amounted to $4 million versus $29 million in the prior year, due to a decrease of $23 million of interest income recognized in the prior year from unrealized marked-to-market gains on our interest rate swaps. For the nine months ended September 30, 2023, non-operating income amounted to $1 million, versus $73 million in the prior year period, driven by a decrease of $56 million of interest income net of unrealized marked-to-market losses on our interest rate swaps, a $13 million loss on the remeasurement of the Series A Preferred Stock Agreement related to our capital structure transformation during the three months ended June 30, 2023, and $4 million of lower benefits from non-service components of pension cost compared to the prior year period. Tax Expense 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 month ended September 30, 2022 primarily related to an increase in global R&D benefits, lower taxes on non-U.S. earnings partially offset by nondeductible expenses and 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 prior year non-recurring decrease in withholding taxes on undistributed earnings and nondeductible expenses in the prior year partially offset by increase in global research and development benefit and lower taxes on non-U.S. earnings. 30 In December 2022, the European Union reached an agreement to adopt the Minimum Tax Directive under Pillar Two. The agreement affirms that all Member States must transpose the Directive by December 31, 2023. The rules will therefore first be applicable for fiscal years starting on or after December 31, 2023. We will continue to monitor the implementation of Pillar Two in the countries in which we operate, as it is possible that such changes could materially impact our effective tax rate, corporate tax liabilities and cash tax liabilities. The effective tax rate can vary from quarter to quarter due to changes in the Company’s global mix of earnings, the resolution of income tax audits, changes in tax laws, deductions related to employee share-based payments, internal restructurings, and pension mark-to-market adjustments. Net Income Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (Dollars in millions) Net income $ 57 $ 105 $ 209 $ 278 Net income margin 5.9 % 11.1 % 7.1 % 10.3 % Net income for the three months ended September 30, 2023 decreased by $48 million compared with the prior year, primarily due to $32 million of higher interest expense as discussed above and $25 million of lower non-operating income, partially offset by $13 million of lower tax expense. Net income for the nine months ended September 30, 2023 decreased by $69 million compared with the prior year, primarily due to $72 million of lower non-operating income as discussed above, $47 million of higher interest expense and $14 million higher SG&A expenses, partially offset by a $45 million increase in gross profit, $13 million lower tax expense 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. 31 EBITDA and Adjusted EBITDA (1) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (Dollars in millions) Net income (GAAP) $ 57 $ 105 $ 209 $ 278 Interest expense, net of interest income 47 (9) 98 (5) Tax expense 13 26 70 83 Depreciation 23 21 66 64 EBITDA (Non-GAAP) 140 143 443 420 Reorganization items, net (2) — — — 2 Stock compensation expense (3) 4 3 12 8 Repositioning costs (4) 6 1 14 4 Loss on extinguishment of debt — — — 5 Discounting costs on factoring 1 1 3 2 Other non-operating income (5) (1) (2) (4) (11) Capital structure transformation expenses (6) 2 — 22 — Adjusted EBITDA (Non-GAAP) $ 152 $ 146 $ 490 $ 430 (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 Agreements as well as third-party legal and advisory fees that are directly attributable to the Transaction. 32 Adjusted EBITDA for the Three Months Ended September 30, 2023 For the three months ended September 30, 2023 , net income decreased by $48 million versus the prior year as discussed above within the Results of Operations for Three and Nine Months Ended September 30, 2023 section. Adjusted EBITDA increased by $6 million compared to the prior year, mainly due to increased volume and productivity, and favorable foreign exchange impacts. These increases in Adjusted EBITDA were partially offset by unfavorable product mix and pricing net of inflation pass-through. During the three months ended September 30, 2023, we saw product ramp-ups of new small engine applications in gasoline, offset by demand softening in diesel and commercial vehicle applications influenced by global macro economic dynamics which resulted in an unfavorable product mix. The increased productivity combined with fixed cost savings was partially offset by year-over-year labor inflation. R&D expenses increased $2 million which reflects continued investments 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 September 30, 2023, primarily driven by a higher Euro-to-US dollar exchange rate versus the prior-year period, also accounted for an $8 million increase in Adjusted EBITDA. Adjusted EBITDA for the Nine Months Ended September 30, 2023 33 For the nine months ended September 30, 2023 , net income decreased by $69 million versus the prior year as discussed above within the Results of Operations for the Three and Nine Months Ended September 30, 2023 section. Adjusted EBITDA increased by $60 million compared to the prior year, mainly driven by increased volume and productivity, inflation pass-through net of pricing, and favorable foreign exchange impacts. These increases in Adjusted EBITDA were partially offset by inflation on commodities, energy and transportation and unfavorable product mix. During the nine months ended September 30, 2023, we saw customer demand increases across all product lines, in a less disruptive supply chain environment, as the industry recovered from the semiconductor shortages experienced in the prior year. Favorable impact from new product launches in gasoline, volume ramp-ups in commercial vehicles, and favorable aftermarket conditions including high demand for replacement parts, also contributed to Adjusted EBITDA during the period. 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 from higher incentive compensation expense. R&D expenses increased $12 million reflecting continued investment in new technologies, including hiring, and year-over-year labor inflation. Gains in foreign currency from translational, transactional and hedging effects in the nine months ended September 30, 2023, primarily driven by lower Euro-to-US dollar exchange rates, also accounted for a $6 million increase in Adjusted EBITDA. 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. September 30, 2023 December 31, 2022 (Dollars in millions) Cash and cash equivalents $ 162 $ 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 1,677 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 of shares of Series A Preferred Stock from the C&O Investors 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 nine months ended September 30, 2023, we repaid $200 million on our 2023 Dollar Term Facility and $5 million on our 2021 Dollar Term Facility. As previously disclosed, 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 (each as defined in Note 15, Series A Preferred Stock of the Notes to the 34 Consolidated Interim Financial Statements). As of September 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. 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 Board of Directors authorized the extension of the share repurchase program to November 15, 2023. 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 September 30, 2023, the Company had repurcha sed $178 million of Common Stock, w ith $72 million remaining under the share repurchase program. For more information, see Item 2. Unregistered Sales of Equity Securities and Use of Proceeds . Cash Flow Summary for the Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2023 2022 (Dollars in millions) Cash provided by (used for): Operating activities $ 330 $ 238 Investing activities (48) (78) Financing activities (366) (436) Effect of exchange rate changes on cash and restricted cash (1) (27) Net decrease in cash, cash equivalents and restricted cash $ (85) $ (303) Cash provided by op erating activities increased by $92 million for the nine months ended September 30, 2023 versus the prior year . The increase was primarily driven by an increase of $49 million in net income, excluding the effects of non-cash items. Favorabl e impacts from working capital and other assets and liabilities of $17 million and $26 million, respectively, also contributed to the increase in cash provided by operating activities. Cash used for investing activities decreased by $30 million for the nine months ended September 30, 2023 versus the prior year due to $21 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 $70 million for the nine months ended September 30, 2023 compared with the prior year. Cash flows for financing activities during the nine months ended September 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 the 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 $178 million for the repurchase of Common Stock under our share repurchase program and debt repayments of $205 million including a $200 million early debt repayment of our 2023 Dollar Term Facility and quarterly payments for our 2021 Dollar Term Facility. In comparison, cash used for financing activities for the nine months ended September 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). 35 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. 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; 36 • 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; • 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.