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Item 7. Management’s Discussion and Analysis

2026-02-19 compared with 2025-02-20 · 121 added, 196 removed, 172 unchanged (65% of the section changed)

5 unchanged sentences

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

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

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

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

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

In 2024, turbocharger production decreased globally from approximately 50 million units in 2023 to 49 million units in 2024 and is expected to further decrease from 2025 onward based on current expectations of electric vehicle penetration.

We effectively navigated through macroeconomic and geopolitical challenges by implementing strategic permanent and variable cost measures, as well as leveraging commodity deflation pass-through.

Our effective management allowed us to achieve Net income of $282 million and Adjusted EBITDA of $598 million for the year.

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

We have significant expertise in delivering highly engineered products at scale for internal combustion engines using gasoline, diesel, natural gas and hydrogen, as well as for zero-emission vehicles.

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

In 2025, turbocharger production increased globally from approximately 49 million units in 2024 to nearly 50 million units in 2025, and is expected to decrease from 2026 onward based on current expectations of electric vehicle penetration.

We effectively navigated through macroeconomic and geopolitical challenges, including a very dynamic trade environment as a result of tariff actions, by implementing strategic permanent and variable cost measures, as well as leveraging commodity deflation pass-through.

Our effective management allowed us to achieve Net income of $310 million and Adjusted EBIT of $510 million for the year.

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

This year, we secured additional pre-production contracts for both light vehicle and commercial vehicle applications, were awarded our first turbo application for a Range Extended Electric Vehicle with a leading Chinese technology company, and made significant progress in testing our new turbo off-highway applications.

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 of 2024, we completed an offering of $800 million in aggregate principal amount of 7.75% Senior Unsecured Notes due 2032 (the "Senior Notes") and made early debt repayments totaling $985 million on our €450 million secured first-lien Euro Term Facility (the "Euro Term Facility") and $500 million secured first-lien U.S.

Dollar term loan facility (the "2023 Dollar Term Facility"), both of which were fully repaid as of June 30, 2024.

In December 2024, the Board of Directors announced that it intends to declare and pay quarterly dividends on our Common Stock in an aggregate amount of approximately $50 million in 2025.

The first quarter dividend of $0.06 per share was declared on December 5, 2024, payable to holders of our Common Stock as of January 15, 2025, and was settled in cash for $12 million on January 31, 2025.

This year, we secured additional pre-production contracts for both light vehicle (including hybrid and range extended electric vehicle technologies), and commercial vehicle applications.

Additionally, we were awarded our first E-Powertrain application in early 2025 and have made significant progress in our air and cooling compression technologies, as evidenced with various partnerships and pre-development contracts throughout 2025 and into early 2026.

During 2025, we repaid $50 million on our 2025 Dollar Term Facility and paid cash dividends of $52 million.

We also repurchased $208 million of Common Stock under our share repurchase program.

These repurchases include a total of 7.5 million shares of Common Stock for $103 million from funds affiliated with Oaktree Capital Management, L.P., a related party.

The repurchased shares are held as treasury stock.

Trends, Uncertainties and Opportunities

6 unchanged sentences

Year Ended December 31,

2024 2023 2022

(Dollars in millions)

6 unchanged sentences

Year Ended December 31,

2024 2023 2022

(Dollars in millions)

5 unchanged sentences

$ 3,584 $ 3,475

Results of Operations for the Years Ended December 31, 2024, 2023 and 2022

Results of Operations

Year Ended December 31, 2025 Compared with Year Ended December 31, 2024

Year Ended December 31,

2024 2023 2022

(Dollars in millions)

2 unchanged sentences

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

For the year ended December 31, 2024, net sales decreased compared to prior year by $411 million or 11%, including an unfavorable impact of $34 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, partially offset by higher Euro-to-US dollar exchange rates.

This decrease was mainly driven by soft demand in gasoline, diesel, and commercial vehicle applications, partially offset by demand for replacement parts on aftermarket sales.

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

Gasoline product sales decreased by $215 million or 13% (including an unfavorable impact of $16 million or 1% due to foreign currency translation) driven by soft demand in China and North America, partially offset by program ramp-ups in Europe, the rest of Asia and South America.

Diesel product sales decreased by $165 million or 17% (including an unfavorable impact of $6 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 $27 million or 4% (including an unfavorable impact of $8 million or 1% 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, partially offset by sustained demand in the on-highway industry, especially in China and North America.

Aftermarket sales increased by $3 million or 1% (including an unfavorable impact of $3 million or 0% due to foreign currency translation), primarily driven by favorable aftermarket conditions and continued high demand for replacement parts in China, Europe, India, Brazil and Japan, partially offset by softer sales in Australia.

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

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

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

Gasoline product sales increased by $235 million or 16% (including an unfavorable impact of $20 million or 1% due to foreign currency translation) driven by industry recovery from prior year’s global semiconductor shortages and Covid-related lockdown measures in China, combined with new product launches and ramp-ups across all regions.

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

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

Aftermarket sales improved by $14 million or 3% (including a favorable impact of $2 million or 0% due to foreign currency translation), primarily on strong demand in Europe and especially in Asia Pacific related to favorable aftermarket conditions including the continued high demand for replacement parts.

Recovery in China from the end of the Chinese government's zero Covid-19 policy as well as new product introductions and favorable pricing impact also contributed to the growth.

For the year ended December 31, 2025, net sales increased compared to prior year by $109 million or 3%, including a favorable impact of $62 million or 2% due to foreign currency translation primarily driven by fluctuations in global exchange rates.

This increase was primarily related to favorable foreign currency impacts, and higher demand in gasoline and commercial vehicles, partially offset by weaker demand for replacement parts on aftermarket sales.

Net sales also includes $40 million of recoveries on import tariffs, partially offset by unfavorable product mix.

Gasoline product sales increased by $87 million or 6% (including a favorable impact of $24 million or 2% due to foreign currency translation), primarily driven by new application launches and program ramp-ups in Europe, North America, South America and India.

Diesel product sales increased by $10 million or 1% (including a favorable impact of $24 million or 3% due to foreign currency translation), primarily driven by passenger vehicles in Europe pursuing transition to gasoline hybrids, partially offset by demand for pickup trucks in North America, South America and Southeast Asia.

Commercial vehicle sales increased by $25 million or 4% (including a favorable impact of $6 million or 1% due to foreign currency translation), primarily driven by growth in off-highway programs across regions.

Aftermarket sales decreased by $21 million or 5% (including a favorable impact of $7 million or 1% due to foreign currency translation), primarily driven by softer demand for off-highway replacement parts in North America, partially offset by stronger demand in Europe and China.

Cost of Goods Sold and Gross Profit

Year Ended December 31,

2024 2023 2022

(Dollars in millions)

5 unchanged sentences

Cost of Goods Sold / Gross Profit for year ended December 31, 2024 $ 2,770 $ 705

Volume (290) (122)

Product mix 12 (70)

2 unchanged sentences

Productivity, net (24) 24

Research & development 12 (12)

Foreign exchange rate impacts (7) (27)

Cost of Goods Sold / Gross Profit for year ended December 31, 2024 $ 2,770 $ 705

For the year ended December 31, 2024, cost of goods sold decreased by $360 million, primarily driven by lower sales volumes which contributed a decrease of $290 million.

Cost of goods sold further declined from $81 million of commodity, transportation and energy deflation, as well as a $98 million decrease from productivity, net of labor inflation and repositioning costs, and foreign currency impacts from transactional, translational, and hedging effects of $7 million.

The decrease was partially offset by unfavorable product mix of $104 million and a $12 million increase in R&D costs, net of customer reimbursements, which reflects our continued investment in new technologies and related headcount year-over-year.

Gross profit decreased by $51 million, mainly driven by lower sales volumes which contributed a decrease of $122 million.

Gross profit further declined from $50 million of price, net of inflation pass-through, $12 million higher R&D costs, net of customer reimbursements, and $27 million from foreign currency impacts from transactional, translational and hedging.

These decreases were partially offset by $81 million of commodity, transportation and energy deflation, $72 million of productivity, net of labor inflation and repositioning costs, and $7 million of favorable impact from product mix.

Cost of Goods Sold Gross Profit

(Dollars in millions)

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

Volume 217 89

Product mix 27 (79)

Price, net of inflation pass-through — 38

Commodity, transportation & energy inflation 30 (30)

Productivity, net (55) 60

Research & development 14 (14)

Import tariffs 41 (1)

Research, development & engineering (20) 20

Foreign exchange rate impacts 33 30

Cost of Goods Sold / Gross Profit for year ended December 31, 2025 $ 2,853 $ 731

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

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

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

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

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

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

For the year ended December 31, 2025, cost of goods sold increased by $83 million, primarily driven by higher sales volumes which contributed to an increase of $65 million.

Cost of goods sold further increased from $41 million of import tariffs, $33 million of foreign currency impacts from transactional, translational, and hedging effects and $12 million of unfavorable product mix.

These increases were partially offset by $24 million of commodity, transportation and energy deflation, $24 million of productivity, net of labor inflation and repositioning costs, and $20 million of lower RD&E costs, net of customer reimbursements.

Gross profit increased by $26 million, mainly driven by higher sales volumes which contributed an increase of $29 million.

Gross profit further increased from $30 million of foreign currency impacts from transactional, translational, and hedging effects, $24 million of commodity, transportation and energy deflation, $24 million of productivity, net of labor inflation and repositioning costs, and $20 million of lower RD&E costs, net of customer reimbursements.

These increases were partially offset by $70 million of unfavorable impact from product mix, $30 million of price, net of inflation pass-through and $1 million of import tariffs.

Selling, General and Administrative Expenses

Year Ended December 31,

2024 2023 2022

(Dollars in millions)

1 unchanged sentence

% of sales 6.7 % 6.9 %

For the year ended December 31, 2024, selling, general and administrative (“SG&A”) expenses decreased by $7 million compared with the prior year, primarily driven by $4 million of lower repositioning costs, $8 million of lower professional service and legal fees and $3 million of lower IT-related costs.

These decreases were partially offset by $8 million of higher stock-based compensation expense and $1 million of unfavorable foreign exchange impacts.

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

Selling, general and administrative (“SG&A”) expenses remained at the same level compared with the prior year.

A $7 million reduction in personnel costs related to cost measures implemented in current and prior years and $5 million of lower outsourced activities were offset by $7 million of unfavorable foreign currency impacts and $6 million in professional fees related to merger and acquisition activity.

Other Expense, Net

Year Ended December 31,

(Dollars in millions)

Other expense, net $ 10 $ 6

For the year ended December 31, 2025, other expense, net amounted to $10 million compared to $6 million in the prior year.

This increase was primarily due to professional fees incurred related to the Restatement Agreement (as defined herein).

Interest expense

Year Ended December 31,

2024 2023 2022

(Dollars in millions)

Interest expense $ 108 $ 156

For the year ended December 31, 2024, interest expense decreased by $3 million compared to prior year.

This reduction was primarily due to $24 million of higher gains recorded on our interest derivatives, lower interest from our $715 million secured first-lien U.S.

Dollar term loan facility (the "2021 Dollar Term Facility") and 2023 Dollar Term

Facility, partially offset by $15 million of accelerated debt issuance cost amortization, $4 million of higher marked-to-market remeasurement losses recorded on our undesignated interest rate swap contracts and $2 million of interest expense from our 2032 Senior Notes.

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

This increase was mainly due to $33 million of marked-to-market remeasurement losses recorded in 2023 on our undesignated interest rate swap contracts versus $68 million of marked-to-market remeasurement gains in the prior year.

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

These increases in interest expense were partially offset by $10 million of interest accretion in the prior year on our Series B Preferred Stock that was fully redeemed in June 2022, and $28 million of gains on our interest derivatives in 2023.

Interest expense decreased by $48 million in 2025 compared to prior year.

This reduction was primarily due to a $30 million reduction in debt issuance cost amortization, driven by accelerated amortization in the prior year, and $25 million of lower interest expense resulting from the amendment and restatement and repricing of our Credit Agreement.

In addition, we recorded net gains of $7 million on our designated and undesignated interest derivatives in the current year, in comparison to net gains of $14 million in the prior year.

Non-operating income, net

Year Ended December 31,

2024 2023 2022

(Dollars in millions)

1 unchanged sentence

For the year ended December 31, 2025, non-operating income, net amounted to $19 million compared to $13 million in the prior year.

The increase in non-operating income was primarily driven by a $13 million loss on remeasurement of the Series A Preferred Stock Agreements (as defined below) during the prior year and a $6 million increase in the non-service cost components of net periodic pension benefits, partially offset by $6 million of lower equity income due to the sale of an equity interest in an unconsolidated joint venture.

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

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

Reorganization items, net

Year Ended December 31,

2024 2023 2022

(Dollars in millions)

Reorganization items, net $ — $ — $ 3

For the years ended December 31, 2024 and 2023, there were no expenses incurred for Reorganization items, net.

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

The increase was primarily driven by $5 million in higher foreign exchange transactional gains, a $2 million increase in the non-service cost components of net periodic pension benefits and a $1 million increase in interest income, partially offset by $2 million of lower equity income due to the sale of an equity interest in an unconsolidated joint venture in the second quarter of 2024.

Year Ended December 31,

2024 2023 2022

(Dollars in millions)

1 unchanged sentence

Effective tax rate 20.9 % 17.8 %

The effective tax rate decreased by 7.0 percentage points in 2024 compared to 2023.

The decrease was primarily due to releases of reserves due to statute of limitation expirations and settlements with taxing authorities and release of valuation allowance related to deferred tax assets in Brazil (net of US branch taxes).

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

These increases were partially offset by prior year tax benefits in Switzerland due to law changes (net of valuation allowance) and in Korea for prior year tax settlements.

The effective tax rate increased by 3.1 percentage points in 2025 compared to 2024.

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

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

These increases were partially offset by 2023 tax benefits in Switzerland due to law changes (net of valuation allowance) and in Korea for prior year tax settlements.

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

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

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

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

The rules were adopted by a number of countries, 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.

For 2024, Pillar Two does not have a material impact to our effective tax rate.

The increase was primarily due to additional unrecognized tax benefits in Switzerland and China as well as prior year benefits associated with the release of valuation allowance related to deferred tax assets in Brazil (net of U.S.

branch taxes) and prior year benefits associated with statute of limitation expiration and settlement of audits in Switzerland and Korea.

These increases were partially offset by the revaluation of deferred tax assets related to intellectual property transferred within China which was subject to tax at different rates.

Year Ended December 31,

2024 2023 2022

(Dollars in millions)

Net Income $ 310 $ 282

For the year ended December 31, 2024, net income increased by $21 million compared with the prior year, primarily due to a $27 million gain on the sale of an equity interest in an unconsolidated joint venture, $7 million of lower SG&A expenses, $3 million of lower interest expense, $11 million of higher non-operating income, and lower income tax expense of $25 million as discussed above.

These increases were partially offset by $51 million of decreased gross profit.

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

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

For the year ended December 31, 2025, net income increased by $28 million compared with the prior year, primarily due to $48 million of lower interest expense, $26 million of increased gross profit and $6 million of increased non-operating income.

These were partially offset by $21 million of higher tax expenses, the prior year gain of $27 million on the sale of an equity interest in an unconsolidated joint venture and $4 million of higher other expense, net.

Year Ended December 31, 2024 Compared with Year Ended December 31, 2023

For a discussion of our results of operations for the year ended December 31, 2024 compared with the year ended December 31, 2023, refer to our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 20, 2025, under Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations .

Non-GAAP Measures

Management provides non-GAAP financial information, including EBITDA and Adjusted EBITDA, to supplement the understanding of our business operations and performance, and it should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP.

Management provides non-GAAP financial information to supplement the understanding of our business operations and performance, and it should be considered in addition to, but not instead of, the financial statements prepared in accordance with GAAP.

Each non-GAAP financial measure is presented along with the most directly comparable GAAP measure so as not to imply that more emphasis should be placed on the non-GAAP measure.

1 unchanged sentence

Additionally, the non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the Company’s operating results as reported under GAAP.

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

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

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

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 (gain) loss, discounting costs on factoring, gain on sale of equity investment, acquisition and divestiture expenses, other non-operating income, capital structure transformation expense s, debt refinancing and redemption costs, net reorganization items and loss on extinguishment of debt (if any);

certain adjustment items, while periodically affecting our results, may vary significantly from period to period and have disproportionate effect in a given period, which affects the comparability of our results.

For 2024, we revised our definition of Adjusted EBITDA to exclude acquisition and divestiture expenses, and debt refinancing and redemption costs.

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

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

EBITDA and Adjusted EBITDA (non-GAAP)

In 2025, we revised our non-GAAP reporting metric, transitioning from Adjusted EBITDA to Adjusted EBIT.

This change is intended to better reflect our core operating performance and align with industry practices.

We believe this change will provide investors with a clearer understanding of our operational performance.

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

GAAP, plus the sum of (i) interest expense net of interest income and (ii) tax expense.

We define “Adjusted EBIT” as EBIT, plus the sum of (i) repositioning costs, (ii) foreign exchange (gain) loss on debt net of related hedging (gains) losses, (iii) discounting costs on factoring, (iv) gain on sale of equity investment, (v) acquisition and divestiture expenses, (vi) other non-operating income, (vii) capital structure transformation expenses, (viii) debt refinancing and redemption costs, and (ix) loss on extinguishment of debt (if any).

We believe that EBIT and Adjusted EBIT are important indicators of operating performance and provide useful information for investors because EBIT and Adjusted EBIT exclude the effects of income taxes, as well as the effects of financing activities by eliminating the effects of interest.

Certain adjustment items, while periodically affecting our results, may also vary significantly from period to period and have disproportionate effect in a given period, which affects the comparability of our results.

EBIT and Adjusted EBIT (non-GAAP)

Year Ended December 31,

4 unchanged sentences

Tax expense 82 61 86

Depreciation 90 90 84

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

Factoring and notes receivables discount fees 4 4 2

Other non-operating income (2)

(12) (6) (41)

Reorganization items, net (3)

Stock compensation expense (4)

EBIT (Non-GAAP) $ 496 $ 496 $ 499

Repositioning costs 12 21 13

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

Factoring and notes receivables discount fees 3 4 4

Capital structure transformation expenses (2)

Gain on sale of equity investment — (27) —

Acquisition and divestiture expenses (6)

Other non-operating income (3)

(14) (12) (6)

Debt refinancing and redemption costs (4)

Loss on extinguishment of debt — — 5

Adjusted EBITDA (Non-GAAP) $ 598 $ 635 $ 570

Acquisition and divestiture expenses 6 1 —

Adjusted EBIT (Non-GAAP) $ 510 $ 485 $ 531

(1) Reflects interest income of $4 million, $3 million and $7 million for the year ended December 31, 2025, 2024 and 2023, respectively.

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

(3) On September 20, 2020 (the "Petition Date"), the Company and certain of its subsidiaries each filed a voluntary petition for relief under Chapter 11 of title 11 of the United States Code (the "Chapter 11 Cases") in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court").

A Revised Amended Plan of Reorganization was confirmed by the Bankruptcy Court on April 26, 2021, and the Company emerged from bankruptcy on April 30, 2021.

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

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

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

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

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

(6) Reflects third-party costs incurred for the sale of an equity interest in an unconsolidated joint venture.

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

Adjusted EBITDA for the year ended December 31, 2024 compared with year ended December 31, 2023

For the year ended December 31, 2024, net income increased by $21 million versus the prior year as discussed above within the Results of Operations section.

Adjusted EBITDA decreased by $37 million compared to the prior year, mainly from soft demand across all product lines except aftermarket, net of favorable product mix.

Additionally, price net of inflation pass-through, higher R&D investment, and unfavorable foreign exchange impacts further reduced Adjusted EBITDA versus prior year.

These declines were partially offset by operational productivity, net of labor inflation and repositioning costs, and commodity, transportation, and energy deflation year-over-year.

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

(4) Reflects the third-party costs directly attributable to the refinancing of our credit facilities and any amendments.

Adjusted EBIT for the year ended December 31, 2025 compared with year ended December 31, 2024

For the year ended December 31, 2025, net income increased by $28 million versus the prior year as discussed above within " Results of Operations ".

Adjusted EBIT increased by $25 million compared to the prior year, mainly from $29 million of higher sales volumes from gasoline and commercial vehicles, $29 million of productivity, net of labor inflation and stock based compensation, $24 million of commodity, transportation, and energy deflation, $23 million of favorable foreign exchange impacts and $20 million of lower RD&E costs.

These increases were partially offset by $70 million of unfavorable product mix and $30 million of price net of inflation pass through.

For the year ended December 31, 2025, we saw increased demand in gasoline due to new application launches and program ramp-ups in Europe, North America and India.

We also saw increased demand in commercial vehicles from off-highway applications that continue to recover from prior year softness in Europe, North America, India and China.

These volume increases were partially offset by lower demand in diesel driven by the impact of lower industry production mainly in Europe and aftermarket off-highway applications in North America.

The increased productivity from our ability to flex our variable cost structure while driving sustained fixed cost productivity was partially offset by labor inflation and higher stock-based compensation.

Gains in foreign currency from translational, transactional, and hedging effects in the year ended December 31, 2025, primarily driven by a higher Euro-to-U.S.

dollar and CNY-to-U.S.

dollar versus the prior period, accounted for a $23 million increase in Adjusted EBIT.

Adjusted EBIT for the year ended December 31, 2024 compared with year ended December 31, 2023

For the year ended December 31, 2024, net income increased by $21 million versus the prior year as discussed above within " Results of Operations ".

Adjusted EBIT decreased by $46 million compared to the prior year, mainly from soft demand across all product lines except aftermarket, net of favorable product mix.

Additionally, price net of inflation pass-through and unfavorable foreign exchange impacts further reduced Adjusted EBIT versus prior year.

These declines were partially offset by operational productivity, net of labor inflation and repositioning costs, commodity, transportation, and energy deflation year-over-year and lower RD&E costs net of customer reimbursements.

During 2024, we saw a decline in demand for our gasoline, diesel, and commercial vehicle applications, partially offset by favorable demand in aftermarket for replacement parts in North America, China and Europe.

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We drove strong operational productivity in 2024, flexing our variable cost structure and driving fixed cost productivity of $82 million.

This, coupled with commodity, transportation, and energy deflation of $81 million versus prior year, partially offset the impact of volume declines and allowed us to expand our Adjusted EBITDA margin while funding a $12 million increase in R&D expenses, net of customer reimbursements.

Losses in foreign currency from translational, transactional, and hedging effects accounted for $23 million of the decrease in Adjusted EBITDA.

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

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

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

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

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

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

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

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

We recovered most of these increases through customer pass-through agreements, especially on nickel, and continue to negotiate with our customers for further pass-through while actively managing our supply base and cost recovery mechanisms to minimize the impact of materials cost inflation.

The increased productivity was partially offset by year-over-year labor inflation.

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

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

This, coupled with commodity, transportation, and energy deflation of $81 million versus prior year, partially offset the impact of volume declines and allowed us to expand our Adjusted EBIT margin.

Losses in foreign currency from translational, transactional, and hedging effects accounted for $23 million of the decrease in Adjusted EBIT.

Liquidity and Capital Resources

2024 2023 2022

(Dollars in millions)

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Bilateral letter of credit facility - utilized capacity 10 8

On May 21, 2024, our wholly owned subsidiaries, Garrett Motion Holdings Inc.

and Garrett LX I S.a.r.l., completed an offering of $800 million in aggregate principal amount of the 2032 Senior Notes.

The 2032 Senior Notes mature on May 31, 2032 and bear interest at a rate of 7.75% per annum.

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

On May 21, 2024, we also entered into the Fourth and Fifth Amendments to the Credit Agreement, dated as of April 30, 2021, by and among the Company, Garrett Motion Holdings Inc., Garrett Motion Sàrl and Garrett LX I S.à.r.l., the lenders and issuing banks party thereto, and JPMorgan Chase Bank, N.A., as administrative agent (as amended from time to time, 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 (as defined in the Credit Agreement), (ii) reduced the Applicable Rate (as defined in the 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 Credit Agreement), and (iii) increased the maximum borrowings available under the Revolving Facility by $30 million.

During the year ended December 31, 2024, we repaid $500 million on our 2023 Dollar Term Facility, $485 million (€450 million) on our Euro Term Facility and $7 million on our 2021 Dollar Term Facility.

For 2025, we expect capital spending to increase slightly as compared to 2024.

We expect to make net repayments of $7 million on our term loan borrowings following the refinancing of our term loan as discussed in Note 29, Subsequent Events of the Notes to the Consolidated Financial Statements.

We expect to pay approximately $42 million related to purchase obligations which were entered into with various vendors in the normal course of business and are consistent with our expected requirements.

We expect to make contributions of approximately $5 million to our non-U.S.

On January 30, 2025, the Company entered into a Restatement Agreement (the "Restatement Agreement"), which amends and restates the Credit Agreement, dated as of April 30, 2021 by and among the Company, Garrett Motion Holdings Inc., Garrett Motion Sàrl and Garrett LX I S.à.r.l., as borrowers, the lenders and issuing banks party thereto from time to time, and JPMorgan Chase Bank, N.A., as administrative agent.

(as amended from time to time, the "Existing Credit Agreement" and as amended and restated by the Restatement Agreement, the "Credit Agreement"), under which we refinanced in full our $692 million 2021 Dollar Term Facility with a new 2025 Dollar Term Facility for the same aggregate principal amount.

The 2025 Dollar Term Facility will mature on January 30, 2032, and initially bore interest at a spread equal to, at our option, the Adjusted Term SOFR Rate plus 2.25% per annum in the case of Term Benchmark Loans and the Alternate Base Rate plus 1.25% per annum in the case of ABR Loans (each as defined in the Credit Agreement).

We also replaced our existing $600 million revolving facility under the Existing Credit Agreement with the New Revolving Facility under the Credit Agreement in an aggregate principal amount of $630 million.

The maturity date of the New Revolving Facility is January 30, 2030.

On August 6, 2025, we entered into the First Amendment to the Credit Agreement, which reduced the Applicable Rate (as defined in the Credit Agreement) to the Adjusted Term SOFR Rate plus 2.00% per annum in the case of Term Benchmark Loans and the Alternate Base Rate plus 1.00% per annum in the case of ABR Loans.

During the year ended December 31, 2025, we repaid $50 million on our 2025 Dollar Term Facility and paid cash dividends of $52 million.

For more information, see Item 5.

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

For 2026, we expect capital spending to increase as compared to 2025.

We expect to make net repayments of $7 million on our term loan borrowings and contributions of approximately $5 million on our non-U.S.

pension plans.

Finally, we also expect to declare and pay quarterly dividends on our Common Stock in an aggregate amount of approximately $50 million in 2025, of which $12 million was paid on January 31, 2025.

We expect to pay approximately $45 million related to purchase obligations which were entered into with various vendors in the normal course of business and are consistent with our expected requirements.

Finally, we also expect to continue to declare and pay quarterly dividends on our Common Stock.

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

We believe the combination of expected cash flows, the term loan borrowings and the

revolving credit facilities being committed until 2030, will provide us with adequate liquidity to support the Company's operations.

We believe the combination of expected cash flows, the term loan borrowings and the revolving credit facilities that are committed until 2030, will provide us with adequate liquidity to support the Company's operations.

Share Repurchase Program

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

On December 4, 2024, the Board of Directors authorized a $250 million share repurchase program valid from January 1, 2025, until December 31, 2025.

For more information, see Item 5.

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The share repurchase program expired on December 31, 2025.

On December 4, 2024, the Board of Directors authorized a new $250 million share repurchase program valid January 1, 2025 until December 31, 2025.

On December 3, 2025, the Board of Directors authorized a new $250 million share repurchase program valid from January 1, 2026, until December 31, 2026.

Off-Balance Sheet Arrangement

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Year Ended December 31,

2024 2023 2022

(Dollars in millions)

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Effect of exchange rate changes on cash 7 (8)

Net (decrease) increase in cash and cash equivalents $ (134) $ 12 $ (216)

Net increase (decrease) in cash and cash equivalents $ 53 $ (134)

Cash Flow Summary for the year ended December 31, 2025

Cash provided by operating activities decreased by $57 million for the year ended December 31, 2024 versus the prior year.

The decrease was driven by a $32 million change in working capital related primarily to inventory purchases and higher payments made during the current year, partially offset by increased collections.

A decrease of $14 million in net income, excluding the effects of non-cash items, and an unfavorable change in other assets and liabilities of $11 million, also contributed to the decrease in cash provided by operating activities.

Cash used for investing activities decreased by $41 million for the year ended December 31, 2024 versus the prior year.

The decrease is due to $46 million of proceeds from the sale of an equity investment, $3 million of higher proceeds from our cross-currency swap contracts which have been designated as net investment hedges of our Euro-denominated operations versus the prior year, and $8 million of lower expenditures for property, plant and equipment versus the prior year.

Cash used for financing activities increased by $117 million for the year ended December 31, 2024 compared with the prior year.

Cash provided by operating activities increased by $5 million for the year ended December 31, 2025 versus the prior year.

The increase was driven by a $28 million increase in net income, a $8 million increase in non-cash charges and a $6 million change in working capital.

These increases were partially offset by an unfavorable change in other assets and liabilities of $37 million.

Cash used for investing activities increased by $27 million for the year ended December 31, 2025 versus the prior year.

The increase is due to $46 million of proceeds received in the prior year from the sale of our unconsolidated joint venture, and $3 million of lower proceeds from cross currency swap contracts that have been designated as net investment hedges of our Euro-denominated operations.

These impacts were partially offset by $19 million in lower capital expenditures on property, plant and equipment versus the prior year and $3 million received for the first deferred payment on the sale of our unconsolidated joint venture.

Cash used for financing activities decreased by $194 million for the year ended December 31, 2025 compared with the prior year.

During 2025, we made an aggregate of $139 million in debt repayments on our term loan facilities.

We also made payments of $296 million for the repurchase of Common Stock under our share repurchase program, $8 million for debt issuance costs, $8 million for excise taxes related to Common Stock repurchases and $9 million for other financing activities during the current year.

We also made payments of $208 million for the repurchase of Common Stock under our share repurchase program, $52 million for dividends, $3 million for excise taxes related to Common Stock repurchases, $2 million for debt issuance costs and $2 million for other financing activities during the current year.

These payments were partially offset by proceeds of $80 million, net of deferred financing costs, following the amendment and restatement of our Credit Agreement as further discussed in Note 15, Long-term Debt and Credit Agreements of the Notes to the Consolidated Financial Statements.

In addition we borrowed and repaid $70 million from our revolving credit facilities.

In comparison, cash used for financing activities in the prior year was primarily related to an aggregate of $992 million in debt repayments on our term loan facilities.

million for other financing activities during 2024.

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 in the prior year was primarily related an aggregate amount of $605 million paid to holders of our Series A Preferred Stock, par value $0.001 per share (the "Series A Preferred Stock"), related to the Transaction, including conversion of the Series A

Preferred Stock as discussed in Note 21, Equity of the Notes to the Consolidated Financial Statements.

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

Cash Flow Summary for the year ended December 31, 2024

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

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

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

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

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

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

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

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

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

In comparison, cash used for financing activities in the prior year was primarily related to the Company's payment of $381 million for the final early redemption of our Series B Preferred Stock (exclusive of $28 million attributable to interest and included in cash from operating activities) and $83 million for dividends on Series A Preferred Stock, while in 2023, there were $42 million in payments of accrued dividends on the Series A Preferred Stock through June 2023.

For a comparison of our cash flows for the year ended December 31, 2024 compared with the year ended December 31, 2023, refer to our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 20, 2025, under Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations .

Capital Expenditures

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

We expect capital expenditures in 2025 to increase slightly as compared to 2024, primarily driven by higher investments for new product launches across our zero emission and turbo technologies.

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

For 2026, we expect capital expenditures to increase relative to 2025, primarily due to new or additional investments in our zero emissions technology portfolio.

Critical Accounting Policies and Estimates

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Contingent Liabilities — We are subject to lawsuits, investigations and claims that arise out of the conduct of our global business operations or those of previously owned entities, including matters relating to commercial transactions, government contracts, product liability, prior acquisitions and divestitures, employee benefit plans, intellectual property, legal and environmental, health and safety matters.

We continually assess the likelihood of any adverse judgments or outcomes to our contingencies, as well as potential amounts or ranges of probable losses, and recognize a liability, if any,

for these contingencies based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts.

We continually assess the likelihood of any adverse judgments or outcomes to our contingencies, as well as potential amounts or ranges of probable losses, and recognize a liability, if any, for these contingencies based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts.

Such analysis includes making judgments concerning matters such as the costs associated with environmental matters, the outcome of negotiations, and the impact of evidentiary requirements.

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The pension cost and liabilities for these plans are developed from actuarial valuations.

Inherent in these valuations are key assumptions including discount rates, expected return on plan assets, mortality rates, and compensation increases.

these valuations are key assumptions including discount rates, expected return on plan assets, mortality rates, and compensation increases.

The Company is required to consider current market conditions, including changes in interest rates, and employee demographics such as retirement patterns, in making its assumptions.

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Significant judgment is required in determining the timing and measurement of uncertain tax positions.

We utilize internal and external expertise in interpreting tax laws to support our tax

We utilize internal and external expertise in interpreting tax laws to support our tax positions.

We recognize the financial statement benefit of an uncertain tax position when it is more likely than not that, based on the underlying technical merits, the position will be sustained upon examination.

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Litigation and Environmental Matters

See Note 25, Commitments and Contingencies of the Notes to the Consolidated Financial Statements for a discussion of litigation matters.

See Note 23, Commitments and Contingencies of the Notes to the Consolidated Financial Statements for a discussion of material litigation and environmental matters.

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-K

Item 7. Management’s Discussion and Analysis