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Item 1. Financial Statements

2024-07-25 compared with 2024-04-25 · 227 added, 116 removed, 494 unchanged (41% of the section changed)

3 unchanged sentences

Three Months Ended

Six Months Ended

2024 2023 2024 2023

(Dollars in millions, except per share amounts)

Net sales (Note 3)

$ 890 $ 1,011 $ 1,805 $ 1,981

Cost of goods sold 705 809 1,448 1,590

3 unchanged sentences

Interest expense 62 29 93 56

Non-operating income ( 5 ) ( 3 )

Gain on sale of equity investment (Note 21)

( 27 ) — ( 27 ) —

Non-operating (income) expense ( 1 ) 8 ( 6 ) 5

Income before taxes 87 101 168 209

1 unchanged sentence

Net income 64 71 130 152

preferred stock dividends (Note 15)

Net income available for distribution $ 66 $ 41

Earnings per common share

preferred stock dividends — ( 40 ) — ( 80 )

preferred stock deemed dividends — ( 232 ) — ( 232 )

Net income (loss) available for distribution $ 64 $ ( 201 ) $ 130 $ ( 160 )

Earnings (loss) per common share

Basic $ 0.29 $ ( 1.88 ) $ 0.56 $ ( 1.86 )

7 unchanged sentences

Three Months Ended

Six Months Ended

2024 2023 2024 2023

(Dollars in millions)

3 unchanged sentences

Changes in fair value of effective cash flow hedges, net of tax (Note 16)

( 2 ) 2 1 ( 1 )

Changes in fair value of net investment hedges, net of tax (Note 16)

31 unchanged sentences

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

1,000,000,000 and 1,000,000,000 shares authorized, 240,783,003 and 238,543,624 issued and 220,720,522 and 238,249,056 outstanding as of June 30, 2024 and December 31, 2023, respectively

Additional paid–in capital 1,203 1,190

3 unchanged sentences

Treasury Stock, at cost;

12,669,357 and 0 shares as of March 31, 2024 and December 31, 2023, respectively (Note 15)

20,062,481 and 0 shares as of June 30, 2024 and December 31, 2023, respectively (Note 15)

Total deficit ( 725 ) ( 735 )

3 unchanged sentences

CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

(Dollars in millions)

4 unchanged sentences

Amortization of deferred issuance costs 33 5

Loss on remeasurement of forward purchase contract — 13

Gain on sale of equity investment ( 27 ) —

Foreign exchange loss (gain) 13 ( 11 )

Stock compensation expense 13 8

Unrealized (gain) loss on derivatives ( 17 ) 10

Pension expense

Unrealized loss on derivatives 1 19

Changes in assets and liabilities:

9 unchanged sentences

Proceeds from cross-currency swap contracts

Net cash used for investing activities

Proceeds from sale of equity investment 46 $ —

Net cash provided by (used for) investing activities

$ 18 $ ( 24 )

Cash flows from financing activities:

Proceeds from issuance of long-term debt, net of debt financing costs 794 667

Payments of long-term debt ( 989 ) ( 4 )

Repurchases of Series A Preferred Stock — ( 580 )

Repurchases of Common Stock ( 173 ) ( 15 )

Payments of Additional Amounts for conversion of Series A Preferred Stock — ( 25 )

Payments for preference dividends — ( 42 )

Payments for debt and revolving facility financing costs ( 7 ) ( 2 )

Other ( 9 ) ( 1 )

14 unchanged sentences

Deficit Accumulated Other

Comprehensive

(Loss)/Income Total

Comprehensive Income Total

Shares Amount Shares Amount Shares Amount

9 unchanged sentences

Balance at March 31, 2024 — $ — 227 $ — 13 $ ( 115 ) $ 1,198 $ ( 1,856 ) $ 38 $ ( 735 )

Net income — — — — — — — 64 — 64

Share repurchases — — ( 7 ) — 7 ( 65 ) — — — ( 65 )

Excise tax on share repurchases — — — — — ( 1 ) — — — ( 1 )

Shares issued under stock plan, net of shares withheld for employee taxes — — 1 — — ( 1 ) — — — ( 1 )

Other comprehensive loss, net of tax — — — — — — — — 8 8

Stock-based compensation — — — — — — 5 — — 5

Balance at June 30, 2024

— $ — 221 $ — 20 $ ( 182 ) $ 1,203 $ ( 1,792 ) $ 46 $ ( 725 )

Preferred Stock Common Stock Treasury Stock Additional

12 unchanged sentences

246 $ — 64 $ — — $ — $ 1,336 $ ( 1,446 ) $ 30 $ ( 80 )

Net income — — — — — — — 71 — 71

Repurchases of Series A Preferred Stock ( 70 ) — — — — — ( 366 ) ( 201 ) — ( 567 )

Repurchases of Common Stock — — ( 2 ) — — — — ( 18 ) — ( 18 )

Excise tax on share repurchases — — — — — — — ( 6 ) — ( 6 )

Other comprehensive income, net of tax — — — — — — — — ( 3 ) ( 3 )

Issuance of Common Stock for preference dividends — — 26 — — — 209 ( 209 ) — —

Conversion of Series A Preferred Stock ( 176 ) — 176 — — — — ( 25 ) — ( 25 )

Stock-based compensation — — — — — — 5 — — 5

Balance at June 30, 2023

— $ — 264 $ — — $ — $ 1,184 $ ( 1,834 ) $ 27 $ ( 623 )

The Notes to the Consolidated Interim Financial Statements are an integral part of this statement.

13 unchanged sentences

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.

The results of operations for the three and six months ended June 30, 2024 and cash flows for the six months ended June 30, 2024 should not necessarily be taken as indicative of the entire year.

All amounts presented are in millions, except per share amounts.

2 unchanged sentences

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.

Our actual closing dates for the three months ended June 30, 2024 and 2023 were June 29, 2024 and July 1, 2023, respectively.

We evaluate segment reporting in accordance with ASC 280, Segment Reporting .

22 unchanged sentences

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

Three Months Ended June 30, 2024

Three Months Ended June 30, 2023

OEM Aftermarket Other Total OEM Aftermarket Other Total

5 unchanged sentences

$ 756 $ 121 $ 13 $ 890 $ 883 $ 114 $ 14 $ 1,011

Six Months Ended June 30, 2024

Six Months Ended June 30, 2023

OEM Aftermarket Other Total OEM Aftermarket Other Total

(Dollars in millions)

United States $ 245 $ 104 $ 3 $ 352 $ 265 $ 96 $ 2 $ 363

Europe 796 92 15 903 883 91 17 991

Asia 481 26 8 515 559 25 7 591

Other 24 11 — 35 24 12 — 36

$ 1,546 $ 233 $ 26 $ 1,805 $ 1,731 $ 224 $ 26 $ 1,981

Contract Balances

2 unchanged sentences

Contract assets—January 1 $ 38 $ 46

Contract assets—March 31

Contract assets—June 30

Change in contract assets—Increase/(Decrease) $ 13 $ 1

Contract liabilities—January 1 $ ( 11 ) $ ( 8 )

Contract liabilities—March 31

( 10 ) ( 10 )

Contract liabilities—June 30

Change in contract liabilities—Decrease/(Increase) $ ( 3 ) $ ( 1 )

Research, Development & Engineering

Research, Development and Engineering

Garrett conducts research, development, and engineering (“RD&E”) activities, which consist primarily of the development of new products and product applications.

3 unchanged sentences

Three Months Ended

Six Months Ended

2024 2023 2024 2023

(Dollars in millions)

1 unchanged sentence

Engineering-related expenses, net of customer (reimbursements) (1)

(1) Engineering-related expenses include customer reimbursements of $ 8 million and $ 11 million for the three months ended March 31, 2024 and 2023, respectively.

( 5 ) ( 4 ) ( 4 ) ( 5 )

$ 41 $ 42 $ 85 $ 81

(1) Engineering-related expenses include customer reimbursements of $ 16 million and $ 13 million for the three months ended June 30, 2024 and 2023, respectively, and $ 24 million and $ 24 million for the six months ended June 30, 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.

As of June 30, 2024 and December 31, 2023, $ 22 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.

Three Months Ended

Six Months Ended

2024 2023 2024 2023

(Dollars in millions)

1 unchanged sentence

Effective tax rate 26.4 % 29.7 % 22.6 % 27.3 %

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.

The effective tax rates for the three months ended June 30, 2024 and 2023 were 26.4 % and 29.7 % , respectively.

The effective tax rates for the six months ended June 30, 2024 and 2023 were 22.6 % and 27.3 % , respectively.

The change in the effective tax rate for the three months ended June 30, 2024 compared to the prior period is primarily related to lower U.S.

taxes on international operations and lower non-deductible transaction costs, partially offset by tax related to the sale of an equity interest in an unconsolidated joint venture.

The change in the effective tax rate for the six months ended June 30, 2024 compared to the prior period is primarily related to reversal of tax reserves, lower U.S.

taxes on international operations, and lower non-deductible transaction costs, partially offset by tax related to the sale of an equity interest in an unconsolidated joint venture.

The effective tax rate for the three months ended June 30, 2024 was higher than the U.S.

federal statutory rate of 21% primarily because of U.S.

taxes on international operations, withholding taxes, and tax related to sale of an equity interest in an unconsolidated joint venture, partially offset by lower taxes on non-U.S.

earnings, and global research and development benefits.

The effective tax rate for the six months ended June 30, 2024 was higher than the U.S.

federal statutory rate of 21% primarily because of U.S.

taxes on international operations, withholding taxes, and tax related to sale of an equity interest in an unconsolidated joint venture, partially offset by reversals of tax reserves, lower taxes on non-U.S.

earnings, and global research and development benefits.

Accounts, Notes and Other Receivables—Net

5 unchanged sentences

Less—Allowance for expected credit losses

Trade receivables include $ 48 million and $ 38 million of unbilled customer contract asset balances as of March 31, 2024 and December 31, 2023, respectively.

Trade receivables include $ 51 million and $ 38 million of unbilled customer contract asset balances as of June 30, 2024 and December 31, 2023, respectively.

These amounts are billed in accordance with the terms of customer contracts to which they relate.

1 unchanged sentence

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.

See Note 7, Factoring and Notes Receivable .

Other receivables includes VAT receivables of $ 62 million and $ 78 million as of June 30, 2024 and December 31, 2023, respectively.

Factoring and Notes Receivable

4 unchanged sentences

Bank notes sold to third-party financial institutions without recourse are likewise accounted for as true sales.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

(Dollars in millions)

1 unchanged sentence

Guaranteed bank notes sold without recourse 52 — 52 —

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 .

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 $ 1 million and $ 2 million for the three and six months ended June 30, 2024, respectively, and were immaterial for the three and six months ended June 30, 2023 .

2024 December 31,

2 unchanged sentences

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 .

As of June 30, 2024 and December 31, 2023, the Company had no guaranteed bank notes pledged as collateral .

Inventories—Net

36 unchanged sentences

Other (primarily operating expenses) (2)

(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.

(1) Customer advances and deferred inco me include $ 14 million and $ 9 million of contract liabilities as of June 30, 2024 and December 31, 2023, respectively.

See Note 3, Revenue Recognition and Contracts with Customers .

(2) Includes $ 3 million and $ 5 million of environmental liabilities as of March 31, 2024 and December 31, 2023, respectively.

(2) Includes $ 4 million and $ 5 million of environmental liabilities as of June 30, 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.

5 unchanged sentences

Usage—cash ( 12 ) — ( 12 )

Balance at March 31, 2024

$ 11 $ — $ 11

Balance at June 30, 2024

Severance Costs Other Costs

4 unchanged sentences

Non-cash asset write-offs — ( 2 ) ( 2 )

Balance at March 31, 2023

Balance at June 30, 2023

$ 12 $ — $ 12

14 unchanged sentences

Three Months Ended

Six Months Ended

2024 2023 2024 2023

(Dollars in millions)

2 unchanged sentences

Three Months Ended

Six Months Ended

2024 2023 2024 2023

(Dollars in millions)

1 unchanged sentence

Operating cash outflows from operating leases

$ 3 $ 3 $ 6 $ 7

Right-of-use assets obtained in exchange for lease obligations:

9 unchanged sentences

Weighted-average discount rate 5.98 % 5.69 %

Maturities of operating lease liabilities as of March 31, 2024 were as follows:

Maturities of operating lease liabilities as of June 30, 2024 were as follows:

(Dollars in millions)

4 unchanged sentences

Long Term Debt

On May 21, 2024, Garrett Motion Holdings Inc.

and Garrett LX I S.à.r.l.

(the "Issuers"), wholly owned subsidiaries of the Company, completed an offering of $ 800 million in aggregate principal amount of 7.75 % Senior Unsecured Notes due 2032 (the "2032 Senior Notes").

The 2032 Senior Notes mature on May 31, 2032.

The Company incurred $ 12 million of debt issuance costs, which have been capitalized and will be amortized on a straight-line basis.

The 2032 Senior Notes are guaranteed by the Company and each of the Company's wholly owned subsidiaries that guarantee obligations under the existing Credit Agreement (as defined below), subject to certain exceptions.

The proceeds from the sale of the 2032 Senior Notes, together with cash on hand, were used to repay approximately $ 800 million of term loan indebtedness, as described below, and to pay related fees and expenses.

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"):

The Credit Agreement provided for the following long-term senior secured financing (collectively, the "Term Loan Facilities"):

• 2021 Dollar Term Facility:

6 unchanged sentences

a seven-year secured first-lien Euro term loan facility for € 450 million.

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,

In the three months ended June 30, 2024, we made early debt repayments totaling $ 985 million on our Euro Term Facility and our 2023 Dollar Term Facility.

Both term loans were fully repaid as of June 30, 2024.

The early repayments resulted in incremental amortization of debt issuance costs of $ 27 million, included within Interest expense in the Consolidated Interim Statement of Operations.

On May 21, 2024, in addition to the above transactions, the Company entered into Amendment No.

4 (the "Fourth Amendment") and Amendment No.

5 (the "Fifth Amendment" and, together with the Fourth Amendment, the "Amendments") to the Credit Agreement (as amended by the Amendments, the "Amended Credit Agreement").

The Fourth Amendment (i) removed the credit spread adjustment with respect to certain US dollar denominated term loan borrowings that are Term Benchmark Loans (as defined in the Amended Credit Agreement) and (ii) reduced the Applicable Rate (as defined in the Amended Credit Agreement) on certain US dollar denominated term loans to 2.75 % for Term Benchmark Loans and 1.75 % for ABR Loans (as defined in the Amended Credit Agreement).

The Fifth Amendment increased the amount of revolving loan commitments available to the Company under the Credit Agreement by $ 30 million ("Incremental Revolving Commitment") to an aggregate amount of $ 600 million, as discussed below.

The Incremental Revolving Commitment has the same terms and is subject to the same conditions applicable to revolving loans generally under the Amended Credit Agreement.

The principal outstanding and carrying amounts of our long-term debt as of June 30, 2024 and December 31, 2023 are as follows:

Due Interest Rate June 30,

2024 December 31,

2 unchanged sentences

Euro Term Facility 4/30/2028 EURIBOR plus 350 bps

2032 Senior Notes 5/31/2032 7.75 % 800 —

Total principal outstanding 1,497 1,696

3 unchanged sentences

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 Amended 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 $ 600 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.

Letters of credit are available for issuance under the Amended Credit Agreement on terms and conditions customary for financings of this kind, which issuances reduce availability under the Revolving Facility.

As of June 30, 2024, the Company had no loans outstanding under the Revolving Facility, no outstanding letters of credit, and available borrowing capacity of $ 600 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

As of June 30, 2024, the Company had $ 12 million utilized and $ 3 million of remaining available capacity under such facility.

Minimum scheduled principal repayments of long-term debt as of June 30, 2024 are as follow:

(Dollars in millions)

Thereafter 800

Total debt payments $ 1,497

Interest Rates and Fees

The 2032 Senior Notes bear interest at a rate of 7.75 % per annum.

Interest on the 2032 Senior Notes is payable semi-annually in arrears on May 31 and November 30 of each year, commencing on November 30, 2024.

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 2.75 % in the case of SOFR loans and 1.75 % 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.

The Credit Agreement contains certain mandatory prepayment provisions in the event that we incur certain types of indebtedness, receive net cash proceeds from certain non-ordinary course asset sales or other dispositions of property, or have excess cash flow (calculated on an annual basis with the required prepayment equal to 50 %, 25 % or 0 % of such

excess cash flow, subject to compliance with certain leverage ratios), in each case subject to terms and conditions customary for financings of this kind.

Certain Covenants

The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type.

2032 Senior Notes

The 2032 Senior Notes contain certain covenants that limit the ability of the Company and its restricted subsidiaries to incur certain additional debt, incur certain liens securing debt, pay certain dividends or make other restricted payments, make certain investments, make certain asset sales, and enter into certain transactions with affiliates.

These covenants are subject to a number of exceptions, limitations, and qualifications as set forth in the 2032 Senior Notes indenture.

Additionally, the indenture contains certain change of control provisions that, under certain conditions, would require the Company to make an offer to repurchase all of the outstanding 2032 Senior Notes at a price equal to 101 % of the aggregate principal amount, plus accrued and unpaid interest.

The indenture also contains customary events of default.

The Amended 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.

As of June 30, 2024, the Company was in compliance with all covenants under the 2032 Senior Notes indenture and Amended Credit Agreement.

Preferred Stock

2 unchanged sentences

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.

On June 6, 2023, the Company completed all steps of the Transaction and had no remaining shares of Series A Preferred Stock outstanding as of that 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.

3 unchanged sentences

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.

The Company did not reissue or retire any shares of treasury stock during the three and six months ended June 30, 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.

On February 12, 2024, the Board of Directors authorized a $ 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.

1 unchanged sentence

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.

During the six months ended June 30, 2024, the Company repurchased $ 174

million of Common Stock, and had $ 176 million remaining under the share repurchase program.

The repurchased shares are held as treasury stock.

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.

As of June 30, 2024 and December 31, 2023, we had contracts with aggregate gross notional amounts of $ 1,165 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.

1 unchanged sentence

The FASB’s accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

Financial and

nonfinancial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The following table sets forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2024 and December 31, 2023:

Financial and nonfinancial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The following table sets forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2024 and December 31, 2023:

Notional Amounts Assets Liabilities

18 unchanged sentences

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.

The Company also entered into a 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.

The interest rate swap and cross-currency swap contracts were early settled in 2024, resulting in net gains of $ 18 million recorded to Interest expense and a $ 4 million loss recorded to Non-operating expense in the Consolidated Interim Statement of Operations.

The Company also has outstanding forward currency exchange contracts with maturities up to 18 months and an aggregate notional amount of $ 392 million and $ 456 million as of June 30, 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 Accumulated Other Comprehensive Income ("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 foreign currency risk on its 2032 Senior Notes, the Company entered into fixed-to-fixed cross-currency swap contracts with an aggregate notional amount of € 507 million ($ 550 million) and notional exchanges in May 2027, May 2028, May 2029, and May 2030.

Changes in the fair value of the cross-currency swap contracts are recognized in AOCI and reclassified to Non-operating (income) expense in the Consolidated Interim Statement of Operations, based upon changes in the spot rate remeasurement of the underlying debt.

The net interest settlements on the cross-currency swap contracts 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.

For the three months ended June 30, 2024 and 2023, the Company recorded a loss of $ 2 million, net of tax, and a gain of $ 2 million, net of tax, respectively, in Other comprehensive income.

For the six months ended June 30, 2024 and 2023, the Company recorded a gain of $ 1 million, net of tax, and a loss of $ 1 million, net of tax, respectively, in Other comprehensive income.

Net Investment Hedges

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.

The Company has designated float-to-float cross-currency swaps with aggregate notional amounts of € 858 million ($ 965 million) and € 615 million ($ 715 million) as of June 30, 2024 and December 31, 2023, respectively, as net investment hedges of its Euro-denominated operations.

In April 2024, the Company re-couponed the cross-currency swap contracts which have been designated as net investment hedges and received a cash settlement of $ 13 million.

The fair values of the net investment hedges were net assets o f $ 57 million and $ 37 million as of June 30, 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 $ 8 million gain and a $ 3 million gain for the three months ended June 30, 2024 and 2023, respectively, and of a $ 27 million gain and a $ 2 million loss for the six months ended June 30, 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.

As of June 30, 2024 and December 31, 2023, the Company has outstanding float-to-fixed interest rate swap contracts with an aggregate notional amount of € 450 million ($ 481 million) and € 830 million ($ 917 million), respectively, and maturities of 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.

The Company also has outstanding forward currency exchange contracts with maturities generally up to 3 months and an aggregate notional amount of $ 773 million and $ 715 million as of June 30, 2024 and December 31, 2023 , respectively .

These derivatives are not designated as hedging instruments and are adjusted to fair value through Non-operating (income) expense in the Consolidated Interim Statements of Operations.

Fair Value Measurement

4 unchanged sentences

The following table sets forth the Company’s financial assets and liabilities that were not carried at fair value:

March 31, 2024

June 30, 2024

December 31, 2023

3 unchanged sentences

$ 682 $ 696 $ 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.

2032 Senior Notes 789 812 — —

The Company determined the fair value of its Term Loan Facilities and related current maturities utilizing transactions in the listed markets for similar liabilities.

As such, the fair value of the Term Loan Facilities and related current maturities is considered Level 2.

The fair value of the 2032 Senior Notes was determined using quoted prices from daily exchange traded markets and is classified as a Level 1 measurement.

Accumulated Other Comprehensive Income

1 unchanged sentence

Three Months Ended

Six Months Ended

2024 2023 2024 2023

(Dollars in millions)

1 unchanged sentence

Balance at beginning of period $ ( 39 ) $ ( 42 ) $ ( 57 ) $ ( 44 )

Other comprehensive income (loss) before reclassifications 18 2

Other comprehensive income (loss) before

reclassifications 5 ( 8 ) 23 ( 6 )

Amounts reclassified from AOCI ( 5 ) — ( 5 ) —

Balance at end of period ( 39 ) ( 50 ) ( 39 ) ( 50 )

1 unchanged sentence

Balance at beginning of period ( 19 ) ( 18 ) ( 20 ) ( 18 )

Other comprehensive income (loss) before reclassifications (1)

Other comprehensive income (loss) before

reclassifications (1)

Balance at end of period ( 17 ) ( 18 ) ( 17 ) ( 18 )

1 unchanged sentence

Balance at beginning of period 1 10 ( 2 ) 13

Other comprehensive income (loss) before reclassifications (2)

Other comprehensive income (loss) before

reclassifications (2)

Amounts reclassified from AOCI, net ( 8 ) ( 7 ) ( 17 ) ( 15 )

2 unchanged sentences

Balance at beginning of period 95 80 76 85

Other comprehensive income (loss) before reclassifications, net (3)

Other comprehensive income (loss) before

reclassifications, net (3)

Balance at end of period 103 83 103 83

Accumulated other comprehensive income, end of period $ 46 $ 27 $ 46 $ 27

(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.

(1) There were no income tax effects for the three and six months ended June 30, 2024 and 2023.

(2) Net of tax expense (benefit) of $ 2 million and $ 2 million for the three months ended June 30, 2024 and 2023, respectively and $ 6 million and $ 2 million for the six months ended June 30, 2024 and 2023, respectively.

(3) Net of tax expense (benefit) of $ 2 million and $( 3 ) million for the three months ended June 30, 2024 and 2023, respectively, and $ 6 million and $( 6 ) million for the six months ended June 30, 2024 and 2023, respectively.

Reclassifications from AOCI to income were as follows:

Three Months Ended March 31,

Three Months Ended

Six Months Ended

2024 2023 2024 2023

(Dollars in millions)

Foreign Exchange Translation Adjustment

Reclassification adjustments recognized in income (1)

$ ( 5 ) $ — $ ( 5 ) $ —

Amounts reclassified from AOCI ( 5 ) — ( 5 ) —

Changes in Fair Value of Effective Cash Flow Hedges

1 unchanged sentence

Reclassification cross-currency swaps to Interest expense 1 — ( 1 ) —

Reclassification cross-currency swaps to Non-operating income ( 7 ) —

Reclassification cross-currency swaps to Non-operating (income) expense ( 6 ) 4 ( 13 ) 4

Tax effect on reclassification to income ( 1 ) ( 5 ) 1 ( 4 )

Amounts reclassified from AOCI, net ( 8 ) ( 7 ) ( 17 ) ( 15 )

Total reclassifications for the period $ ( 13 ) $ ( 7 ) $ ( 22 ) $ ( 15 )

(1) Cumulative translation losses reclassified to Net income related to the sale of an equity interest in an unconsolidated joint venture.

See Note 21 for discussion.

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.

For the three and six months ended June 30, 2024, basic earnings per share ("EPS") is computed using the weighted-average number of common shares outstanding during the period.

For the three and six months ended June 30, 2023, basic earnings per share was calculated using the two-class method because our Series A Preferred Stock 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, which included our Series A Preferred Stock, to the extent that each such 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.

Diluted earnings per share for the three and six months ended June 30, 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 and six months ended June 30, 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:

The details of the EPS calculations for the three and six months ended June 30, 2024 and 2023 are as follows:

Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

(Dollars in millions except per share)

2 unchanged sentences

preferred stock dividend — ( 40 ) — ( 80 )

Net income available for distribution

earnings allocated to participating securities — ( 32 )

Net income available to common shareholders

preferred stock deemed dividends — ( 232 ) — ( 232 )

Net income (loss) available to common shareholders

$ 64 $ ( 201 ) $ 130 $ ( 160 )

Weighted average common shares outstanding - Basic 224,321,948 107,408,432 230,493,039 86,269,694

1 unchanged sentence

Diluted earnings per share:

Two-class Two-class

Weighted average common shares outstanding - Basic 224,321,948 107,408,432 230,493,039 86,269,694

3 unchanged sentences

EPS – Diluted $ 0.28 $ ( 1.88 ) $ 0.56 $ ( 1.86 )

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.

For the periods where a net loss attributable to common shareholders is present, dilutive securities have been excluded from the calculation of diluted net loss per share attributable to common stockholders as including them would have been anti-dilutive.

For the three and six months ended June 30, 2023, the weighted-average number of unvested RSUs and other contingently issuable shares excluded from the computations were 1,113,778 and 1,358,636 shares, respectively.

Commitments and Contingencies

3 unchanged sentences

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.

In April 2023, the plaintiffs appealed the trial court’s decision to the United States Court of Appeals for the Second Circuit.

In April 2024, the Second Circuit affirmed dismissal of the claims, and the deadline for further appeals has passed.

Brazilian Tax Matter

1 unchanged sentence

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 estimated total amount of the contingency as of June 30, 2024 was $ 36 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.

2 unchanged sentences

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.

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.

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

(Dollars in millions)

2 unchanged sentences

Settlement of warranty/guarantee claims

( 3 ) ( 4 ) ( 6 ) ( 7 )

Foreign currency translation — — ( 1 ) —

Warranty and product performance guarantees at end of period

$ 25 $ 27 $ 25 $ 27

Other Commitments and Contingencies

13 unchanged sentences

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.

pension plans to satisfy regulatory funding standards in 2024, of which $ 3 million has been contributed as of June 30, 2024.

Net periodic benefit costs for our significant defined benefit plans include the following components:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

Plans Non-U.S.

2024 2023 2024 2023 2024 2023 2024 2023

8 unchanged sentences

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.

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.

Acquisitions and Divestitures

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.

We received cash consideration on the divestiture date of $ 46 million, with an additional $ 7 million to be received in two equal installments due twelve months and thirty-six months from the divestiture date.

A pre-tax gain of $ 27 million was recognized related to this divestiture, including $ 5 million of cumulative translation losses reclassified from AOCI to Net income.

Transaction fees of $ 1 million were incurred in connection with the divestiture and are included in Selling, general, and administrative expenses in our Consolidated Interim Statement of Operations.

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-Q

Item 1. Financial Statements