Garrett Motion Inc. 10-Q

Item 1. Financial Statements GARRETT MOTION INC. CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, 2024 2023 (Dollars in millions, except per share amounts) Net sales (Note 3) $ 915 $ 970 Cost of goods sold 743 781 Gross profit 172 189 Selling, general and administrative expenses 64 56 Other expense, net 1 1 Interest expense 31 27 Non-operating income ( 5 ) ( 3 ) Income before taxes 81 108 Tax expense (Note 5) 15 27 Net income 66 81 Less: preferred stock dividends (Note 15) — ( 40 ) Net income available for distribution $ 66 $ 41 Earnings per common share Basic $ 0.28 $ 0.13 Diluted 0.28 0.13 Weighted average common shares outstanding Basic 236,664,129 64,896,081 Diluted 238,991,886 65,970,723 The Notes to the Consolidated Interim Financial Statements are an integral part of this statement. 2 GARRETT MOTION INC. CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three Months Ended March 31, 2024 2023 (Dollars in millions) Net income $ 66 $ 81 Foreign exchange translation adjustment 18 2 Defined benefit pension plan adjustment, net of tax 1 — Changes in fair value of effective cash flow hedges, net of tax (Note 16) 3 ( 3 ) Changes in fair value of net investment hedges, net of tax (Note 16) 19 ( 5 ) Total other comprehensive income (loss), net of tax 41 ( 6 ) Comprehensive income $ 107 $ 75 The Notes to the Consolidated Interim Financial Statements are an integral part of this statement. 3 GARRETT MOTION INC. CONSOLIDATED INTERIM BALANCE SHEETS (Unaudited) March 31, 2024 December 31, 2023 (Dollars in millions) ASSETS Current assets: Cash and cash equivalents $ 196 $ 259 Restricted cash 1 1 Accounts, notes and other receivables – net (Note 6) 787 808 Inventories – net (Note 8) 272 263 Other current assets 82 75 Total current assets 1,338 1,406 Investments and long-term receivables 30 29 Property, plant and equipment – net 452 477 Goodwill 193 193 Deferred income taxes 213 216 Other assets (Note 9) 222 206 Total assets $ 2,448 $ 2,527 LIABILITIES Current liabilities: Accounts payable $ 1,029 $ 1,074 Current maturities of long-term debt (Note 14) 7 7 Accrued liabilities (Note 11) 283 293 Total current liabilities 1,319 1,374 Long-term debt (Note 14) 1,633 1,643 Deferred income taxes 30 27 Other liabilities (Note 12) 201 218 Total liabilities $ 3,183 $ 3,262 COMMITMENTS AND CONTINGENCIES (Note 20) EQUITY (DEFICIT) Common Stock, par value $ 0.001 ; 1,000,000,000 and 1,000,000,000 shares authorized, 240,071,246 and 238,543,624 issued and 227,401,889 and 238,249,056 outstanding as of March 31, 2024 and December 31, 2023, respectively — — Additional paid–in capital 1,198 1,190 Retained deficit ( 1,856 ) ( 1,922 ) Accumulated other comprehensive income (loss) (Note 17) 38 ( 3 ) Treasury Stock, at cost; 12,669,357 and 0 shares as of March 31, 2024 and December 31, 2023, respectively (Note 15) ( 115 ) — Total deficit ( 735 ) ( 735 ) Total liabilities and deficit $ 2,448 $ 2,527 The Notes to the Consolidated Interim Financial Statements are an integral part of this statement. 4 GARRETT MOTION INC. CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, 2024 2023 (Dollars in millions) Cash flows from operating activities: Net income $ 66 $ 81 Adjustments to reconcile net income to net cash provided by operating activities Deferred income taxes 5 3 Depreciation 22 21 Amortization of deferred issuance costs 3 2 Foreign exchange loss (gain) 7 ( 2 ) Stock compensation expense 8 3 Unrealized (gain) loss on derivatives ( 17 ) 10 Other 5 12 Changes in assets and liabilities: Accounts, notes and other receivables 6 ( 77 ) Inventories ( 17 ) ( 30 ) Other assets ( 4 ) ( 18 ) Accounts payable — 62 Accrued liabilities 4 20 Other liabilities ( 4 ) 5 Net cash provided by operating activities $ 84 $ 92 Cash flows from investing activities: Expenditures for property, plant and equipment ( 32 ) ( 8 ) Proceeds from cross-currency swap contracts 4 — Net cash used for investing activities $ ( 28 ) $ ( 8 ) Cash flows from financing activities: Payments of long-term debt ( 2 ) ( 2 ) Repurchases of Common Stock ( 107 ) — Payments for preference dividends — ( 42 ) Other ( 3 ) — Net cash used for financing activities $ ( 112 ) $ ( 44 ) Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash ( 7 ) 4 Net (decrease) increase in cash, cash equivalents and restricted cash ( 63 ) 44 Cash, cash equivalents and restricted cash at beginning of the period 260 248 Cash, cash equivalents and restricted cash at end of the period $ 197 $ 292 Supplemental cash flow disclosure: Income taxes paid (net of refunds) $ 10 $ 19 Interest paid 27 10 The Notes to the Consolidated Interim Financial Statements are an integral part of this statement 5 GARRETT MOTION INC. CONSOLIDATED INTERIM STATEMENTS OF EQUITY (DEFICIT) (Unaudited) Series A Preferred Stock Common Stock Treasury Stock Additional Paid-in Capital Retained Deficit Accumulated Other Comprehensive (Loss)/Income Total Deficit Shares Amount Shares Amount Shares Amount (in millions) Balance at December 31, 2023 — $ — 238 $ — — $ — $ 1,190 $ ( 1,922 ) $ ( 3 ) $ ( 735 ) Net income — — — — — — — 66 — 66 Share repurchases — — ( 12 ) — 12 ( 109 ) — — — ( 109 ) Excise tax on share repurchases — — — — — ( 1 ) — — — ( 1 ) Shares issued under stock plan, net of shares withheld for employee taxes — — 1 — 1 ( 5 ) — — — ( 5 ) Other comprehensive income, net of tax — — — — — — — — 41 41 Stock-based compensation — — — — — — 8 — — 8 Balance at March 31, 2024 — $ — 227 $ — 13 $ ( 115 ) $ 1,198 $ ( 1,856 ) $ 38 $ ( 735 ) Series A Preferred Stock Common Stock Treasury Stock Additional Paid-in Capital Retained Deficit Accumulated Other Comprehensive Income Total Deficit Shares Amount Shares Amount Shares Amount (in millions) Balance at December 31, 2022 246 $ — 64 $ — — $ — $ 1,333 $ ( 1,485 ) $ 36 $ ( 116 ) Net income — — — — — — — 81 — 81 Other comprehensive loss, net of tax — — — — — — — — ( 6 ) ( 6 ) Dividends — — — — — — — ( 42 ) — ( 42 ) Stock-based compensation — — — — — — 3 — — 3 Balance at March 31, 2023 246 $ — 64 $ — — $ — $ 1,336 $ ( 1,446 ) $ 30 $ ( 80 ) The Notes to the Consolidated Interim Financial Statements are an integral part of this statement. 6 GARRETT MOTION INC. NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Unaudited) (Dollars in millions, except per share amounts) Note 1. Background and Basis of Presentation Background Garrett Motion Inc. (the “Company” or “Garrett”), 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 to original equipment manufacturers (“OEMs”) and distributors within the mobility and industrial space. We have significant expertise in delivering products at scale for internal combustion engines using gasoline, diesel, natural gas, and hydrogen, as well as for zero emission technologies using hydrogen fuel cell systems, both for mobility and industrial use. As our customers continue to progress on electrification, we are applying 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. Basis of Presentation The accompanying unaudited Consolidated Interim Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission applicable to interim financial statements. While these statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by United States generally accepted accounting principles (“GAAP”) for complete financial statements. The unaudited Consolidated Interim Financial Statements should therefore be read in conjunction with the Consolidated Financial Statements and accompanying notes for the year ended December 31, 2023 included in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on February 15, 2024 (our “2023 Form 10-K”). The results of operations and cash flows for the three months ended March 31, 2024 should not necessarily be taken as indicative of the entire year. All amounts presented are in millions, except per share amounts. We report our quarterly financial information using a calendar convention: the first, second and third quarters are consistently reported as ending on March 31, June 30 and September 30. It has been our practice to establish actual quarterly closing dates using a predetermined fiscal calendar, which requires our businesses to close their books on a Saturday to minimize the potentially disruptive effects of quarterly closing on our business processes. For differences in actual closing dates that are material to year-over-year comparisons of quarterly or year-to-date results, such differences have been adjusted for the three months ended March 31, 2024. Our actual closing dates for the three months ended March 31, 2024 and 2023 were March 30, 2024 and April 1, 2023, respectively. We evaluate segment reporting in accordance with ASC 280, Segment Reporting . We concluded that Garrett operates in a single operating segment and a single reportable segment based on the operating results available and evaluated regularly by the chief operating decision maker (“CODM”), which is our Chief Executive Officer, to make decisions about resource allocation and performance assessment. The CODM makes operational performance assessments and resource allocation decisions on a consolidated basis, inclusive of all of the Company’s products across channels and geographies. The preparation of the financial statements in conformity with GAAP requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases these estimates on assumptions that it believes to be reasonable under the circumstances. Actual results could differ from the original estimates, requiring adjustments to these balances in future periods. Note 2. Summary of Significant Accounting Policies The accounting policies of the Company are set forth in Note 3 to the Consolidated Financial Statements for the year ended December 31, 2023 included in our 2023 Form 10-K. 7 Accounting Standards Issued But Not Yet Adopted In November 2023, the Financial Accounting Standards Board ("FASB") issued accounting standards update ("ASU") 2023-07, Segment Reporting (Topic 280) : Improvements to Reportable Segment Disclosures . The amendments in this update require companies with a single reportable segment to provide all existing segment disclosures, as well as requires incremental segment information to be disclosed. The guidance is effective for fiscal years beginning after December 15, 2023 on a retrospective basis, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the guidance to determine the impact on its disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . The amendments in this update increase the transparency around income tax information through improvements to disclosures primarily related to the rate reconciliation and income taxes paid information. The guidance is effective for fiscal years beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. The Company is currently evaluating the guidance to determine the impact on its disclosures. There are no other recently issued, but not yet adopted, accounting pronouncements which are expected to have a material impact on the Company's Consolidated Interim Financial Statements and related disclosures. Note 3. Revenue Recognition and Contracts with Customers Disaggregated Revenue Net sales by region (determined based on country of shipment) and channel are as follows: Three Months Ended March 31, 2024 Three Months Ended March 31, 2023 OEM Aftermarket Other Total OEM Aftermarket Other Total (Dollars in millions) United States $ 126 $ 51 $ 1 $ 178 $ 123 $ 49 $ 1 $ 173 Europe 418 43 8 469 446 43 8 497 Asia 236 12 4 252 267 12 3 282 Other 10 6 — 16 12 6 — 18 $ 790 $ 112 $ 13 $ 915 $ 848 $ 110 $ 12 $ 970 Contract Balances The following table summarizes our contract assets and liabilities balances: 2024 2023 (Dollars in millions) Contract assets—January 1 $ 38 $ 46 Contract assets—March 31 48 66 Change in contract assets—Increase/(Decrease) $ 10 $ 20 Contract liabilities—January 1 $ ( 11 ) $ ( 8 ) Contract liabilities—March 31 ( 10 ) ( 10 ) Change in contract liabilities—Decrease/(Increase) $ 1 $ ( 2 ) Note 4. Research, Development & Engineering Garrett conducts research, development and engineering (“RD&E”) activities, which consist primarily of the development of new products and product applications. RD&E costs are charged to expense as incurred unless the Company has a contractual guarantee for reimbursement from the customer. Customer reimbursements are netted against gross RD&E expenditures as they are considered a recovery of cost. Such costs are included in Cost of goods sold as follows: 8 Three Months Ended March 31, 2024 2023 (Dollars in millions) Research and development costs $ 43 $ 40 Engineering-related expenses, net of customer (reimbursements) (1) 1 ( 1 ) $ 44 $ 39 (1) Engineering-related expenses include customer reimbursements of $ 8 million and $ 11 million for the three months ended March 31, 2024 and 2023, respectively. Certain engineering expenses related to long-term supply arrangements are capitalized when defined criteria, such as the existence of a contractual guarantee for reimbursement, are met. As of March 31, 2024 and December 31, 2023, $ 15 million and $ 12 million , respectively, of such contractually reimbursable costs were capitalized. These amounts are recorded within Other current assets in the Consolidated Interim Balance Sheet. Note 5. Income Taxes Three Months Ended March 31, 2024 2023 (Dollars in millions) Tax expense $ 15 $ 27 Effective tax rate 18.5 % 25.0 % The effective tax rates for the three months ended March 31, 2024 and 2023 were 18.5 % and 25.0 %, respectively. The change in the effective tax rate for the three months ended March 31, 2024 compared to the prior period is primarily related to reversal of tax reserves and lower U.S. taxes on international operations, partially offset by increased withholding taxes. The effective tax rate for the three months ended March 31, 2024 was lower than the U.S. federal statutory rate of 21% primarily related to reversals of tax reserves, lower taxes on non-U.S. earnings, and global research and development benefits partially offset by U.S. taxes on international operations and withholding taxes. Note 6. Accounts, Notes and Other Receivables—Net March 31, 2024 December 31, 2023 (Dollars in millions) Trade receivables $ 621 $ 614 Notes receivable 85 101 Other receivables 86 99 792 814 Less—Allowance for expected credit losses ( 5 ) ( 6 ) $ 787 $ 808 Trade receivables include $ 48 million and $ 38 million of unbilled customer contract asset balances as of March 31, 2024 and December 31, 2023, respectively. These amounts are billed in accordance with the terms of customer contracts to which they relate. See Note 3 , Revenue Recognition and Contracts with Customers . Notes receivable is related to guaranteed bank notes without recourse that the Company receives in settlement of accounts receivables, primarily in the Asia Pacific region. See Note 7, Factoring and Notes Receivable for further information. 9 Note 7. Factoring and Notes Receivable The Company enters into arrangements with financial institutions to sell eligible trade receivables. The receivables are sold without recourse and the Company accounts for these arrangements as true sales. The Company also receives guaranteed bank notes without recourse, in settlement of accounts receivables, primarily in the Asia Pacific region. The Company can hold the bank notes until maturity, exchange them with suppliers to settle liabilities, or sell them to third-party financial institutions in exchange for cash. Bank notes sold to third-party financial institutions without recourse are likewise accounted for as true sales. Three Months Ended March 31, 2024 2023 (Dollars in millions) Eligible receivables sold without recourse $ 163 $ 182 Guaranteed bank notes sold without recourse — — The expenses related to the sale of trade receivables and guaranteed bank notes are recognized within Other expense, net in the Consolidated Interim Statements of Operations, and were immaterial for the three months ended March 31, 2024 and 2023 . March 31, 2024 December 31, 2023 (Dollars in millions) Receivables sold but not yet collected by the bank from the customer $ 5 $ 7 Guaranteed bank notes sold but not yet collected by the bank from the customer — — As of March 31, 2024 and December 31, 2023, the Company had no guaranteed bank notes pledged as collateral . Note 8. Inventories—Net March 31, 2024 December 31, 2023 (Dollars in millions) Raw materials $ 193 $ 198 Work in process 23 21 Finished products 98 85 314 304 Less—Reserves ( 42 ) ( 41 ) $ 272 $ 263 10 Note 9. Other Assets March 31, 2024 December 31, 2023 (Dollars in millions) Advanced discounts to customers, non-current $ 39 $ 41 Operating right-of-use assets (Note 13) 43 40 Income tax receivable 20 20 Pension and other employee related 11 11 Derivatives designated as net investment hedges 56 37 Designated and undesignated derivatives 44 46 Other 9 11 $ 222 $ 206 Note 10. Supplier Financing The Company has supplier financing arrangements with two third-party financial institutions under which certain suppliers may factor their receivables from Garrett. The Company also enters into arrangements with banking institutions to issue bankers acceptance drafts in settlement of accounts payables, primarily in the Asia Pacific region. The bankers acceptance drafts, or guaranteed bank notes, have a contractual maturity of six months or less, and may be held by suppliers until maturity, transferred to their suppliers, or discounted with financial institutions in exchange for cash. The supplier financing obligations and guaranteed bank notes outstanding are recorded within Accounts payable in our Consolidated Interim Balance Sheet. March 31, 2024 December 31, 2023 (Dollars in millions) Supplier financing obligations outstanding with financial institutions $ 67 $ 68 Guaranteed bank notes outstanding 191 193 Note 11. Accrued Liabilities March 31, 2024 December 31, 2023 (Dollars in millions) Customer pricing reserve $ 72 $ 57 Compensation, benefit and other employee related 67 80 Repositioning 11 9 Product warranties and performance guarantees - short-term (Note 20) 17 18 Income and other taxes 37 42 Customer advances and deferred income (1) 17 15 Accrued interest 25 26 Short-term lease liability (Note 13) 9 9 Accrued freight 8 9 Designated and undesignated derivatives 8 12 Other (primarily operating expenses) (2) 12 16 283 293 (1) Customer advances and deferred inco me include $ 10 million and $ 9 million of contract liabilities as of March 31, 2024 and December 31, 2023, respectively. See Note 3, Revenue Recognition and Contracts with Customers . 11 (2) Includes $ 3 million and $ 5 million of environmental liabilities as of March 31, 2024 and December 31, 2023, respectively. The Company accrues repositioning costs related to projects to optimize its product costs and right-size our organizational structure. Expenses related to the repositioning accruals are included in Cost of goods sold and Selling, general and administrative expenses in our Consolidated Interim Statements of Operations. Severance Costs Other Costs Total (Dollars in millions) Balance at December 31, 2023 $ 9 $ — $ 9 Charges 11 — 11 Usage—cash ( 9 ) — ( 9 ) Balance at March 31, 2024 $ 11 $ — $ 11 Severance Costs Other Costs Total (Dollars in millions) Balance at December 31, 2022 $ 9 $ — $ 9 Charges 5 2 7 Usage—cash ( 2 ) — ( 2 ) Non-cash asset write-offs — ( 2 ) ( 2 ) Balance at March 31, 2023 $ 12 $ — $ 12 Note 12. Other Liabilities March 31, 2024 December 31, 2023 (Dollars in millions) Income taxes $ 95 $ 99 Designated and undesignated derivatives 7 20 Pension and other employee related 21 23 Long-term lease liability (Note 13) 35 33 Advanced discounts from suppliers 3 3 Product warranties and performance guarantees – long-term (Note 20) 9 9 Environmental remediation – long term 14 13 Long-term accounts payable 6 7 Other 11 11 201 218 Note 13. Leases We have operating leases that primarily consist of real estate, machinery and equipment. Our leases have remaining lease terms of up to 15 years, some of which include options to extend the leases for up to two years , and some of which include options to terminate the leases within the year. The components of lease expense are as follows: Three Months Ended March 31, 2024 2023 (Dollars in millions) Operating lease cost $ 3 $ 4 12 Supplemental cash flow information related to operating leases is as follows: Three Months Ended March 31, 2024 2023 (Dollars in millions) Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 3 $ 4 Right-of-use assets obtained in exchange for lease obligations: Operating leases 6 — Supplemental balance sheet information related to operating leases is as follows: March 31, 2024 December 31, 2023 (Dollars in millions) Other assets $ 43 $ 40 Accrued liabilities 9 9 Other liabilities 35 33 March 31, 2024 December 31, 2023 Weighted-average remaining lease term (in years) 7.65 8.08 Weighted-average discount rate 6.08 % 5.69 % Maturities of operating lease liabilities as of March 31, 2024 were as follows: (Dollars in millions) 2024 $ 9 2025 10 2026 8 2027 6 2028 5 Thereafter 17 Total lease payments 55 Less imputed interest ( 11 ) $ 44 Note 14. Long-term Debt and Credit Agreements Long Term Debt On April 30, 2021, the Company entered into a credit agreement (as amended from time to time, the "Credit Agreement") with JPMorgan Chase Bank, N.A. as administrative agent. The Credit Agreement provides for the following long-term senior secured financing (collectively, the "Term Loan Facilities"): • 2021 Dollar Term Facility: a seven-year secured first-lien U.S. Dollar term loan facility for $ 715 million; • 2023 Dollar Term Facility : a five-year secured first-lien U.S. Dollar term loan facility for $ 500 million; and • Euro Term Facility : a seven-year secured first-lien Euro term loan facility for € 450 million. 13 The principal outstanding and carrying amounts of our long-term debt as of March 31, 2024 and December 31, 2023 are as follows: Due Interest Rate March 31, 2024 December 31, 2023 2021 Dollar Term Facility 4/30/2028 SOFR plus 351 bps $ 697 $ 699 2023 Dollar Term Facility 4/30/2028 SOFR plus 450 bps 500 500 Euro Term Facility 4/30/2028 EURIBOR plus 350 bps 485 497 Other 1 — Total principal outstanding 1,683 1,696 Less: unamortized deferred financing costs ( 43 ) ( 46 ) Less: current portion of long-term debt ( 7 ) ( 7 ) Total long-term debt $ 1,633 $ 1,643 Revolving Facility and Letters of Credit The Credit Agreement also provides for a senior secured first-lien revolving credit facility providing for multi-currency re volving loans (the “Revolving Facility”). The Revolving Facility matures on April 30, 2028 and has a maximum borrowing amount available of $ 570 million. Under the Revolving Facility, the Company may use up to $ 125 million for the issuance of letters of credit to its subsidiaries. Letters of credit are available for issuance under the Credit Agreement on terms and conditions customary for financings of this kind, which issuances reduce availability under the Revolving Facility. As of March 31, 2024, the Company had no loans outstanding under the Revolving Facility, no outstanding letters of credit, and available borrowing capacity of $ 570 million. Separate from the Revolving Facility, the Company has a bilateral letter of credit facility in the amount of $ 15 million, which matures on April 30, 2026. As of March 31, 2024, the Company had $ 12 million utilized and $ 3 million of remaining available capacity under such facility. Interest Rate and Fees The 2021 Dollar Term Facility is subject to an interest rate, at our option, of either (a) an alternate base rate (“ABR”) (which shall not be less than 1.50 %) or (b) an adjusted SOFR rate (“SOFR”) (which shall not be less than 0.50 %), in each case, plus an applicable margin equal to 3.51 % in the case of SOFR loans and 2.25 % in the case of ABR loans. The Euro Term Facility is subject to an interest rate equal to an adjusted EURIBOR rate (which shall not be less than zero ) plus an applicable margin equal to 3.50 %. Interest payments with respect to the 2021 Dollar and Euro Term Facilities are required either on a quarterly basis (for ABR loans) or at the end of each interest period (for SOFR and EURIBOR loans) or, if the duration of the applicable interest period exceeds three months, then every three months . The 2023 Dollar Term Facility will bear interest, at the Term Borrowers’ election, at a rate per annum equal to (i) SOFR (subject to a 0.50 % floor) plus the applicable margin or (ii) the base rate plus the applicable margin. The applicable margin for loans under the 2023 Dollar Term Facility is 4.50 % for SOFR loans and 3.50 % for base rate loans. The Revolving Facility is subject to an interest rate comprised of an applicable benchmark rate as provided under the Credit Agreement (which shall not be less than 1.00 % if such benchmark is the ABR rate and not less than 0.00 % in the case of other applicable benchmark rates) that is selected based on the currency in which borrowings are outstanding thereunder, in each case, plus an applicable margin, that may vary based on our leverage ratio. In addition to paying interest on outstanding borrowings under the Revolving Facility, we are also required to pay a quarterly commitment fee based on the average daily unused portion of the Revolving Facility during such quarter, which is determined by our leverage ratio and ranges from 0.25 % to 0.50 % per annum. Prepayments The Credit Agreement contains certain mandatory prepayment provisions in the event that we incur certain types of indebtedness, receive net cash proceeds from certain non-ordinary course asset sales or other dispositions of property, or have excess cash flow (calculated on an annual basis with the required prepayment equal to 50 %, 25 % or 0 % of such 14 excess cash flow, subject to compliance with certain leverage ratios), in each case subject to terms and conditions customary for financings of this kind. Certain Covenants The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type. The Revolving Facility also contains a financial covenant requiring the maintenance of a consolidated total leverage ratio of not greater than 4.7 times as of the end of each fiscal quarter if, on the last day of any such fiscal quarter, the aggregate amount of loans and letters of credit (excluding backstopped or cash collateralized letters of credit and other letters of credit with an aggregate face amount not exceeding $ 30 million) outstanding under the Revolving Facility exceeds 35 % of the aggregate commitments in effect thereunder on such date. As of March 31, 2024, the Company was in compliance with all covenants. Note 15. Equity Preferred Stock On April 12, 2023 the Company entered into separate definitive agreements with each of Centerbridge Partners, L.P. and funds managed by Oaktree Capital Management, L.P. to effect a series of integrated transactions (collectively the “Transaction”) designed to increase the attractiveness of the Company to investors, including by simplifying the Company’s capital structure by converting all outstanding Series A Preferred Stock into a single class of Common Stock, subject to certain conditions. On June 6, 2023, the Company completed all steps of the Transaction and with no remaining shares of Series A Preferred Stock outstanding as of the date. Please refer to Note 21, Equity , to the Consolidated Financial Statements for the year ended December 31, 2023 included in our 2023 Form 10-K. Treasury Stock Treasury stock represents shares of the Company's Common Stock that have been issued and subsequently repurchased by the Company or withheld to satisfy withholding tax obligations in connection with equity award vestings, and that have not been retired or cancelled. The Company accounts for treasury stock under the cost method and includes treasury stock as a component of Equity (Deficit) on the Consolidated Interim Balance Sheet. The Company accounts for the reissuance of treasury stock using the average cost method. The Company did not reissue or retire any shares of treasury stock during the three months ended March 31, 2024. Share Repurchase Program On February 12, 2024, the Board of Directors authorized a new $ 350 million share repurchase program valid until December 31, 2024. The Company may repurchase shares from time to time under the program through various methods, including in open market transactions, block trades, privately negotiated transactions, and otherwise. The timing, as well as the number and value of shares repurchased under the program, will depend on a variety of factors. The Company is not obligated to purchase any shares under the repurchase program, and the program may be suspended, modified, or discontinued at any time without prior notice. As of March 31, 2024, the Company has repurchased $ 109 million of Common Stock, with $ 241 million remaining under the share repurchase program. These shares are held as treasury stock. Note 16. Financial Instruments and Fair Value Measures Our credit, market and foreign currency risk management policies are described in Note 19, Financial Instruments and Fair Value Measures , to the Consolidated Financial Statements for the year ended December 31, 2023 included in our 2023 Form 10-K. As of March 31, 2024 and December 31, 2023, we had contracts with aggregate gross notional amounts of $ 969 million and $ 1,171 million, respectively, to hedge foreign currencies, principally the U.S. Dollar, Swiss Franc, British Pound, Euro, Chinese Yuan, Japanese Yen, Mexican Peso, New Romanian Leu, Czech Koruna, Australian Dollar and Korean Won. Fair Value of Financial Instruments The FASB’s accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Financial and 15 nonfinancial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table sets forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2024 and December 31, 2023: Fair Value Notional Amounts Assets Liabilities March 31, 2024 December 31, 2023 March 31, 2024 December 31, 2023 March 31, 2024 December 31, 2023 Designated instruments: Designated forward currency exchange contracts $ 419 $ 456 $ 12 $ 11 (a) $ 7 $ 6 (c) Designated cross-currency swaps 1,015 1,015 56 37 (b) 6 17 (d) Designated interest-rate swaps 200 200 — — — — Total designated instruments 1,634 1,671 68 48 13 23 Undesignated instruments: Undesignated interest rate swaps 895 917 44 46 (b) 1 3 (d) Undesignated forward currency exchange contracts 550 715 6 1 (a) 1 6 (c) Total undesignated instruments 1,445 1,632 50 47 2 9 Total designated and undesignated instruments $ 3,079 $ 3,303 $ 118 $ 95 $ 15 $ 32 (a) Recorded within Other current assets (b) Recorded within Other assets (c) Recorded within Accrued liabilities (d) Recorded within Other liabilities Cash Flow Hedges During 2023, the Company entered into float-to-fixed interest rate swap contracts with an aggregate notional amount of $ 200 million and maturities in July 2024 and October 2024. Changes in the fair value of the interest rate swap contracts are recorded in Accumulated Other Comprehensive Income ("AOCI") and will be reclassified to Interest expense in the Consolidated Interim Statement of Operations upon maturity. The Company also has outstanding forward currency exchange contracts with maturities up to 18 months and an aggregate notional amount of $ 419 million and $ 456 million as of March 31, 2024 and December 31, 2023, respectively. These forward currency exchange contracts have been designated as cash flow hedges to mitigate foreign currency exposures primarily on our inventory purchases and manufacturing costs. The gains and losses on the forward currency exchange contracts are recorded in AOCI and reclassified to Cost of goods sold in the Consolidated Interim Statement of Operations when the underlying transactions are recognized in earnings. In order to mitigate interest rate and foreign currency risk on its 2023 Dollar Term Facility, the Company has an outstanding float-to-fixed cross-currency swap contract comprised of an amortizing swap with an aggregate notional amount of € 280 million ($ 300 million) and notional exchanges in June 2026, June 2027 and June 2028. Changes in the fair value of the cross-currency swap contract are recognized in AOCI and reclassified to Non-operating income in the Consolidated Statement of Operations, based upon changes in the spot rate remeasurement of the underlying debt. The net interest settlements on the cross-currency swap contract are recorded in Interest expense in the Consolidated Interim Statements of Operations. All of the Company's cash flow hedges are assessed as highly effective. For the three months ended March 31, 2024 and 2023, the Company recorded a gain of $ 3 million, net of tax, and a loss of $ 3 million, net of tax, respectively, in Other comprehensive income. Net Investment Hedges 16 The Company has designated float-to-float cross-currency swaps with an aggregate notional amount of € 615 million ($ 715 million) as net investment hedges of its Euro-denominated operations. The fair values of the net investment hedges were net assets o f $ 56 million and $ 37 million as of March 31, 2024 and December 31, 2023 , respectively. Our Consolidated Interim Statements of Comprehensive Income include Changes in fair value of net investment hedges, net of tax, of a $ 19 million gain and a $ 5 million loss for the three months ended March 31, 2024 and 2023 , respectively. No ineffectiveness has been recorded on the net investment hedges. Non-Designated Derivatives As of March 31, 2024 and December 31, 2023 , the Company has outstanding float-to-fixed interest rate swap contracts with an aggregate notional amount of € 830 million ($ 895 million and $ 917 million, respectively) and maturities of April 2024, July 2024, October 2024, April 2025, April 2026, April 2027 and April 2028. Changes in the fair value of the undesignated interest rate swap contracts are recorded in Interest expense in the Consolidated Interim Statements of Operations. The Company also has outstanding forward currency exchange contracts with maturities generally up to 3 months and an aggregate notional amount of $ 550 million and $ 715 million as of March 31, 2024 and December 31, 2023, respectively . These derivatives are not designated as hedging instruments and are adjusted to fair value through Non-operating income in the Consolidated Interim Statements of Operations. Fair Value Measurement The foreign currency exchange, interest rate swap and cross-currency swap contracts are valued using market observable inputs. As such, these derivative instruments are classified within Level 2. The assumptions used in measuring the fair value of the cross-currency swap are considered Level 2 inputs, which are based upon market-observable interest rate curves, cross-currency basis curves, credit default swap curves, and foreign exchange rates. The carrying value of Cash, cash equivalents and restricted cash, Account receivables and Notes and Other receivables contained in the Consolidated Interim Balance Sheet approximates fair value. The following table sets forth the Company’s financial assets and liabilities that were not carried at fair value: March 31, 2024 December 31, 2023 Carrying Value Fair Value Carrying Value Fair Value (Dollars in millions) Term Loan Facilities $ 1,639 $ 1,683 $ 1,650 $ 1,692 The Company determined the fair value of certain of its long-term debt and related current maturities utilizing transactions in the listed markets for similar liabilities. As such, the fair value of the long-term debt and related current maturities is considered Level 2. 17 Note 17. Accumulated Other Comprehensive Income The changes in AOCI by component are set forth below: Three Months Ended March 31, 2024 2023 (Dollars in millions) Foreign Exchange Translation Adjustment Balance at beginning of period $ ( 57 ) $ ( 44 ) Other comprehensive income (loss) before reclassifications 18 2 Balance at end of period ( 39 ) ( 42 ) Pension Adjustments Balance at beginning of period ( 20 ) ( 18 ) Other comprehensive income (loss) before reclassifications (1) 1 — Balance at end of period ( 19 ) ( 18 ) Changes in Fair Value of Effective Cash Flow Hedges Balance at beginning of period ( 2 ) 13 Other comprehensive income (loss) before reclassifications (2) 12 5 Amounts reclassified from AOCI, net ( 9 ) ( 8 ) Balance at end of period 1 10 Changes in Fair Value of Net Investment Hedges Balance at beginning of period 76 85 Other comprehensive income (loss) before reclassifications, net (3) 19 ( 5 ) Balance at end of period 95 80 Accumulated other comprehensive income, end of period $ 38 $ 30 (1) There were no income tax effects for the three months ended March 31, 2024. (2) Net of tax expense (benefit) of $ 4 million and $ 0 million for the three months ended March 31, 2024 and 2023, respectively. (3) Net of tax expense (benefit) of $ 4 million and $( 3 ) million for the three months ended March 31, 2024 and 2023, respectively. Reclassifications from AOCI to income were as follows: Three Months Ended March 31, 2024 2023 (Dollars in millions) Changes in Fair Value of Effective Cash Flow Hedges Reclassification forward currency exchange contracts to Cost of goods sold $ ( 2 ) $ ( 9 ) Reclassification cross-currency swaps to Interest expense ( 2 ) — Reclassification cross-currency swaps to Non-operating income ( 7 ) — Tax effect on reclassification to income 2 1 Amounts reclassified from AOCI, net $ ( 9 ) $ ( 8 ) 18 Note 18. Earnings Per Share For the three months ended March 31, 2024, basic earnings per share ("EPS") is computed using the weighted-average number of common shares outstanding during the period. For the three months ended March 31, 2023, basic earnings per share was calculated using the two-class method as our Series A Preferred Stock, which was considered a participating security prior to its conversion into Common Stock and cancellation pursuant to the Transaction. The two-class method requires an allocation of earnings to all securities that participate in dividends with common shares, such as our Series A Preferred Stock, to the extent that each security may share in the entity’s earnings. Basic earnings per share are then calculated by dividing undistributed earnings allocated to common stock by the weighted average number of common shares outstanding for the period. Diluted earnings per share for the three months ended March 31, 2024 is calculated based on the weighted-average number of common shares outstanding for the period plus the dilutive effect of common stock equivalents using the treasury stock method. Diluted earnings per share for the three months ended March 31, 2023 is calculated using the more dilutive of the two-class or if-converted methods. The two-class method uses net income available to common shareholders and assumes conversion of all potential shares other than the participating securities. The if-converted method uses net income and assumes conversion of all potential shares including the participating securities. The details of the EPS calculations for the three months ended March 31, 2024 and 2023 are as follows: Three Months Ended March 31, 2024 2023 (Dollars in millions except per share) Basic earnings per share: Net income $ 66 $ 81 Less: preferred stock dividend — ( 40 ) Net income available for distribution 66 41 Less: earnings allocated to participating securities — ( 32 ) Net income available to common shareholders $ 66 $ 9 Weighted average common shares outstanding - Basic 236,664,129 64,896,081 EPS – Basic $ 0.28 $ 0.13 Diluted earnings per share: Method used: Two-class Weighted average common shares outstanding - Basic 236,664,129 64,896,081 Dilutive effect of unvested RSUs and other contingently issuable shares 2,327,757 1,074,642 Weighted average common shares outstanding – Diluted 238,991,886 65,970,723 EPS – Diluted $ 0.28 $ 0.13 Note 19. Related Party Transactions We contract with Trane Technologies ("Trane") for the occasional purchase of goods and services. Trane is considered a related party as Mr. Paul Camuti, a director on our Board of Directors since February 9, 2024, serves as an executive officer of Trane. Our payments under the agreements with Trane for the three months ended March 31, 2024, as well as any liabilities due to Trane as of March 31, 2024, were immaterial. For the three months ended March 31, 2023, Trane was not considered a related party. 19 Note 20. Commitments and Contingencies Securities Litigation In 2020, various securities class action complaints were filed against Garrett Motion Inc. and certain current and former Garrett officers and directors in the United States District Court for the Southern District of New York asserting claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, for alleged securities fraud and control person liability. In March 2022, the trial court dismissed with prejudice the claims against certain of the defendants, and in March 2023, the trial court dismissed with prejudice all remaining claims. In April 2023, the plaintiffs appealed the trial court’s decision to the United States Court of Appeals for the Second Circuit, and in April 2024 the Second Circuit affirmed dismissal of the claims. Management did not believe an adverse outcome in this matter was probable, and therefore no accrual has been recorded. Brazilian Tax Matter In September 2020, the Brazilian tax authorities issued an infraction notice against Garrett Motion Industria Automotiva Brasil Ltda, challenging the use of certain tax credits (“Befiex Credits”) between January 2017 and February 2020. The infraction notice results in a loss contingency that may or may not ultimately be incurred by the Company. The estimated total amount of the contingency as of March 31, 2024 was $ 39 million including penalties and interest. The Company believes, based on management’s assessment and the advice of external legal counsel, that it has meritorious arguments in connection with the infraction notice and any liability for the infraction notice is currently not probable. Accordingly, no accrual is required at this time. Warranties and Guarantees In the normal course of business, we issue product warranties and product performance guarantees. We accrue for the estimated cost of product warranties and performance guarantees based on contract terms and historical experience at the time of sale to the customer. Adjustments to initial obligations for warranties and guarantees are made as changes to the obligations become reasonably estimable. Product warranties and product performance guarantees are included in Accrued liabilities and Other liabilities. The following table summarizes information concerning our recorded obligations for product warranties and product performance guarantees. Three Months Ended March 31, 2024 2023 (Dollars in millions) Warranty and product performance guarantees at beginning of period $ 27 $ 28 Accruals for warranties/guarantees issued during the period 3 3 Settlement of warranty/guarantee claims ( 3 ) ( 3 ) Foreign currency translation ( 1 ) — Warranty and product performance guarantees at end of period $ 26 $ 28 Other Commitments and Contingencies We are subject to other lawsuits, investigations and disputes arising out of the conduct of our business, including matters relating to commercial transactions, government contracts, product liability, prior acquisitions and divestitures, employee benefit plans, intellectual property and environmental, health and safety matters. We recognize a liability for any contingency that is probable of occurring and reasonably estimable. We continually assess the likelihood of adverse judgments of outcomes in these matters, as well as potential ranges of possible losses (taking into consideration any insurance recoveries), based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts. Note 21. Pension Benefits We sponsor several funded U.S. and non-U.S. defined benefit pension plans. Significant plans outside the U.S. are in Switzerland and Ireland. Other pension plans outside the U.S. are not material to the Company, either individually or in the aggregate. 20 Our general funding policy for qualified defined benefit pension plans is to contribute amounts at least sufficient to satisfy regulatory funding standards. We are not required to make any contributions to our U.S. pension plan in 2024. We expect to make contributions of cash and/or marketable securities of approximately $ 7 million to our non-U.S. pension plans to satisfy regulatory funding standards in 2024, of which $ 1 million has been contributed as of March 31, 2024. Net periodic benefit costs for our significant defined benefit plans include the following components: Three Months Ended March 31, U.S. Plans Non-U.S. Plan 2024 2023 2024 2023 (Dollars in millions) Service cost $ — $ — $ 2 $ 1 Interest cost 2 2 1 1 Expected return on plan assets ( 2 ) ( 2 ) ( 2 ) ( 2 ) Amortization of prior service (credit) — — — — Total $ — $ — $ 1 $ — For both our U.S. and non-U.S. defined benefit pension plans, we estimate the service and interest cost components of net periodic benefit (income) cost by utilizing a full yield curve approach in the estimation of these cost components by applying the specific spot rates along the yield curve used in the determination of the pension benefit obligation to their underlying projected cash flows. This approach provides a more precise measurement of service and interest costs by improving the correlation between projected cash flows and their corresponding spot rates. Note 22. Subsequent Events On April 3, 2024, the Company divested its equity interest in an unconsolidated joint venture for approximately $ 58 million, subject to customary debt and working capital adjustments, with cash consideration received on divestiture date of $ 46 million. The carrying value of the equity method investment amounted to $ 21 million as of March 31, 2024, and is included in Investments and long-term receivables on the Consolidated Interim Balance Sheet. On April 10, 2024, the Company made an early debt repayment of $ 100 million on its 2023 Dollar Term Facility. 21