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Item 2. Management’s Discussion and Analysis

2024-10-24 compared with 2024-07-25 · 117 added, 105 removed, 225 unchanged (50% of the section changed)

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The following MD&A is intended to help you understand the results of operations and financial condition of Garrett Motion Inc.

for the three and six months ended June 30, 2024.

for the three and nine months ended September 30, 2024.

Executive Summary

During the second quarter of 2024, the industry was impacted by challenging regional dynamics associated with some weak end markets.

In response, we flexed our variable cost structure to successfully achieve efficiencies on productivity and drive operational performance.

Our agility enabled us to achieve Net income of $64 million and Adjusted EBITDA of $150 million for the quarter.

We continue to have success across our turbocharging, hybrid and zero emission technology applications.

In particular, during the quarter, we had an industrial win in power generation with our large size turbo.

We also had our first awards for commercial vehicles with three proof of concept wins for our E-Powertrain.

Our E-Cooling also had commercial vehicle success with 2 additional proof of concept awards.

For the three months ended June 30, 2024, we repurchased $65 million of Common Stock under our share repurchase program.

As of June 30, 2024, we had $176 million of the authorized amount remaining under our share repurchase program.

During the third quarter of 2024, we were exposed to challenges within the light vehicle (diesel and gasoline) vertical, including industry softness in Europe and China, competitive pressure faced by global OEMs and short-term headwinds from customer vehicle platform mix.

In response, we efficiently adjusted our variable cost structure and proactively implemented sustainable cost actions to drive operational performance.

This enabled us to achieve Net income of $52 million and Adjusted EBITDA of $144 million for the quarter.

We continue to achieve success in our turbocharging, hybrid, and zero-emission technology applications.

This quarter, we secured significant industrial contracts in the marine and power generation sectors with our large-size turbochargers.

Additionally, we received a letter of intent for our E-Powertrain from a major truck manufacturer in the commercial vehicle industry.

Our E-Cooling technology won further pre-development awards from an electric bus manufacturer and we were awarded new series production awards for use of our Fuel Cell technologies for commercial vehicle application.

For the three and nine months ended September 30, 2024, we repurchased $52 million and $226 million, respectively, of Common Stock under our share repurchase program.

As of September 30, 2024, we had $124 million of the authorized amount remaining under our share repurchase program.

As previously disclosed, on April 3, 2024, we divested our 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 still to be received, and recognized a gain of $27 million related to this divestiture.

During the second quarter, we completed an offering of $800 million in aggregate principal amount of 7.75% 2032 Senior Notes and made early debt repayments totaling $985 million on our Euro Term Facility and 2023 Dollar Term Facility, both of which were fully repaid as of June 30, 2024.

Also as previously disclosed, during the second quarter, we completed an offering of $800 million in aggregate principal amount of 7.75% 2032 Senior Notes and made early debt repayments totaling $985 million on our Euro Term Facility and 2023 Dollar Term Facility, both of which were fully repaid as of June 30, 2024.

Disaggregated Revenue

The following tables show our revenues by geographic region and product line for the three and six months ended June 30, 2024 and 2023, respectively.

The following tables show our revenues by geographic region and product line for the three and nine months ended September 30, 2024 and 2023, respectively.

Three Months Ended

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Nine Months Ended

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Total $ 826 $ 960 $ 2,631 $ 2,941

Results of Operations for the Three and Six Months Ended June 30, 2024

Results of Operations for the Three and Nine Months Ended September 30, 2024

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Nine Months Ended

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% change compared with prior period (14.0) % (10.5) %

For the three months ended June 30, 2024, net sales compared to prior year decreased by $121 million or 12%, (including an unfavorable impact of $18 million or 2%) due to foreign currency translation driven by lower Euro-to-US dollar, Chinese yuan-to-US dollar, and Japanese yen-to-US dollar exchange rates.

This decrease was mainly driven by demand softness in gasoline, diesel, and commercial vehicles applications, and commodity deflation impact on pricing net of inflation pass-through, partially offset by increased demand for replacement parts on aftermarket sales.

Gasoline product sales decreased by $80 million or 17% (including an unfavorable impact of $9 million or 2% due to foreign currency translation), primarily driven by soft demand in China and North America.

The decrease was partially offset by program ramp-ups in Europe, Japan, and India.

Diesel product sales decreased by $40 million or 15% (including an unfavorable impact of $4 million or 1% due to foreign currency translation), primarily driven by demand softness for passenger vehicles in Europe, partially offset by sustained demand for light commercial vehicles in China and North America.

Commercial vehicle sales decreased by $7 million or 4% (including an unfavorable impact of $4 million or 2% due to foreign currency translation), primarily driven by soft demand in the construction and agriculture industries due to high interest rates and lower crop prices.

This decrease was partially offset by sustained demand in China, linked to ramp-up of compressed natural gas programs.

Aftermarket sales increased by $7 million or 6% (including a unfavorable impact of $1 million or 1% due to foreign currency translation), primarily due to favorable aftermarket conditions and demand for replacement parts in China, North America, and Europe, partially offset by softer sales in Australia.

For the six months ended June 30, 2024, net sales compared to prior year decreased by $176 million or 9% (including an unfavorable impact of $26 million or 1%), due to foreign currency translation driven by lower Chinese yuan-to-US dollar and lower Japanese yen-to-US dollar exchange rates.

This decrease was mainly driven by demand softness in gasoline, diesel, and commercial vehicle applications, and commodity deflation impact on pricing net of inflation pass-through, partially offset by increased demand for replacement parts on aftermarket sales and favorable product mix.

For the three months ended September 30, 2024, net sales compared to prior year decreased by $134 million or 14% (including a favorable impact of $1 million or 0% due to foreign currency translation primarily driven by higher Euro-to-US dollar).

This decrease was primarily driven by lower sales in gasoline and diesel applications due to industry softness in Europe and China, competitive pressure on global OEMs and short-term customer vehicle platform mix impacts.

Net sales also decreased due to pricing, net of inflation pass-through, driven by commodity deflation, partially offset by favorable product mix.

Gasoline product sales decreased by $81 million or 19% (including a favorable impact of $1 million or 0% due to foreign currency translation), primarily driven by lower demand in China and North America, partially offset by sustained demand in the rest of Asia and South America.

Diesel product sales decreased by $49 million or 21% (including a favorable impact of $1 million or 1% due to foreign currency translation), primarily driven by lower passenger vehicle sales in Europe, partially offset by sustained demand for pickup truck in South America.

Commercial vehicle sales are consistent year over year (with no foreign currency translation impact), primarily driven by construction and agriculture industry softness, offset by strong demand and favorable product mix in China with natural gas programs applications.

Aftermarket sales decreased by $1 million or 1% (including a favorable impact of $1 million or 0% due to foreign currency translation), primarily due to softer sales in North America, partially offset by favorable aftermarket conditions and demand for replacement parts in Asia and Europe.

For the nine months ended September 30, 2024, net sales compared to prior year decreased by $310 million or 11% (including an unfavorable impact of $25 million or 1% due to foreign currency translation primarily driven by lower Chinese Yuan-to-US dollar and Japanese Yen-to-US dollar exchange rates, partially offset by higher Euro-to-US dollar exchange rates) primarily due to demand softness in gasoline, diesel, and commercial vehicle applications across all regions and pricing decreases, net of inflation pass-through, driven by commodity deflation, partially offset by higher demand for replacement parts on aftermarket sales and favorable product mix.

Gasoline product sales decreased by $176 million or 14% (including an unfavorable impact of $13 million or 1% due to foreign currency translation), primarily driven by soft demand in China and North America partially offset by program ramp-ups in Europe, Japan, and India.

Diesel product sales decreased by $61 million or 12% (including an unfavorable impact of $4 million or 1% due to foreign currency translation), primarily driven by soft demand in Europe for passenger vehicles partially offset by sustained demand for light commercial vehicles in China and North America.

Commercial vehicle sales decreased by $29 million or 8% (including an unfavorable impact of $6 million or 2% due to foreign currency translation), primarily driven by soft demand in the construction and agriculture industries mainly in Europe due to high interest rates and lower crop prices.

This decrease was partially offset by sustained demand in China, linked to the ramp-up of compressed natural gas programs.

Aftermarket sales increased by $9 million or 4% (including a unfavorable impact of $2 million or 1% due to foreign currency translation), primarily due to favorable aftermarket conditions and the continued high demand for replacement parts in Europe, China, and North America, partially offset by softer sales in Australia.

Diesel product sales decreased by $110 million or 15% (including an unfavorable impact of $3 million or 1% due to foreign currency translation), primarily driven by passenger vehicles in Europe, partially offset by sustained demand for pickup trucks in North and South America.

Commercial vehicle sales decreased by $30 million or 6% (including an unfavorable impact of $7 million or 1% due to foreign currency translation), primarily driven by construction and agriculture industry softness due to high interest rates and lower crop prices, partially offset by sustained demand in the on-highway industry, especially in China, with natural gas programs applications.

Aftermarket sales increased by $8 million or 2% (including an unfavorable impact of $1 million or 1% due to foreign currency translation), primarily due to favorable aftermarket conditions and continued high demand for replacement parts in Europe, China, and North America, partially offset by softer sales in other Asian countries.

Cost of Goods Sold and Gross Profit

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(Dollars in millions)

Cost of Goods Sold / Gross Profit for the three months ended June 30, 2023

Cost of Goods Sold / Gross Profit for the three months ended September 30, 2023

Increase/(decrease) due to:

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Foreign exchange rate impacts 5 (4)

Cost of Goods Sold / Gross Profit for the three months ended June 30, 2024

For the three months ended June 30, 2024, cost of goods sold decreased by $104 million, primarily driven by $78 million of lower sales volumes, $27 million of commodity, transportation, and energy deflation, $18 million of productivity, net of labor inflation, and $9 million from foreign currency impacts.

These decreases were partially offset by $26 million of unfavorable product mix and $2 million of higher R&D costs, reflecting Garrett's continued investment in new technologies.

For the three months ended June 30, 2024, gross profit decreased by $17 million, primarily driven by $34 million of lower sales volumes, $22 million from commodity deflation impact on pricing, net of inflation pass-through, $2 million of higher R&D costs, and $9 million from foreign currency impacts.

Cost of Goods Sold / Gross Profit for the three months ended September 30, 2024

For the three months ended September 30, 2024, cost of goods sold decreased by $124 million, primarily driven by $113 million of lower sales volumes, $16 million of commodity, transportation, and energy deflation, and $38 million of productivity, net of labor inflation.

These decreases were partially offset by $32 million of unfavorable product mix, $6 million of higher R&D costs, reflecting Garrett's continued investment in new technologies, and $5 million from foreign currency impacts.

For the three months ended September 30, 2024, gross profit decreased by $10 million, primarily driven by $46 million of lower sales volumes, $13 million from commodity deflation impacts on pricing, net of inflation pass-through, $6 million of higher R&D costs, and $4 million from foreign currency impacts.

These decreases were partially offset by $16 million of commodity, transportation, and energy deflation, $33 million of productivity, net of labor inflation, and $10 million of favorable product mix.

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(Dollars in millions)

Cost of Goods Sold / Gross Profit for the six months ended June 30, 2023

Cost of Goods Sold / Gross Profit for the nine months ended September 30, 2023

$ 2,374 $ 567

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Foreign exchange rate impacts (4) (21)

Cost of Goods Sold / Gross Profit for the six months ended June 30, 2024

Cost of Goods Sold / Gross Profit for the nine months ended September 30, 2024

$ 2,108 $ 523

For the six months ended June 30, 2024, cost of goods sold decreased by $142 million, primarily driven by lower sales volumes of $107 million, $44 million of commodity, transportation, and energy deflation, and $29 million of productivity, net of labor inflation and repositioning costs, and $9 million from foreign currency impacts.

For the nine months ended September 30, 2024, cost of goods sold decreased by $266 million, primarily driven by lower sales volumes of $220 million, $60 million of commodity, transportation, and energy deflation, $67 million of productivity, net of labor inflation and repositioning costs, and $4 million from foreign currency impacts.

These decreases were partially offset by $75 million unfavorable product mix and $10 million of higher R&D costs, reflecting Garrett's continued investment in new technologies.

For the six months ended June 30, 2024, gross profit decreased by $34 million, primarily driven by $46 million of lower sales, $38 million from commodity deflation impact on pricing net of inflation pass-through, $17 million favorable foreign currency impact, $9 million of unfavorable product mix, and $4 million of higher R&D costs.

These decreases were partially offset by $44 million of commodity, transportation, and energy deflation and $36 million of higher productivity, net of labor inflation and repositioning costs.

For the nine months ended September 30, 2024, gross profit decreased by $44 million, primarily driven by $92 million of lower sales volumes, $51 million from commodity deflation impact on pricing net of inflation pass-through, $21 million favorable foreign currency impact, and $10 million of higher R&D costs.

These decreases were partially offset by $60 million of commodity, transportation, and energy deflation and $69 million of higher productivity, net of labor inflation and repositioning costs and $1 million of favorable product mix.

Selling, General and Administrative Expenses

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% of sales 6.4 % 6.1 % 6.8 % 6.1 %

Selling, general and administrative (“SG&A”) expenses for the three months ended June 30, 2024 decreased by $2 million compared with the prior year, mainly driven by $4 million of lower professional service fees partially offset by $2 million of higher bad debt expense.

SG&A expenses also decreased due to $1 million of favorable foreign exchange impact.

SG&A expenses for the six months ended June 30, 2024 increased by $6 million compared with the prior year, primarily due to $5 million of higher stock-based compensation expense, $2 million of higher bad debt expense, and $1 million of labor inflation impacts.

These increases were partially offset by $2 million of lower professional service fees.

Selling, general and administrative (“SG&A”) expenses for the three months ended September 30, 2024 decreased by $6 million compared with the prior year, mainly driven by $5 million of lower professional service and legal fees, $2 million of lower bad debt expense and $2 million of lower IT-related costs.

These decreases were partially offset by $2 million of higher repositioning costs and $1 million of unfavorable foreign exchange impact.

SG&A expenses for the nine months ended September 30, 2024 were consistent with the prior year.

Year over year variances are primarily related to $5 million of higher stock-based compensation expense and $2 million of higher repositioning costs.

These increases were offset by $6 million of lower professional service and legal fees and $2 million of lower IT-related costs.

SG&A expenses also increased due to $1 million of unfavorable exchange impact.

Interest Expense

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Interest expense $ 37 $ 48 $ 130 $ 104

For the three months ended June 30, 2024, interest expense increased by $33 million compared to the prior year.

This was primarily driven by $27 million of accelerated debt issuance cost amortization and $3 million of higher interest expense due to a different notional amount of debt outstanding during the period and higher variable interest rates, partially offset by the spread reduction on the 2021 Dollar Term Facility.

In addition, there were $25 million of marked-to-market remeasurement losses recorded during the three months ended June 30, 2024 on our undesignated interest rate swap contracts, partially offset by $22 million of gains, including settlements of $18 million, on our interest derivatives in the current year.

For the six months ended June 30, 2024, interest expense increased by $37 million compared to the prior year.

This was primarily driven by $27 million of accelerated debt issuance cost amortization, $12 million of interest expense on our 2023 Dollar Term Facility versus none in the first six months of 2023, as well as $7 million of interest expense related to our 2032 Senior Notes.

These increases in interest expense were partially offset by $28 million of gains, including settlements of $18 million, on our interest derivatives in the current year.

In addition, there were $24 million marked-to-market remeasurement losses recorded during the six months ended June 30, 2024 on our undesignated interest rate swap contracts, in comparison to $5 million of marked-to-market remeasurement losses in the prior year.

For the three months ended September 30, 2024, interest expense decreased by $11 million compared to the prior year, primarily driven by $10 million lower of debt issuance cost amortization and $9 million of lower interest expense due to a different notional amount of debt outstanding during the period.

In addition, we recorded $4 million of gains on our interest derivatives in the current year, in comparison to $7 million of gains in the prior year.

We also recognized $9 million of marked-to-market remeasurement losses during the three months ended September 30, 2024 on our undesignated interest rate swap contracts, in comparison to $5 million of marked-to-market remeasurement losses in the prior year.

For the nine months ended September 30, 2024, interest expense increased by $26 million compared to the prior year, primarily driven by $17 million of higher accelerated debt issuance cost amortization, and $10 million of higher interest expense related to our 2032 Senior Notes partially offset by lower interest expense related to our 2023 Dollar Term Facility.

In addition, we recorded $23 million of gains, net of settlements of $18 million, on our interest derivatives in the current year, in comparison to $18 million of gains in the prior year.

We also recognized $33 million of marked-to-market remeasurement losses during the nine months ended September 30, 2024 on our undesignated interest rate swap contracts, in comparison to $12 million of marked-to-market remeasurement losses in the prior year.

Non-operating (income) expense

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Non-operating (income) expense $ (1) $ (2) $ (7) $ 3

For the three months ended June 30, 2024, we had non-operating income of $1 million versus non-operating expense of $8 million in the prior year.

The increase in non-operating income was primarily driven by foreign exchange transactional gains, partially offset by $2 million of lower equity income due to sale of an equity interest in an unconsolidated joint venture.

For the six months ended June 30, 2024, we had non-operating income of $6 million versus an expense of $5 million in the prior year.

For the three months ended September 30, 2024, we had non-operating income of $1 million versus $2 million in the prior year, primarily driven by lower equity income due to the sale of an equity interest in an unconsolidated joint venture.

For the nine months ended September 30, 2024, we had non-operating income of $7 million versus an expense of $3 million in the prior year, primarily driven by foreign exchange transactional gains, partially offset by $2 million of lower equity income due to the sale of an equity interest in an unconsolidated joint venture.

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Effective tax rate 31.6 % 18.6 % 25.4 % 25.1 %

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 22.5% 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 rates for the three months ended September 30, 2024 and 2023 were 31.6% and 18.6% , respectively.

The effective tax rates for the nine months ended September 30, 2024 and 2023 were 25.4% and 25.1%, respectively.

The change in the effective tax rate for the three months ended September 30, 2024 compared to the prior period is primarily related to global mix of earnings, partially offset by adjustments to tax reserves due to expiration of statute of limitations.

The change in the effective tax rate for the nine months ended September 30, 2024 compared to the prior period is primarily related to global mix of earnings and tax expense related to the sale of an equity interest in an unconsolidated joint venture, partially offset by reversal of tax reserves and lower non-deductible transaction costs.

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

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

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

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

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

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Net income margin 6.3 % 5.9 % 6.9 % 7.1 %

Net income for the three months ended June 30, 2024 decreased by $7 million compared with the prior year, primarily due to $17 million of decreased gross profit and $33 million of higher interest expense.

These decreases were partially offset by a $27 million gain on the sale of equity interest in an unconsolidated joint venture, $9 million of higher non-operating income, and $7 million of lower tax expense.

Net income for the six months ended June 30, 2024 decreased by $22 million compared with the prior year, primarily due to $34 million of decreased gross profit, $37 million of higher interest expense, and $6 million of higher SG&A expenses.

These decreases were partially offset by a $27 million gain on the sale of equity interest in an unconsolidated joint venture, $11 million of higher non-operating income, and $19 million of lower tax expense.

Net income for the three months ended September 30, 2024 decreased by $5 million compared with the prior year, primarily due to $10 million of decreased gross profit and $11 million of higher tax expense.

These decreases were partially offset by $11 million of lower interest expense and $6 million of lower SG&A expense.

Net income for the nine months ended September 30, 2024 decreased by $27 million compared with the prior year, primarily due to $44 million of decreased gross profit and $26 million of higher interest expense.

These decreases were partially offset by a $27 million gain on the sale of an equity interest in an unconsolidated joint venture, $10 million of higher non-operating income, and $8 million of lower tax expense.

Non-GAAP Measures

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We define “Adjusted EBITDA” as EBITDA, plus the sum of stock compensation expense, repositioning costs, foreign exchange (gain) loss on debt net of related hedging gains, discounting costs on factoring, gain on sale of equity investment, acquisition and divestiture expenses, other non-operating income, capital structure transformation expenses, debt refinancing and redemption costs, net reorganization items and loss on extinguishment of debt (if any).

Adjusted EBITDA now adjusts for acquisition and divestiture expenses, and debt refinancing and redemption costs, but no adjustments were made to the prior period as there were no similar adjustments in the prior periods.

Adjusted EBITDA now also adjusts for acquisition and divestiture expenses, and debt refinancing and redemption costs, but no adjustments were made to the prior period as there were no similar adjustments in the prior periods.

We believe that EBITDA and Adjusted EBITDA are important indicators of operating performance and provide useful information for investors because:

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Repositioning costs (3)

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

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

Discounting costs on factoring

Gain on sale of equity investment

(27) — (27) —

Other non-operating income (4)

4 unchanged sentences

Adjusted EBITDA $ 144 $ 152 $ 445 $ 490

(1) Reflects interest income of $1 million and $5 million for the three months ended June 30, 2024 and 2023, respectively, and $3 million and $5 million for the six months ended June 30, 2024 and 2023, respectively.

(1) Reflects interest income of $0 million and $1 million for the three months ended September 30, 2024 and 2023, respectively, and $3 million and $6 million for the nine months ended September 30, 2024 and 2023, respectively.

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

4 unchanged sentences

(7) Reflects the third-party costs directly attributable to the repricing of our 2021 Dollar Term Facility.

Adjusted EBITDA for the Three Months Ended June 30, 2024

For the three months ended June 30, 2024 , net income decreased by $7 million versus the prior year as discussed above within Results of Operations for Three and Six Months Ended June 30, 2024 .

Adjusted EBITDA decreased by $20 million compared to the prior year, mainly due to soft demand across product lines except aftermarket, pricing net of inflation pass-through, and unfavorable foreign exchange impacts.

These decreases were partially offset by strong operational performance through productivity, net of labor inflation, as well as commodity, transportation, and energy deflation, and a slightly favorable product mix.

During the three months ended June 30, 2024, we saw soft demand for gasoline, diesel, and commercial vehicle applications, partially offset by favorable demand in aftermarket for replacement parts in North America, China, and Europe.

Adjusted EBITDA for the Three Months Ended September 30, 2024

For the three months ended September 30, 2024 , net income decreased by $5 million versus the prior year as discussed above within Results of Operations for Three and Nine Months Ended September 30, 2024 .

Adjusted EBITDA decreased by $8 million compared to the prior year, mainly due to lower volumes, as discussed above, commodity deflation impact on pricing net of inflation pass-through as well as unfavorable foreign exchange impacts.

During the three months ended September 30, 2024, we saw soft demand for gasoline and diesel, driven by regional industry and customer mix headwinds, partially offset by favorable demand in aftermarket for replacement parts.

Net sales also decreased due to pricing, net of inflation pass-through, driven by commodity deflation.

The increased productivity from our ability to flex our variable cost structure, while driving sustained fixed cost productivity was partially offset by year-over-year labor inflation and lower equity income following the sale of an equity interest in an unconsolidated joint venture on April 3, 2024.

The increased productivity from our ability to flex our variable cost structure, while driving sustained fixed cost productivity, was partially offset by year-over-year labor inflation and lower equity income following prior quarter's sale of an equity interest in an unconsolidated joint venture.

R&D expenses increased $6 million, reflecting our continued investment in new technologies and increased hiring to accelerate growth in the zero emission technologies.

Losses in foreign currency from translational, transactional, and hedging effects in the three months ended June 30, 2024, primarily driven by a lower Euro-to-US dollar, lower Chinese yuan-to-US dollar and lower Japanese yen-to-US dollar exchange rates versus the prior year period, accounted for a $7 million decrease in Adjusted EBITDA.

Adjusted EBITDA for the Six Months Ended June 30, 2024

For the six months ended June 30, 2024 , net income decreased by $22 million versus the prior year as discussed above within Results of Operations for Three and Six Months Ended June 30, 2024 .

Adjusted EBITDA decreased by $37 million c ompared to the prior year, mainly due to soft demand across product lines except aftermarket, pricing net of inflation pass-through, and unfavorable foreign exchange impacts and unfavorable

These decreases were partially offset by strong operational performance through productivity, net of labor inflation, and repositioning costs, as well as commodity, transportation, and energy deflation.

During the six months ended June 30, 2024 , we saw demand softness for gasoline, diesel, and commercial vehicle applications, partially offset by favorable demand in aftermarket for replacement parts in North America, China, and Europe.

Losses in foreign currency from translational, transactional, and hedging effects in the three months ended September 30, 2024, primarily driven by lower Euro-to-US dollar, Chinese Yuan-to-US dollar and Japanese Yen-to-US dollar exchange rates versus the prior year period, accounted for a $4 million decrease in Adjusted EBITDA.

Adjusted EBITDA for the Nine Months Ended September 30, 2024

For the nine months ended September 30, 2024 , net income decreased by $27 million versus the prior year as discussed above within Results of Operations for Three and Nine Months Ended September 30, 2024 .

Adjusted EBITDA decreased by $45 million c ompared to the prior year, mainly due to soft demand across all product lines except aftermarket, pricing net of inflation pass-through, and unfavorable foreign exchange impacts.

These decreases were partially offset by strong operational performance through productivity, net of labor inflation, as well as commodity, transportation, and energy deflation.

During the nine months ended September 30, 2024 , we saw demand softness for gasoline, diesel, and commercial vehicle applications, driven by challenging regional dynamics and customer mix headwinds, partially offset by favorable demand in aftermarket for replacement parts.

Net sales also decreased due to pricing decreases, net of inflation pass-through, driven by commodity price decreases.

1 unchanged sentence

R&D expenses increased $10 million, reflecting our continued investment in new technologies and increased hiring to accelerate growth in the zero emission technologies.

Losses in foreign currency from translational, transactional, and hedging effects in the six months ended June 30, 2024 , primarily driven by a lower Chinese yuan-to-US dollar and lower Japanese yen-to-US dollar exchange rates and partially offset by higher Euro-to-US dollar exchange rates versus the prior year period, accounted for a $14 million decrease in Adjusted EBITDA.

Losses in foreign currency from translational, transactional, and hedging effects in the nine months ended September 30, 2024 , primarily driven by lower Chinese Yuan-to-US dollar and Japanese Yen-to-US dollar exchange rates and partially offset by higher Euro-to-US dollar exchange rates versus the prior year period, accounted for a $18 million decrease in Adjusted EBITDA.

Liquidity and Capital Resources

September 30,

2024 December 31,

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On May 21, 2024, we also entered into the Fourth and Fifth Amendments to the Credit Agreement, which (i) removed the credit spread adjustment with respect to certain US dollar denominated term loan borrowings that are Term Benchmark Loans, (ii) reduced the Applicable Rate on certain US dollar denominated term loans to 2.75% for Term Benchmark Loans and 1.75% for ABR Loans, and (iii) increased the maximum borrowings available under the Revolving Facility by $30 million.

During the six months ended June 30, 2024, we repaid $500 million on our 2023 Dollar Term Facility, $485 million (€450 million) on our Euro Term Facility and $4 million on our 2021 Dollar Term Facility.

During the nine months ended September 30, 2024, we repaid $500 million on our 2023 Dollar Term Facility, $485 million (€450 million) on our Euro Term Facility and $6 million on our 2021 Dollar Term Facility.

We employ several means to manage our liquidity, and our sources of financing include cash flows from operations, cash and cash equivalents, the 2032 Senior Notes, our Term Loan Facilities, and our Revolving Facility.

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

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

Stock, with $176 million remaining under the share repurchase program as of that date.

During the nine months ended September 30, 2024, the Company repurchased $226 million of Common Stock, with $124 million remaining under the share repurchase program as of that date.

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.

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Unregistered Sales of Equity Securities and Use of Proceeds .

Cash Flow Summary for the Six Months Ended June 30, 2024

Six Months Ended

Cash Flow Summary for the Nine Months Ended September 30, 2024

Nine Months Ended

September 30,

(Dollars in millions)

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Effect of exchange rate changes on cash and restricted cash (2) (1)

Net (decrease) increase in cash, cash equivalents and restricted cash

Net decrease in cash, cash equivalents and restricted cash

$ (163) $ (85)

Cash provided by operating activities decreased by $46 million for the six months ended June 30, 2024 versus the prior year.

The decrease was primarily driven by a decrease of $22 million in net income, excluding the effects of non-cash items, as well as $28 million of unfavorable impacts from changes in other assets and liabilities.

These decreases were partially offset by $4 million of favorable impacts from working capital changes.

Cash flow from investing activities increased by $42 million for the six months ended June 30, 2024 versus t he prior year, mainly due to $46 million of proceeds from the sale of equity interest in an unconsolidated joint venture and a $12 million increase in proceeds on our cross currency swap contracts which have been designated as net investment hedges of our Euro-denominated operations.

Cash provided by operating activities decreased by $53 million for the nine months ended September 30, 2024 versus the prior year.

The decrease was primarily driven by a decrease of $37 million in net income, excluding the effects of non-cash items, as well as $11 million of unfavorable impacts from changes in other assets and liabilities and $5 million of unfavorable impacts from working capital changes.

Cash flow from investing activities increased by $49 million for the nine months ended September 30, 2024 versus t he prior year, mainly due to $46 million of proceeds from the sale of equity interest in an unconsolidated joint venture and a $15 million increase in proceeds on our cross currency swap contracts which have been designated as net investment hedges of our Euro-denominated operations.

This was partially offset by $12 million of increased expenditures for property, plant and equipment.

Cash used for financing activities was $384 million for the six months ended June 30, 2024 compared with $2 million in the prior year.

Cash used for financing activities was $439 million for the nine months ended September 30, 2024 compared with $366 million in the prior year.

During 2024, we made an aggregate of $991 million in debt repayments on our term loan facilities.

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These payments were partially offset by proceeds of $794 million, net of deferred financing costs, from the issuance of our 2032 Senior Notes.

In comparison, cash used for financing activities for the six months ended June 30, 2023 was primarily driven by payments of $605 million in aggregate to holders of the Series A Preferred Stock related to the Transaction, including conversion of the Series A Preferred Stock, and $42 million for dividends declared on our Series A Preferred Stock.

We also made payments of $15 million for the repurchase of Common Stock under our share repurchase program and debt repayments of $4 million on our 2021 Dollar Term Facility.

In comparison, cash used for financing activities for the nine months ended September 30, 2023 was primarily driven by payments of $605 million in aggregate to holders of the Series A Preferred Stock related to the Transaction, including conversion of the Series A Preferred Stock, and $42 million for dividends declared on our Series A Preferred Stock.

We also made payments of $178 million for the repurchase of Common Stock under our share repurchase program and debt repayments of $205 million including a $200 million early debt repayment on the 2023 Dollar Term Facility and quarterly payments for our 2021 Dollar Term Facility.

These uses of cash were partially offset by proceeds of $667 million from the 2023 Dollar Term Facility net of debt financing costs.

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Actual results could differ from our estimates and assumptions, and any such differences could be material to our financial statements.

Our critical accounting policies are

summarized in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our 2023 Form 10-K.

Our critical accounting policies are summarized in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our 2023 Form 10-K.

Recent Accounting Pronouncements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis