What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-15 compared with 2023-02-14 · 177 added, 155 removed, 189 unchanged (64% of the section changed)

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

Overview and Business Trends

Garrett designs, manufactures and sells highly engineered turbocharger and electric-boosting technologies for light and commercial vehicle 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) powertrains.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Emergence from Chapter 11

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

Garrett Motion Inc., 20-12212.” On April 20, 2021, a Revised Amended Plan of Reorganization (the "Plan") was filed and on April 26, 2021, the Bankruptcy Court entered an order among other things, confirming the Plan.

On April 30, 2021 (the "Effective Date"), the conditions to the effectiveness of the Plan were satisfied or waived and the Company emerged from bankruptcy.

Executive Summary

Garrett is a cutting-edge technology leader delivering differentiated solutions for emission reduction and energy efficiency.

We design, manufacture, and sell highly engineered turbocharging, air and fluid compression, and high-speed electric motor technologies for OEMs and distributors within the mobility and industrial space.

We have significant expertise in delivering products at scale for ICE using gasoline, diesel, natural gas and hydrogen, as well as for zero emission vehicles using hydrogen fuel cell systems, both for mobility and industrial use.

As our customers continue to progress on electrification, we apply our technological pillars to develop highly engineered E-Powertrain and E-Cooling compressor products to support their ambition.

These products are key enablers for fuel economy, energy efficiency, thermal management, and compliance with emissions standards and overall greenhouse gas and other emission reduction targets.

In 2023, the turbocharger industry increased from approximately 46 million units in 2022 to approximately 50 million units in line with increased volumes in the light vehicle industry.

This enabled us to achieve $3,886 million of Net sales for the year.

2023 was also a year of economic volatility which saw elevated interest rates and continued commodity inflation pressures globally.

We continued to leverage our variable cost structure to successfully navigate this macroeconomic environment, while increasing our R&D investments by $22 million versus the prior year from 4.2% to 4.6% of Net sales.

Our agility furthermore allowed us to achieve Net income of $261 million and Adjusted EBITDA of $635 million for the year.

We continue to build momentum with our turbocharging and zero emission technologies.

During 2023, we won nine pre-development contracts for our breakthrough E-Powertrain and E-Cooling applications and six series production awards for our highly differentiated fuel cell compressors.

Capital Structure Transformation

As previously announced, on April 12, 2023, we 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 (the "Transaction") designed to increase the attractiveness of the Company to investors, including simplifying our capital structure through a conversion of the Series A Preferred Stock into shares of Common Stock.

Under the Transaction, the Company repurchased 69,707,719 shares of Series A Preferred Stock and converted 175,337,712 shares of Series A Preferred Stock into an equivalent number of Common Stock.

Total consideration paid to the holders of Series A Preferred Stock under the Transaction amounted to cash payments of $605 million and the issuance of an additional 25,577,517 shares of Common Stock in settlement of accumulated and unpaid preference dividends on the Series A Preferred Stock through June 30, 2023.

The Transaction was financed through a new $700 million Term Loan B (the "2023 Dollar Facility") under the framework of the Company's existing credit agreement.

As part of the Agreement, the C&O Investors agreed with the Company to certain changes to each of their respective governance rights under the Company’s governance documents, including a reduction of their existing board nomination rights, as well as lock-up restrictions on their equity securities of the Company for up to twelve months, and certain limits on their ability to purchase additional equity securities of the Company and to voting limitations, in each case for a period of up to eighteen months.

Other 2023 Events

During 2023, we repaid $200 million on our 2023 Dollar Term Facility and repurchased $213 million of Common Stock in line with our capital allocation priorities.

Our share repurchase program expired on December 31, 2023.

Trends, Uncertainties and Opportunities

The macroeconomic environment around us continues to evolve rapidly.

Significant uncertainty remains on global economic growth, with continued supply chain disruptions and geopolitical tensions, as well as China facing deflationary pressures and job market deterioration.

In 2023, an increase in BEV production has been observed globally and especially in Europe and China.

We expect this trend to continue into 2024.

We believe that turbocharger demand will continue to remain strong in the short and medium term, in part due to an expected increase in the penetration of hybrid vehicles in the light vehicle industry, which often requires the use of either a mechanical turbo or an electrical boosting solution.

In addition, in the commercial vehicle and industrial industries, diesel resilience to electrification in key use cases, combined with low or zero emission alternative fuels for ICE, like natural gas or hydrogen, is expected to gain momentum in coming years and likewise often require the use of a mechanical turbo or electrical boosting solution.

Disaggregated Revenue

The following tables show our revenues by geographic region and product line for the years ended December 31, 2023, 2022 and 2021.

Year Ended December 31,

2023 2022 2021

(Dollars in millions)

United States $ 744 19 % $ 694 19 % $ 565 16 %

Europe 1,874 48 % 1,734 48 % 1,784 49 %

Asia 1,201 31 % 1,102 31 % 1,231 34 %

Other International 67 2 % 73 2 % 53 1 %

$ 3,886 $ 3,603 $ 3,633

By Product Line

Year Ended December 31,

2023 2022 2021

(Dollars in millions)

Diesel $ 992 25 % $ 949 26 % $ 1,041 29 %

Gas 1,720 44 % 1,485 41 % 1,420 39 %

Commercial Vehicle 656 17 % 673 19 % 705 19 %

Aftermarket 456 12 % 442 12 % 406 11 %

Other 62 2 % 54 2 % 61 2 %

$ 3,886 $ 3,603 $ 3,633

Results of Operations for the Years Ended December 31, 2023, 2022 and 2021

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

For the year ended December 31, 2023, net sales increased compared to prior year by $283 million or 8%, including an unfavorable impact of $14 million or 0% due to foreign currency translation driven by lower Chinese yuan-to-US dollar, partially offset by higher Euro-to-US dollar exchange rates.

This increase was driven by higher volumes with growth of both global light vehicles and the turbocharger industry, and faster than expected recovery from China Covid-19 pressures and semiconductor shortages experienced in the prior year.

Strong demand for new product launches and ramp-ups along with inflation recoveries net of pricing across all product lines also contributed to the net sales growth.

Gasoline product sales increased by $235 million or 16% (including an unfavorable impact of $20 million or 1% due to foreign currency translation) driven by 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 $43 million or 5% (including a favorable impact of $10 million or 2% due to foreign currency translation), driven by strong performance in Europe where diesel remains essential to meet fleet CO2 targets in addition to strong light commercial vehicle performance on existing platforms.

Commercial vehicle sales decreased by $17 million or 3% (including an unfavorable impact of $7 million or 2% due to foreign currency translation), primarily driven by global demand softness influenced by macroeconomic headwinds such as higher interest rates and commodity inflation, partially offset by favorable regional mix.

Aftermarket sales improved by $14 million or 3% (including a favorable impact of $2 million or 0% due to foreign currency translation), primarily on strong demand in Europe and especially in 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.

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

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

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

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

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

Diesel product sales increased by $124 million or 14% (including a favorable impact of $42 million or 5% due to foreign currency translation), primarily driven by the strong recovery in customer demand beginning of the year 2021 following the pandemic-related disruptions experienced in 2020, which was partially offset by the semiconductor shortage at customers particularly in the second half of 2021.

Commercial Vehicle sales increased by $154 million or 28% (including a favorable impact of $17 million or 3% due to foreign currency translation), primarily driven by the continuing recovery in customer demand following the pandemic related disruptions experienced in 2020 and with both ramp-up and new launches of certain products in Europe and China.

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

Aftermarket sales improved by $36 million or 9% (including an unfavorable impact of $25 million or 6% due to foreign currency translation), primarily due to strong demand in North America and Europe related to favorable aftermarket conditions such as increased off-highway demand for new and service parts, increased revenues from our Performance & Motorsport Turbo business, new distributor openings, as well as growth through new product introductions and favorable pricing impacts.

Cost of Goods Sold and Gross Profit

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Cost of Goods Sold / Gross Profit for year ended December 31, 2023 $ 3,130 $ 756

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

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

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

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

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

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

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

For the year ended December 31, 2023, cost of goods sold increased by $210 million, primarily driven by our higher sales volumes and an unfavorable product mix, which contributed to increases of $217 million and $27 million, respectively.

Cost of goods sold further increased due to $30 million of inflation on commodities, transportation and energy, as well as a $14 million increase in R&D costs which reflects our continued investment in new technologies and related headcount year-over-year.

The increase was partially offset by our continued focus on productivity, net of labor inflation, one-time expenses and higher repositioning costs, which contributed a decrease in cost of goods sold of $55 million, and by foreign currency impacts from transactional, translational and hedging effects, which contributed a decrease in cost of goods sold of $23 million.

Gross profit increased by $73 million, mainly driven by higher sales volumes of $89 million and $60 million of productivity net of labor inflation, one-time expenses and higher repositioning costs.

We also saw $38 million more of inflation recoveries from customer pass-through agreements net of pricing, and positive foreign currency impacts from transactional, translational and hedging of $9 million.

These increases were partially offset by $30 million of inflation on commodities, transportation and energy costs, $79 million of unfavorable impacts from product mix primarily from growth in small-engine gasoline applications, as well as $14 million of higher R&D costs.

Cost of Goods Sold Gross Profit

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

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

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

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

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

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

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

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

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

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

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

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

These decreases were partially offset by $84 million of higher productivity which includes the benefits from value engineering

that are partially passed through to customers, $125 million of inflation recoveries from customer pass-through agreements net of pricing reductions, and $25 million of favorable product mix.

Selling, General and Administrative Expenses

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% of sales 6.4 % 6.0 % 5.9 %

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

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

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

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

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

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

Other Expense, Net

2022 2021 2020

(Dollars in millions)

Other expense, net $ 2 $ 1 $ 46

% of sales 0.1 % — % 1.5 %

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

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

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

For the year ended December 31, 2023, selling, general and administrative (“SG&A”) expenses increased by $31 million compared with the prior year, primarily due to $9 million of legal and advisory fees related to the Transaction , $5 million of labor inflation impact, $6 million of employee repositioning costs, $3 million of higher incentive compensation expense and $5 million unfavorable impact from foreign exchange.

For the year ended December 31, 2022, SG&A expenses remained flat compared to prior year.

We saw a $17 million benefit during the year from favorable foreign exchange rates and $2 million of lower employee-related costs which mainly reflected lower incentive compensation expense partially offset by labor inflation.

These decreases were offset by $5 million of higher IT expenses in 2022, $4 million of increased travel expenses as Covid-19 restrictions eased, and $10 million of higher bad debt expenses due primarily to a non-recurring bad debt recovery recognized in 2021.

Interest expense

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Interest expense $ 159 $ 8 $ 83

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

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

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

For the year ended December 31, 2023, interest expense increased by $151 million compared to prior year.

This increase was mainly due to $33 million of marked-to-market remeasurement losses recorded in the current year on our undesignated interest rate swap contracts versus $68 million of marked-to-market remeasurement gains in the prior year.

We also saw $74 million of higher interest expense due to the new $700 million 2023 Dollar Facility and higher interest rates, and $12 million of debt issuance cost amortization primarily due to a $200 million early debt repayment.

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 $28 million of gains on our interest derivatives in the current year.

For the year ended December 31, 2022, interest expense decreased by $75 million compared to prior year, primarily due to $61 million of marked-to-market remeasurement gains on our undesignated interest rate swap contracts, $19 million less of interest accretion on the Series B Preferred Stock that was issued at Emergence and fully redeemed in June 2022, and $9 million of interest expense incurred on our pre-Emergence credit facilities.

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

Non-operating income

2 unchanged sentences

Non-operating income $ (2) $ (47) $ (6)

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

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

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

For the year ended December 31, 2023, non-operating income amounted to $2 million compared to $47 million in the prior year.

The decrease in non-operating income was primarily driven by a $30 million decrease in the non-service components of net periodic pension benefits, a $13 million loss on the remeasurement of the Series A Preferred Stock Agreement during the three months ended June 30, 2023, and a $4 million increase in foreign exchange transactional losses.

For the year ended December 31, 2022, non-operatin g income increased by $41 million compared to prior year.

This increase was driven primarily by a $24 million increase in the non-service components of net periodic pension benefits and a $12 million decrease in foreign exchange transactional losses.

Reorganization items, net

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

For the year ended December 31, 2023, there were no expenses incurred for Reorganization items, net.

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

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

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

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

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

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

2023 2022 2021

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The effective tax rate increased by 3.4 percentage points in 2023 compared to 2022.

The increase was primarily due to the rate change impact on deferred tax assets attributable to the certification by the Chinese government of the High and New Technology Enterprise status of the Company’s China operations, which reduced the tax rate to 15% for the respective entity.

Further, withholding tax and other taxes on foreign earnings have comparatively increased due to a one-time non-recurring benefit recorded in 2022 related to accrued taxes on distributable reserves.

These increases were partially offset by tax benefits in 2023 in Switzerland due to law changes and in Korea for prior year tax settlements.

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

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

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

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

The decrease was primarily attributable to the nontaxable gain on the settlement of the Honeywell claims during the year, increased tax benefits from an internal restructuring and fewer losses in jurisdictions that we do not expect to benefit from such losses;

partially offset by increases in withholding taxes on unrepatriated earnings.

The internal restructuring occurred predominantly in the fourth quarter of 2021, which involved transfers of certain rights to intellectual property and various intercompany financing arrangements resulting in an approximate 11 percentage point decrease to the effective tax rate during 2021.

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

In January 2019, the Organization for Economic Co-operation and Development (“OECD”) announced further work in continuation of its Base Erosion and Profit Shifting project, focusing on two “pillars.” Pillar One provides a framework for the reallocation of certain residual profits of multinational enterprises to market jurisdictions where goods or services are used or consumed.

Pillar Two consists of two interrelated rules referred to as Global Anti-Base Erosion (“GloBE”) Rules, which operate to impose a minimum tax rate of 15% calculated on a jurisdictional basis.

On December 20, 2021, the OECD published GloBE model rules and released multiple rounds of commentary on those rules over the subsequent months.

More than 135 OECD member countries have agreed to the key parameters of the model rules, which allow those OECD member countries to begin implementing the GloBE rules in a manner consistent with the agreement reached.

The rules were adopted by a number of countries in 2023, with an effective date for fiscal years beginning after December 31, 2023.

There is no impact on our 2023 tax provision as any tax cost associated with the implementation of the model rules is treated as a period cost and therefore not recorded until 2024.

We do not expect that Pillar One will have an impact on our operations or effective tax rate.

Based on currently enacted legislation, we do not expect Pillar Two to have a significant impact to our 2024 effective tax rate.

However, further enactment of legislation by countries in which we do business could have an impact on our 2024 effective tax rate.

2023 2022 2021

1 unchanged sentence

Net Income $ 261 $ 390 $ 495

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

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

For the year ended December 31, 2023, net income decreased by $129 million compared with the prior year, primarily due to $151 million of higher interest expense, $31 million of higher SG&A expenses and $45 million of lower non-operating income, as discussed above.

These decreases were partially offset by $73 million of increased gross profit.

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

These decreases were partially offset by $75 million of lower interest expense and an increase in non-operating income of $41 million, as described above.

Non-GAAP Measures

5 unchanged sentences

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

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

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

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

We define “Adjusted EBITDA” as EBITDA, plus the sum of net reorganization items, stock compensation expense, repositioning costs, foreign exchange (gain) loss on debt net of related hedging (gain) loss, loss on extinguishment on debt, discounting costs on factoring, other non-operating income and capital structure transformation expense s;

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.

For 2023, we revised our definition of Adjusted EBITDA to exclude capital structure transformation expenses, which consist of expenses incurred as part of the Transaction.

We did not revise prior years' Adjusted EBITDA because there were no other charges similar in nature.

In addition, our management may use Adjusted EBITDA in setting performance incentive targets to align performance measurement with operational performance.

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Net income — GAAP $ 261 $ 390 $ 495

Net interest expense 6 82 76

Interest expense, net of interest income 152 6 82

Tax expense 86 106 43

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EBITDA (Non-GAAP) $ 589 $ 586 $ 712

Other expense, net (1)

Discounting costs on factoring 4 2 —

Non-operating (income) expense (1)

(6) (41) (12)

Reorganization items, net (2)

Stock compensation expense (3)

Repositioning charges (5)

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

Professional service costs (6)

Capital tax expense (7)

Repositioning costs 13 4 16

Foreign exchange (gain) loss on debt, net of related hedging (gain) loss (1) — 9

Capital structure transformation expenses (4)

Loss on extinguishment of debt — 5 —

Adjusted EBITDA (Non-GAAP) $ 635 $ 570 $ 570 $ 607

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

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

The Plan as confirmed by the Bankruptcy Court included a global settlement with Honeywell providing for, among other things, the full and final satisfaction, settlement, release, and discharge of all liabilities under or related to legacy agreements between the Company or its subsidiaries and Honeywell.

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

(2) The Company applied ASC 852 for periods subsequent to the Petition Date to distinguish transactions and events that were directly associated with the Company’s reorganization from the ongoing operations of the business.

Accordingly, certain expenses and gains incurred during the Chapter 11 Cases are recorded within Reorganization

items, net in the Consolidated Statements of Operations.

Accordingly, certain expenses and gains incurred during the Chapter 11 Cases are recorded within Reorganization items, net in the Consolidated Statements of Operations.

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

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

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

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

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

(7) The canton of Vaud, Switzerland generally provides for crediting the cantonal corporate income tax against capital tax.

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

(4) Includes the loss on remeasurement of the Series A Preferred Stock Agreements as well as third-party legal and advisory fees that are directly attributable to the Transaction.

Adjusted EBITDA for the year ended December 31, 2023 compared with year ended December 31, 2022

For the year ended December 31, 2023, net income decreased by $129 million versus the prior year as discussed above within the Results of Operations section.

Adjusted EBITDA increased by $65 million compared to the prior year, mainly on higher volumes primarily in small-engine gasoline applications which drove unfavorable mix impact.

Additionally, operational productivity and inflation pass-through net of pricing contributed $69 million improvement year-over-year offsetting $14 million higher R&D investment including new zero emission technologies.

The impact of foreign currency impact was zero for the year.

During 2023, we saw strong customer demand increases in diesel and gasoline product lines, in a less disruptive supply chain environment, as the industry recovered from semiconductor shortages experienced in the prior year.

Favorable impacts were also experienced from new product launches in gasoline, favorable aftermarket conditions such as continued high demand for replacement parts and new product launches coupled with price increases.

We maintained our focus on productivity in 2023 as rising commodity prices led to higher raw material costs, particularly for steel alloys and nickel.

We recovered most of these increases through customer pass-through agreements, especially on 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.

R&D expenses increased $14 million which reflects our continued investment in new technologies, increased hiring to accelerate growth in the new technologies and year-over-year labor inflation.

There was no impact from foreign currency with translational and transactional impacts being offset by hedge remeasurement.

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

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

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

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

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

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

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

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

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

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

For 2021, Garrett’s Adjusted EBITDA of $607 million increased by $167 million compared to the prior year, mainly due to benefits from volume and productivity, partially offset by mix and commodities and transportation inflation.

In 2021, our volumes totaled 13.7 million units, an increase of approximately 14% from 2020.

Our Adjusted EBITDA margin of 16.7% represented a year-over-year improvement of 220 basis points.

We started the year with high volume demand representing a short-term increase in demand in connection with the macroeconomic recovery from the initial impacts of the Covid-19 pandemic, but have been facing demand volatility driven by the global semiconductor shortage, primarily for the last three quarters.

We also maintained our focus on productivity in 2021 as rising commodity prices led to higher raw material costs, particularly for nickel, aluminum and steel alloys.

We recovered a majority of the increase from our customer pass-through agreements, especially for nickel, and continue to actively manage our supply base and cost recovery mechanisms to minimize the impact of materials cost inflation.

The increased productivity was partially offset by a $12 million increase in SG&A related to year-over-year labor inflation and increased accruals for employee incentives, reflecting expected payouts on employee incentive compensation schemes and was partially offset by bad debt recovery.

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

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

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

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

Liquidity and Capital Resources

Historically, we have financed our operations with funds generated from operating activities, available cash and cash equivalents, as well as borrowings under a senior secured revolving credit facility and the issuance of senior notes, commitments under both of which were cancelled in connection with the Chapter 11 Cases.

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

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

On the Effective Date, in accordance with the Plan, the Company entered into a credit agreement (as amended from time to time, the "Credit Agreement") providing for senior secured financing, consisting of a seven-year secured first-lien U.S.

Dollar term loan facility initially in the amount of $715 million (the “Dollar Term Facility”), a seven-year secured first-lien Euro term loan facility initially in the amount of €450 million (the “Euro Term Facility,” and together with the Dollar Facility, the “Term Loan Facilities”);

and a five-year senior secured first-lien revolving credit facility initially in the amount of $300 million providing for multi-currency revolving loans, (the “Revolving Facility,” and together with the

Term Loan Facilities, the “Credit Facilities”) .

On January 11, 2022 and March 22, 2022, the Company amended the Credit Agreement, increasing the maximum amount of borrowings available under the Revolving Facility from $300 million to approximately $475 million.

The maturity date of the Revolving Facility remains unchanged at April 30, 2026, with certain extension rights at the discretion of each lender.

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

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

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

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

Additionally, holders of our Series A Preferred Stock are entitled to receive, when, as and if declared by a committee of disinterested directors of the Board out of funds legally available for such dividend, cumulative cash dividends at an annual rate of 11% on the stated amount per share plus the amount of any accrued and unpaid dividends on such share.

These dividends accumulate whether or not declared.

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

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

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

2023 2022 2021

(Dollars in millions)

Cash and cash equivalents $ 259 $ 246 $ 423

Restricted cash 1 2 41

Revolving Facility - available borrowing capacity 570 475 297

Revolving Facility - borrowings or letters of credit outstanding — — 3

Term Loan Facilities - principal outstanding 1,696 1,186 1,223

Bilateral letter of credit facility - remaining available capacity 3 1 27

Bilateral letter of credit facility - utilized capacity 12 14 8

On April 27, 2023, the Company entered into an amendment to its existing credit agreement which provided for additional financing of $700 million in the form of the 2023 Dollar Term Facility and an increase of $95 million in maximum borrowings available under the Company's revolving credit facility (the "Revolving Facility") to an aggregate of $570 million.

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 credit agreement amendment.

The 2023 Dollar Term Facility matures on April 30, 2028.

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 year ended December 31, 2023, we repaid $200 million on our 2023 Dollar Term Facility and $7 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 21, Equity of the Notes to the Consolidated Financial Statements.

As of December 31, 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 21, Equity of the Notes to the Consolidated Financial Statements for further details regarding the Transaction.

For 2024, we expect capital spending to increase slightly as compared to 2023.

We expect to repay $7 million on our 2021 Dollar Term Facility.

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pension plans.

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

We fund our operations primarily through cash flows from operating activities, borrowings from our credit facilities and cash and cash equivalents.

We believe the combination of expected cash flows, the term loan borrowings and the revolving credit facilities being committed until 2028, will provide us with adequate liquidity to support the Company's operations.

Share Repurchase Program

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

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

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

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

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.

On November 1, 2023, the Board of Directors authorized the extension of the share repurchase program through December 31, 2023.

For more information, see Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Issuer Purchases of Equity Securities.

During the year ended December 31, 2023, the Company repurchased less than $1 million of Series A Preferred Stock and $213 million of its Common Stock.

The share repurchase program expired on December 31, 2023.

On February 13, 2024, the Board of Directors authorized a new $350 million share repurchase program valid until December 31, 2024.

Off-Balance Sheet Arrangement

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

The Company did 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 as of December 31, 2023 and 2022.

Cash Flow Summary for the Years Ended December 31, 2023, 2022 and 2021

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Effect of exchange rate changes on cash 5 (18) 13

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

Net increase in cash and cash equivalents $ 12 $ (216) $ (229)

Cash Flow Summary for the year ended December 31, 2023

Cash provided by operating activities increased by $90 million for the year ended December 31, 2023 versus the prior year.

The increase was driven by $63 million of working capital contribution related primarily build-ups of inventory in the prior year.

An increase of $32 million in net income, excluding the effects of non-cash items, also contributed to the increase in cash provided by operating activities, partially offset by a decrease in other assets and liabilities of $5 million.

Cash used for investing activities decreased by $36 million for the year ended December 31, 2023 versus the prior year.

The decrease is due to $28 million of proceeds from our cross-currency swap contracts which have been designated as net investment hedges of our Euro-denominated operations and $8 million of lower expenditures for property, plant and equipment.

Cash used for financing activities decreased by $79 million for the year ended December 31, 2023 compared with the prior year.

Cash flows used for financing activities during the current year included $667 million from the 2023 Dollar Term Facility net of debt financing costs.

We paid an aggregate amount of $605 million to holders of the Series A Preferred Stock related to the Transaction, including conversion of the Series A Preferred Stock as discussed above and in Note 21, Equity of the Notes to the Consolidated Financial Statements.

We also made payments of $213 million for the repurchase of Common Stock under our share repurchase program and debt repayments of $207 million.

In comparison, cash used for financing activities in the prior year 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) and $83 million for dividends on Series A Preferred Stock, while in the current year, there were $42 million in payments of accrued dividends on the Series A Preferred Stock through June 2023.

Cash Flow Summary for the year ended December 31, 2022

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

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

Cash Flow Summary for the year ended December 31, 2021

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

We also saw an increase in net income, net of deferred taxes and non-cash gains related to the reorganization, of $82 million.

These increases in cash used for operating activities were partially offset by a favorable impact from working capital of $47 million and $65 million mainly driven by prepayments made in 2020 for directors' and officers' insurance in relation to our reorganization.

Cash used for investing activities decreased by $9 million for 2021 versus the prior year, primarily due to a decrease in Expenditures for property, plant and equipment of $8 million.

Cash provided by financing activities decreased by $391 million for 2021 versus the prior year.

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

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

Capital Expenditures

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

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

We expect capital expenditures in 2024 to increase slightly as compared to 2023, reflecting an increase in investments for zero emission technologies partially offset with lower investments on turbo technologies.

Critical Accounting Policies and Estimates

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Revenue Recognition — Product sales are recognized when we transfer control of the promised goods to our customer, which is based on shipping terms.

Revenue is measured as the amount of consideration we expect to receive in

exchange for transferring the promised goods, adjusted for any variable consideration such as price concessions or annual price adjustments as estimated at contract inception.

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the promised goods, adjusted for any variable consideration such as price concessions or annual price adjustments as estimated at contract inception.

We estimate variable consideration at the most likely amount we will receive from customers and reduce revenues recognized accordingly.

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

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

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

We recognize net actuarial gains or losses in excess of 10% of the greater of the fair value of plan assets or the plans’ projected benefit obligation (the corridor) annually in the fourth quarter each year (the “MTM Adjustment”).

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

Income Taxes — We account for income taxes pursuant to the asset and liability method which requires us to recognize current tax liabilities or receivables for the amount of taxes we estimate are payable or refundable for the current year and deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts and their respective tax bases of assets and liabilities and the expected

benefits of net operating loss and credit carryforwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis