Garrett Motion Inc. [GTX] Filings

10-Q 1 gtx-20230630.htm 10-Q gtx-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

________________________________________________

FORM 10-Q

________________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number: 001-38636

________________________________________________

Garrett Motion Inc.

(Exact Name of Registrant as Specified in its Charter)

________________________________________________


Delaware			82-4873189
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

La Pièce 16, Rolle, Switzerland			1180
(Address of principal executive offices)			(Zip Code)

+41 21 695 30 00

(Registrant’s telephone number, including area code)

N/A

(Former Name, Former Address and Former Fiscal Year,

if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	GTX	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

As of July 21, 2023, the registrant had 258,800,758 shares of Common Stock, $0.001 par value per share, outstanding.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION	2
Item 1.	Financial Statements (Unaudited)	2
	Consolidated Interim Statements of Operations (Unaudited)	2
	Consolidated Interim Statements of Comprehensive Income (Unaudited)	3
	Consolidated Interim Balance Sheets (Unaudited)	4
	Consolidated Interim Statements of Cash Flows (Unaudited)	5
	Consolidated Interim Statements of Equity (Deficit) (Unaudited)	6
	Notes to Consolidated Interim Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	37
PART II.	OTHER INFORMATION	39
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	42
Signatures		44

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

GARRETT MOTION INC.

CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(Dollars in millions, except per share amounts)
Net sales (Note 3)	$	1,011	$	859	$	1,981	$	1,760
Cost of goods sold	809		690		1,590		1,416
Gross profit	202		169		391		344
Selling, general and administrative expenses	63		54		119		107
Other expense, net	1		—		2		1
Interest expense	30		20		58		43
Loss on extinguishment of debt	—		5		—		5
Non-operating expense (income)	7		(16)		3		(44)
Reorganization items, net	—		1		—		2
Income before taxes	101		105		209		230
Tax expense (Note 5)	30		20		57		57
Net income	71		85		152		173
Less: preferred stock dividends (Note 15)	(40)		(39)		(80)		(77)
Less: preferred stock deemed dividends (Note 15)	(232)		—		(232)		—
Net (loss) income available for distribution	$	(201)	$	46	$	(160)	$	96

(Loss) Earnings per common share
Basic	$	(1.88)	$	0.15	$	(1.86)	$	0.31
Diluted	(1.88)		0.15		(1.86)		0.31

Weighted average common shares outstanding
Basic	107,408,432		64,839,157		86,269,694		64,689,673
Diluted	107,408,432		65,102,162		86,269,694		64,907,289

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

GARRETT MOTION INC.

CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(Dollars in millions)
Net income	$	71	$	85	$	152	$	173
Foreign exchange translation adjustment	(8)		1		(6)		3

Changes in fair value of effective cash flow hedges, net of tax (Note 16)	2		9		(1)		17
Changes in fair value of net investment hedges, net of tax (Note 16)	3		29		(2)		42
Total other comprehensive (loss) income, net of tax	(3)		39		(9)		62
Comprehensive income	$	68	$	124	$	143	$	235

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

GARRETT MOTION INC.

CONSOLIDATED INTERIM BALANCE SHEETS

(Unaudited)


	June 30, 2023		December 31, 2022
	(Dollars in millions)
ASSETS
Current assets:
Cash and cash equivalents	$	478	$	246
Restricted cash	1		2
Accounts, notes and other receivables – net (Note 6)	864		803
Inventories – net (Note 8)	312		270
Other current assets	87		110
Total current assets	1,742		1,431
Investments and long-term receivables	29		30
Property, plant and equipment – net	452		470
Goodwill	193		193
Deferred income taxes	230		232
Other assets (Note 9)	246		281
Total assets	$	2,892	$	2,637
LIABILITIES
Current liabilities:
Accounts payable	$	1,136	$	1,048

Current maturities of long-term debt (Note 14)	60		7


Accrued liabilities (Note 11)	322		320
Total current liabilities	1,518		1,375
Long-term debt (Note 14)	1,772		1,148

Deferred income taxes	21		25
Other liabilities (Note 12)	204		205


Total liabilities	$	3,515	$	2,753
COMMITMENTS AND CONTINGENCIES (Note 20)
EQUITY (DEFICIT)
Series A Preferred Stock, par value $0.001; zero and 245,089,671 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	$	—	$	—
Common Stock, par value $0.001; 1,000,000,000 and 1,000,000,000 shares authorized, 264,653,768 and 64,943,238 issued and 264,403,053 and 64,832,609 outstanding as of June 30, 2023 and December 31, 2022, respectively	—		—
Additional paid–in capital	1,184		1,333
Retained deficit	(1,834)		(1,485)
Accumulated other comprehensive income (Note 17)	27		36
Total deficit	(623)		(116)
Total liabilities and deficit	$	2,892	$	2,637

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

GARRETT MOTION INC.

CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
(Dollars in millions)	2023		2022
	(Dollars in millions)
Cash flows from operating activities:
Net income	$	152	$	173
Adjustments to reconcile net income to net cash provided by operating activities

Deferred income taxes	8		15
Depreciation	43		43
Amortization of deferred issuance costs	5		4
Interest payments, net of debt discount accretion	—		(19)
Loss on extinguishment of debt	—		5
Loss on remeasurement of forward purchase contract	13		—
Foreign exchange (gain) loss	(11)		2
Stock compensation expense	8		5
Pension expense	1		—
Change in fair value of derivatives	19		(35)
Other	9		(4)
Changes in assets and liabilities:
Accounts, notes and other receivables	(69)		(33)
Inventories	(47)		(64)
Other assets	(10)		1
Accounts payable	105		86
Accrued liabilities	32		2

Other liabilities	(2)		(4)
Net cash provided by operating activities	$	256	$	177
Cash flows from investing activities:
Expenditures for property, plant and equipment	(33)		(52)
Re-couponing of cross-currency swap contract	9		—
Net cash used for investing activities	$	(24)	$	(52)
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net of debt financing costs	667		—

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

Redemption of Series B Preferred Stock	—		(381)
Repurchases of Series A Preferred Stock	(580)		(3)
Repurchases of Common Stock	(15)		—
Payments of Additional Amounts for conversion of Series A Preferred Stock	(25)		—
Payments for preference dividends	(42)		—
Payments for debt and revolving facility financing costs	(2)		(5)
Other	(1)		—
Net cash used for financing activities	$	(2)	$	(393)
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	1		(17)
Net increase (decrease) in cash, cash equivalents and restricted cash	231		(285)
Cash, cash equivalents and restricted cash at beginning of the period	248		464
Cash, cash equivalents and restricted cash at end of the period	$	479	$	179
Supplemental cash flow disclosure:
Income taxes paid (net of refunds)	$	27	$	24
Interest paid	24		47

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

GARRETT MOTION INC.

CONSOLIDATED INTERIM STATEMENTS OF EQUITY (DEFICIT)

(Unaudited)


	Series A Preferred Stock			Common Stock			Additional Paid-in Capital		Retained Deficit		Accumulated Other Comprehensive Income		Total Deficit
	Shares	Amount		Shares	Amount
	(in millions)
Balance at December 31, 2022	246	$	—	64	$	—	$	1,333	$	(1,485)	$	36	$	(116)
Net income	—	—		—	—		—		81		—		81

Other comprehensive loss, net of tax	—	—		—	—		—		—		(6)		(6)
Dividends	—	—		—	—		—		(42)		—		(42)
Stock-based compensation	—	—		—	—		3		—		—		3
Balance at March 31, 2023	246	$	—	64	$	—	$	1,336	$	(1,446)	$	30	$	(80)
Net income	—	—		—	—		—		71		—		71
Repurchases of Series A Preferred Stock	(70)	—		—	—		(366)		(201)		—		(567)
Repurchases of Common Stock	—	—		(2)	—		—		(18)		—		(18)
Excise tax on share repurchases	—	—		—	—		—		(6)		—		(6)
Other comprehensive loss, net of tax	—	—		—	—		—		—		(3)		(3)
Issuance of Common Stock for preference dividends	—	—		26	—		209		(209)		—		—
Conversion of Series A Preferred Stock to Common Stock	(176)	—		176	—		—		(25)		—		(25)
Stock-based compensation	—	—		—	—		5		—		—		5
Balance at June 30, 2023	—	$	—	264	$	—	$	1,184	$	(1,834)	$	27	$	(623)

	Series A Preferred Stock			Common Stock			Additional Paid-in Capital		Retained Deficit		Accumulated Other Comprehensive (Loss)/Income		Total Deficit
	Shares	Amount		Shares	Amount
	(in millions)
Balance at December 31, 2021	246	$	—	64	$	—	$	1,326	$	(1,790)	$	(4)	$	(468)
Net income	—	—		—	—		—		88		—		88
Repurchases of Series A Preferred Stock	—	—		—	—		(1)		(1)		—		(2)
Other comprehensive income, net of tax	—	—		—	—		—		—		23		23
Stock-based compensation	—	—		—	—		2		—		—		2
Balance at March 31, 2022	246	—		64	—		$	1,327	$	(1,703)	$	19	$	(357)
Net income	—	—		—	—		—		85		—		85
Repurchases of Series A Preferred Stock	—	—		—	—		(1)		—		—		(1)

Other comprehensive income, net of tax	—	—		—	—		—		—		39		39
Stock-based compensation	—	—		—	—		3		—		—		3
Balance at June 30, 2022	246	$	—	64	$	—	$	1,329	$	(1,618)	$	58	$	(231)

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

GARRETT MOTION INC.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Dollars in millions, except per share amounts)

Note 1. Background and Basis of Presentation

Background

Garrett Motion Inc., (the “Company” or “Garrett”) designs, manufactures and sells highly engineered turbocharger and electric-boosting technologies for light and commercial vehicle original equipment manufacturers (“OEMs”) and the global vehicle independent aftermarket, as well as automotive software solutions. These OEMs in turn ship to consumers globally. We are a global technology leader with significant expertise in delivering products across gasoline, diesel, natural gas and electric (hybrid and fuel cell) power trains. These products are key enablers for fuel economy and emission standards compliance.

Basis of Presentation

The accompanying unaudited Consolidated Interim Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission applicable to interim financial statements. While these statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by United States generally accepted accounting principles (“GAAP”) for complete financial statements. The unaudited Consolidated Interim Financial Statements should therefore be read in conjunction with the Consolidated Financial Statements and accompanying notes for the year ended December 31, 2022 included in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on February 14, 2023 (our “2022 Form 10-K”). The results of operations for the three and six months ended June 30, 2023 and cash flows for the six months ended June 30, 2023 should not necessarily be taken as indicative of the entire year. All amounts presented are in millions, except per share amounts.

We report our quarterly financial information using a calendar convention: the first, second and third quarters are consistently reported as ending on March 31, June 30 and September 30. It has been our practice to establish actual quarterly closing dates using a predetermined fiscal calendar, which requires our businesses to close their books on a Saturday to minimize the potentially disruptive effects of quarterly closing on our business processes. For differences in actual closing dates that are material to year-over-year comparisons of quarterly or year-to-date results have been adjusted for the three months ended June 30, 2023. Our actual closing dates for the three months ended June 30, 2023 and 2022 were July 1, 2023 and July 2, 2022, respectively.

We evaluate segment reporting in accordance with ASC 280, Segment Reporting. We concluded that Garrett operates in a single operating segment and a single reportable segment based on the operating results available and evaluated regularly by the chief operating decision maker (“CODM”), which is our Chief Executive Officer, to make decisions about resource allocation and performance assessment. The CODM makes operational performance assessments and resource allocation decisions on a consolidated basis, inclusive of all of the Company’s products across channels and geographies.

The preparation of the financial statements in conformity with GAAP requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases these estimates on assumptions that it believes to be reasonable under the circumstances. Actual results could differ from the original estimates, requiring adjustments to these balances in future periods.

Capital Structure Transformation

On April 12, 2023, the Company entered into separate definitive agreements with each of Centerbridge Partners, L.P. and funds managed by Oaktree Capital Management, L.P. to effect a series of integrated transactions (the “Transaction”) designed to increase the attractiveness of the Company to investors, including simplifying the Company’s capital stock by converting all outstanding Series A Preferred Stock into a single class of Common Stock, subject to certain conditions.

Under the Transaction, the Company repurchased 69,707,719 shares of Series A Preferred Stock and converted the remaining 175,337,712 shares of Series A Preferred Stock into an equivalent number of Common Stock. Total consideration paid to holders of Series A Preferred Stock under the Transaction amounted to cash payments of $605 million and the issuance of an additional 25,577,517 shares of Common Stock in settlement of accumulated and

unpaid preference dividends on the Series A Preferred Stock through June 30, 2023. The Transaction was financed through a new Term Loan B for an aggregate principal amount of $700 million under the framework of the Company's existing credit agreement.

The Company recorded the following amounts in the Consolidated Interim Financial Statements related to the repurchase and conversion of its Series A Preferred Stock:


	Movements for the Six Months Ended
	June 30, 2023
Consolidated Interim Balance Sheet:	(Dollars in millions)
Cash and cash equivalents	$	(605)
Preferred stock, Common stock and Additional Paid-in capital	(157)
Retained earnings	(441)

	Six Months Ended June 30, 2023
Consolidated Interim Statement of Operations:	(Dollars in millions)

Non-operating expenses	$	13

The Company also incurred $7 million of Transaction-related costs for the six months ended June 30, 2023, primarily for legal and advisory services that are included in Selling, general and administrative expenses in the Consolidated Interim Statement of Operations. See Note 14, Long-term Debt and Credit Agreement for discussion on the new Term Loan B and Note 15, Series A Preferred Stock for further discussion of the Transaction.

Note 2. Summary of Significant Accounting Policies

The accounting policies of the Company are set forth in Note 3 to the Consolidated Financial Statements for the year ended December 31, 2022 included in our 2022 Form 10-K.

Recently Adopted Accounting Pronouncements

In September 2022, the FASB issued ASU 2022-04, Disclosure of Supplier Finance Program Obligations (Topic 405-50): Disclosure of Supplier Finance Purchase Obligations. The amendment in this update requires companies to disclose key terms of supplier financing programs used in connection with the purchase of goods and services, along with information about their obligations under these programs including a rollforward of those obligations. The Company adopted the new guidance as of January 1, 2023. See Note 10, Supplier Financing for disclosure related to the Company's supplier financing program obligations.

Note 3. Revenue Recognition and Contracts with Customers

Disaggregated Revenue

Net sales by region (determined based on country of shipment) and channel are as follows:


	Three Months Ended June 30, 2023								Three Months Ended June 30, 2022
	OEM		Aftermarket		Other		Total		OEM		Aftermarket		Other		Total
	(Dollars in millions)
United States	$	142	$	47	$	1	$	190	$	118	$	54	$	1	$	173
Europe	437		48		9		494		394		38		8		440
Asia	292		13		4		309		211		10		6		227
Other	12		6		—		18		13		6		—		19
	$	883	$	114	$	14	$	1,011	$	736	$	108	$	15	$	859

	Six Months Ended June 30, 2023								Six Months Ended June 30, 2022
	OEM		Aftermarket		Other		Total		OEM		Aftermarket		Other		Total
	(Dollars in millions)
United States	$	265	$	96	$	2	$	363	$	220	$	105	$	1	$	326
Europe	883		91		17		991		800		76		15		891
Asia	559		25		7		591		477		20		12		509
Other	24		12		—		36		22		12		—		34
	$	1,731	$	224	$	26	$	1,981	$	1,519	$	213	$	28	$	1,760

Contract Balances

The following table summarizes our contract assets and liabilities balances:


	2023		2022
	(Dollars in millions)
Contract assets—January 1	$	46	$	63
Contract assets—June 30	47		58
Change in contract assets—(Decrease)/Increase	$	1	$	(5)
Contract liabilities—January 1	$	(8)	$	(5)
Contract liabilities—June 30	(9)		(6)
Change in contract liabilities—(Increase)/Decrease	$	(1)	$	(1)

Note 4. Research, Development & Engineering

Garrett conducts research, development and engineering (“RD&E”) activities, which consist primarily of the development of new products and product applications. RD&E costs are charged to expense as incurred unless the Company has a contractual guarantee for reimbursement from the customer. Customer reimbursements are netted against gross RD&E expenditures as they are considered a recovery of cost. Such costs are included in Cost of goods sold as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(Dollars in millions)
Research and development costs	$	46	$	38	$	86	$	74
Engineering-related expenses (1)	(4)		3		(5)		9
	$	42	$	41	$	81	$	83

(1) Engineering-related expenses include customer reimbursements of $13 million and $6 million for the three months ended June 30, 2023 and 2022, respectively, and $24 million and $9 million for the six months ended June 30, 2023 and 2022, respectively.

Note 5. Income Taxes


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(Dollars in millions)
Tax expense	$	30		$	20		$	57		$	57
Effective tax rate	29.7		%	19.0		%	27.3		%	24.8		%

The effective tax rates for the three months ended June 30, 2023 and 2022 were 29.7% and 19.0%, respectively. The effective tax rates for the six months ended June 30, 2023 and 2022 were 27.3% and 24.8%, respectively.

The change in the effective tax rate for the three and six months ended June 30, 2023 compared to the prior period is primarily related to non-deductible Transaction-related expenses and a one-time benefit in 2022 related to a change in assertion to permanently reinvest a portion of undistributed earnings in China.

The effective tax rate for the three and six months ended June 30, 2023 was higher than the U.S. federal statutory rate of 21% primarily because of U.S. taxes on international operations, withholding taxes and non-deductible Transaction related expenses, partially offset by lower taxes on non-U.S. earnings and global research and development benefits.

The effective tax rate can vary from quarter to quarter due to changes in the Company’s global mix of earnings, the resolution of income tax audits, changes in tax laws (including updated guidance on U.S. tax reform), deductions related to employee share-based payments, internal restructurings, and pension mark-to-market adjustments.

Note 6. Accounts, Notes and Other Receivables—Net


	June 30, 2023		December 31, 2022
	(Dollars in millions)
Trade receivables	$	678	$	619
Notes receivable	102		105
Other receivables	91		88
	871		812
Less—Allowance for expected credit losses	(7)		(9)
	$	864	$	803

Trade receivables include $47 million and $46 million of unbilled customer contract asset balances as of June 30, 2023 and December 31, 2022, respectively. These amounts are billed in accordance with the terms of customer contracts to which they relate. See Note 3, Revenue Recognition and Contracts with Customers.

Notes receivable is related to guaranteed bank notes without recourse that the Company receives in settlement of accounts receivables, primarily in the Asia Pacific region. See Note 7, Factoring and Notes Receivable for further information.

Note 7. Factoring and Notes Receivable

The Company enters into arrangements with financial institutions to sell eligible trade receivables. The receivables are sold without recourse and the Company accounts for these arrangements as true sales. The Company also receives guaranteed bank notes without recourse, in settlement of accounts receivables, primarily in the Asia Pacific region. The Company can hold the bank notes until maturity, exchange them with suppliers to settle liabilities, or sell them to third-

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(Dollars in millions)
Eligible receivables sold without recourse	$	218	$	226	$	400	$	370
Guaranteed bank notes sold without recourse	—		38		—		66

The expenses related to the sale of trade receivables and guaranteed bank notes are recognized within Other expense, net in the Consolidated Interim Statements of Operations, and were immaterial for the three and six months ended June 30, 2023 and 2022.


	June 30, 2023		December 31, 2022
	(Dollars in millions)
Receivables sold but not yet collected by the bank from the customer	$	5	$	5
Guaranteed bank notes sold but not yet collected by the bank from the customer	—		—

As of June 30, 2023 and December 31, 2022, the Company had no guaranteed bank notes pledged as collateral.

Note 8. Inventories—Net


	June 30, 2023		December 31, 2022
	(Dollars in millions)
Raw materials	$	205	$	203
Work in process	23		18
Finished products	121		80
	349		301
Less—Reserves	(37)		(31)
	$	312	$	270

Note 9. Other Assets


	June 30, 2023		December 31, 2022
	(Dollars in millions)
Advanced discounts to customers, non-current	$	46	$	51
Operating right-of-use assets (Note 13)	43		44
Income tax receivable	22		22
Pension and other employee related	4		4
Designated cross-currency swaps	47		74
Designated and undesignated derivatives	71		76
Other	13		10
	$	246	$	281

Note 10. Supplier Financing

The Company has supplier financing arrangements with two third-party financial institutions under which certain suppliers may factor their receivables from Garrett. The Company also enters into arrangements with banking institutions to issue bankers acceptance drafts in settlement of accounts payables, primarily in the Asia Pacific region. The bankers

acceptance drafts, or guaranteed bank notes, have a contractual maturity of six months or less, and may be held by suppliers until maturity, transferred to their suppliers, or discounted with financial institutions in exchange for cash. The supplier financing obligations and guaranteed bank notes outstanding are recorded within Accounts payable in our Consolidated Interim Balance Sheet.


	June 30, 2023		December 31, 2022
	(Dollars in millions)
Supplier financing obligations outstanding with financial institutions	$	76	$	33
Guaranteed bank notes outstanding	176		171

Note 11. Accrued Liabilities


	June 30, 2023		December 31, 2022
	(Dollars in millions)
Customer pricing reserve	$	63	$	50
Compensation, benefit and other employee related	68		69
Repositioning	12		9
Product warranties and performance guarantees - short-term (Note 20)	18		18
Income and other taxes	62		39
Advanced discounts from suppliers, current	6		8
Customer advances and deferred income (1)	18		29
Accrued interest	22		13
Short-term lease liability (Note 13)	9		9
Accrued freight	10		9
Dividends payable	—		42
Designated and undesignated derivatives	17		8
Other (primarily operating expenses) (2)	17		17
	$	322	$	320

(1)Customer advances and deferred income include $9 million and $8 million of contract liabilities as of June 30, 2023 and December 31, 2022, respectively. See Note 3, Revenue Recognition and Contracts with Customers.

(2)Includes $4 million and $3 million of environmental liabilities as of June 30, 2023 and December 31, 2022, respectively.

The Company accrues repositioning costs related to projects to optimize its product costs and right-size our organizational structure. Expenses related to the repositioning accruals are included in Cost of goods sold and Selling, general and administrative expenses in our Consolidated Interim Statements of Operations.


	Severance Costs		Other Costs		Total
	(Dollars in millions)
Balance at December 31, 2022	$	9	$	—	$	9
Charges	7		2		9
Usage—cash	(4)		—		(4)
Non-cash asset write-offs	—		(2)		(2)
Balance at June 30, 2023	$	12	$	—	$	12


	Severance Costs		Other Costs		Total
	(Dollars in millions)
Balance at December 31, 2021	$	10	$	—	$	10
Charges	2		—		2
Usage—cash	(4)		—		(4)
Balance at June 30, 2022	$	8	$	—	$	8

Note 12. Other Liabilities


	June 30, 2023		December 31, 2022
	(Dollars in millions)
Income taxes	$	103	$	99
Designated and undesignated derivatives	2		—
Pension and other employee related	18		21
Long-term lease liability (Note 13)	35		36
Advanced discounts from suppliers	4		6
Product warranties and performance guarantees – long-term (Note 20)	10		10
Environmental remediation – long term	13		14
Long-term accounts payable	8		8
Other	11		11
	204		205

Note 13. Leases

We have operating leases that primarily consist of real estate, machinery and equipment. Our leases have remaining lease terms of up to 15 years, some of which include options to extend the leases for up to two years, and some of which include options to terminate the leases within the year.

The components of lease expense are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(Dollars in millions)
Operating lease cost	$	4	$	4	$	8	$	8

Supplemental cash flow information related to operating leases is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(Dollars in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases	$	3	$	3	$	7	$	6
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	2		1		2		2

Supplemental balance sheet information related to operating leases is as follows:


	June 30, 2023		December 31, 2022
	(Dollars in millions)
Other assets	$	43	$	44
Accrued liabilities	9		9
Other liabilities	35		36


	June 30, 2023		December 31, 2022
Weighted-average remaining lease term (in years)	8.19		8.41
Weighted-average discount rate	5.71	%	5.61	%

Maturities of operating lease liabilities as of June 30, 2023 were as follows:


	(Dollars in millions)
2023	$	6
2024	10
2025	7
2026	6
2027	5
Thereafter	21
Total lease payments	55
Less imputed interest	(11)
	$	44

Note 14. Long-term Debt and Credit Agreements

The principal outstanding and carrying amounts of our long-term debt as of June 30, 2023 and December 31, 2022 are as follows:


	Due	Interest Rate	June 30, 2023		December 31, 2022
2021 Dollar Term Facility	4/30/2028	SOFR plus 351 bps	$	703	$	706
2023 Dollar Term Facility	4/30/2028	SOFR plus 450 bps	700		—
Euro Term Facility	4/30/2028	EURIBOR plus 350 bps	488		480
Total principal outstanding			1,891		1,186
Less: unamortized deferred financing costs			(59)		(31)
Less: current portion of long-term debt			(60)		(7)
Total long-term debt			$	1,772	$	1,148

Credit Facilities

On April 30, 2021, the Company entered into a credit agreement (as amended from time to time, the "Credit Agreement") providing for senior secured financing, consisting of a seven-year secured first-lien U.S. Dollar term loan facility initially in the amount of $715 million (the “2021 Dollar Term Facility”), a seven-year secured first-lien Euro term loan facility initially in the amount of €450 million (the “Euro Term Facility”) and a five-year senior secured first-lien revolving credit facility initially in the amount of $300 million providing for multi-currency revolving loans (the “Revolving Facility”). The maximum amount of borrowings available under the Revolving Facility was increased to $475 million in 2022.

On April 27, 2023, the Company entered into Amendment No. 3 (the "Third Amendment") to the Credit Agreement, which provided for additional financing consisting of a five-year secured first-lien U.S. Dollar term loan facility initially in

the amount of $700 million (the “2023 Dollar Term Facility”, together with the 2021 Dollar Term Facility and Euro Term Facility, the "Term Loan Facilities", and together with the Revolving Facility, the "Credit Facilities"). The full amount of the 2023 Dollar Term Facility was drawn on June 6, 2023 (the "Closing Date"), and the proceeds were primarily used to finance the repurchases of the Series A Preferred Stock as part of the Transaction, and pay fees and expenses incurred in connection with the Third Amendment.

The 2023 Dollar Term Facility will mature on April 30, 2028. Prior to maturity, the 2023 Dollar Term Facility will be repaid quarterly in an amount equal to, during the first two years occurring after the Closing Date, 7.50% per annum of the aggregate principal amount, and thereafter, 10.00% per annum. The Term Borrowers may also prepay the 2023 Dollar Term Facility at any time in whole or in part without premium or penalty, subject to certain exceptions (including for (i) customary breakage and redeployment costs in the case of prepayment of term benchmark rate loans and (ii) 2023 Dollar Term Facility repricing events occurring during the period from the Closing Date to the date that is twelve months following the Closing Date).

The Third Amendment also provided for (i) an increase in the maximum borrowing amount under the Revolving Facility by $95 million (the “Incremental Revolving Commitment”) to an aggregate amount of $570 million; and (ii) an extension of the maturity date for the Revolving Facility by two years from April 30, 2026 to April 30, 2028 (or January 30, 2028 if any of the currently outstanding term loans or term loans under the 2023 Dollar Term Facility maturing as of April 30, 2028 remain outstanding as of such date). The Incremental Revolving Commitment has the same terms and is generally subject to the same conditions applicable to the existing revolving facility under the Credit Agreement, except for fees paid in connection with the arrangement of the increased amount.

Under the Revolving Facility, the Company may use up to $125 million for the issuance of letters of credit to its subsidiaries. Letters of credit are available for issuance under the Credit Agreement on terms and conditions customary for financings of this kind, which issuances reduce availability under the Revolving Facility. As of June 30, 2023, the Company had no loans outstanding under the Revolving Facility, no outstanding letters of credit, and available borrowing capacity of approximately $570 million.

Separate from the Revolving Facility, the Company has a bilateral letter of credit facility in the amount of $15 million, which matures on April 30, 2026. As of June 30, 2023, the Company had $12 million utilized and $3 million of remaining available capacity under such facility.

Minimum scheduled principal repayments of the Credit Facilities as of June 30, 2023 are as follow:


	June 30, 2023
	(Dollars in millions)
2023	$	30
2024	60
2025	68
2026	77
2027	77
Thereafter	1,579
Total debt payments	$	1,891

Interest Rate and Fees

The 2021 Dollar Term Facility is subject to an interest rate, at our option, of either (a) an alternate base rate (“ABR”) (which shall not be less than 1.50%) or (b) an adjusted SOFR rate (“SOFR”) (which shall not be less than 0.50%), in each case, plus an applicable margin equal to 3.51% in the case of SOFR loans and 2.25% in the case of ABR loans. The Euro Term Facility is subject to an interest rate equal to an adjusted EURIBOR rate (which shall not be less than zero) plus an applicable margin equal to 3.50%. Interest payments with respect to the 2021 Dollar and Euro Term Facilities are required either on a quarterly basis (for ABR loans) or at the end of each interest period (for SOFR and EURIBOR loans) or, if the duration of the applicable interest period exceeds three months, then every three months.

The 2023 Dollar Term Facility will bear interest, at the Term Borrowers’ election, at a rate per annum equal to (i) SOFR (subject to a 0.50% floor) plus the applicable margin or (ii) the base rate plus the applicable margin. The applicable margin for loans under the 2023 Dollar Term Facility is 4.50% for SOFR loans and 3.50% for base rate loans.

The Revolving Facility is subject to an interest rate comprised of an applicable benchmark rate as provided under the Credit Agreement (which shall not be less than 1.00% if such benchmark is the ABR rate and not less than 0.00% in the case of other applicable benchmark rates) that is selected based on the currency in which borrowings are outstanding thereunder, in each case, plus an applicable margin, that may vary based on our leverage ratio.

In addition to paying interest on outstanding borrowings under the Revolving Facility, we are also required to pay a quarterly commitment fee based on the average daily unused portion of the Revolving Facility during such quarter, which is determined by our leverage ratio and ranges from 0.25% to 0.50% per annum.

Prepayments

The Credit Agreement contains certain mandatory prepayment provisions in the event that we incur certain types of indebtedness, receive net cash proceeds from certain non-ordinary course asset sales or other dispositions of property, or have excess cash flow (calculated on an annual basis with the required prepayment equal to 50%, 25% or 0% of such excess cash flow, subject to compliance with certain leverage ratios), in each case subject to terms and conditions customary for financings of this kind.

Certain Covenants

The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type. The Revolving Facility also contains a financial covenant requiring the maintenance of a consolidated total leverage ratio of not greater than 4.7 times as of the end of each fiscal quarter if, on the last day of any such fiscal quarter, the aggregate amount of loans and letters of credit (excluding backstopped or cash collateralized letters of credit and other letters of credit with an aggregate face amount not exceeding $30 million) outstanding under the Revolving Facility exceeds 35% of the aggregate commitments in effect thereunder on such date. As of June 30, 2023, the Company was in compliance with all covenants.

Note 15. Series A Preferred Stock

On April 12, 2023 (the “Transaction Date”), the Company entered into separate definitive agreements (the “Agreements”) with each of Centerbridge Partners, L.P. and funds managed by Oaktree Capital Management, L.P. (collectively, the “C&O Investors”) to effect a series of integrated transactions (the “Transaction”) designed to increase the attractiveness of the Company to investors, including by simplifying the Company’s capital structure by converting all outstanding Series A Preferred Stock into a single class of Common Stock, subject to certain conditions.

As part of the Agreements, the holders of a majority of the outstanding shares of the Series A Preferred Stock authorized and approved the amendment and restatement of the certificate of designations for the Series A Preferred Stock (as amended, the “Certificate of Designations”) to, among other things, require the conversion of all shares of Series A Preferred Stock into shares of the Company’s common stock (the “2023 Conversion”), subject to the repurchase by the Company of a portion of the shares of Series A Preferred Stock held by the C&O Investors (the “Series A Repurchase”).

Under the terms of the Agreements, the Company would repurchase a total of $570 million (“Base Repurchase Price”) from the C&O Investors at a cash price of $8.10 per share which will be adjusted to equal the volume-weighted average price of the Common Stock for the fifteen trading days following the announcement of the transactions (the “15 Days VWAP”), subject to a minimum price of $7.875 per share and a maximum price of $8.50 per share. The 15 Days VWAP was subsequently established at a value of $8.177 per share.

As part of the Transaction, all holders of Series A Preferred Stock, including the C&O Investors, would receive an amount equal to $0.853509 per share of Series A Preferred Stock, representing accumulated and unpaid preference dividends through June 30, 2023 (the “Accumulated Dividends”), as well as $0.144375 per share of Series A Preferred Stock, representing the preference dividends that would have accrued on the Series A Preferred Stock from July 1, 2023, through September 30, 2023 (the “Additional Amounts”).

As part of the Transaction, following the effectiveness of the Certificate of Designations which occurred on June 6, 2023, the Company completed all steps of the Transaction as follows:

•The Company paid $580 million to the C&O Investors in connection with the repurchase of 69,707,719 shares of Series A Preferred Stock, comprising of the Base Repurchase Price as well as $10 million ($0.144375 for each repurchased share) in consideration of the Additional Amounts on the repurchased shares of Series A Preferred Stock.

•The remaining 175,337,712 shares of Series A Preferred Stock were converted into 175,337,712 shares of Common Stock in accordance with the customary procedures of the Company’s transfer agent, for shares held in registered form, and of the Depository Trust Company, for shares held in street name;

•As part of the 2023 Conversion, the Company also paid $25 million ($0.144375 for each converted share) to the holders of Series A Preferred Stock in consideration of the Additional Amounts on the shares of Series A Preferred Stock that were converted; and

•The Company issued 25,577,517 shares of Common Stock to all holders of Series A Preferred Stock (equal to $0.853509 per share, adjusted to avoid the issuance of fractional shares of Common Stock), in consideration of the Accumulated Dividends of an aggregate amount of $209 million. Cash payments for fractional shares were immaterial.

The Agreements were accounted for as freestanding physically settled forward purchase contracts. The Agreements were initially recorded at fair value and then remeasured through earnings until the establishment of the 15 Days VWAP, whereupon the Agreements were subsequently measured based on the amount of consideration to be paid at settlement. A Monte-Carlo simulation model was used to determine the Transaction Date fair value of the Agreements by simulating a range of possible future stock prices for the Company through the expected settlement date of the Agreements. The significant assumptions utilized in estimating the fair value of the Agreements include: (i) a dividend yield of 0.0%; (ii) an expected volatility of 40.0%; (iii) a risk-free interest rate of 4.23% based on observed interest rates from the Treasury Constant Maturity yield curve consistent with the simulation term; and (iv) a starting share price of $8.25 based on the market price of the Company’s common stock as of the Transaction Date.

The initial fair value of the Agreements represented a forward purchase liability of $4 million. A loss of $13 million was recognized in Non-operating expense in the Consolidated Interim Statement of Operations to reflect the subsequent remeasurement of fair value of the Agreements due to changes in the market price of the Company’s Common Stock. The difference between the fair value of consideration transferred under the Agreements and the carrying value of the repurchased Series A Preferred Stock, amounting to $201 million, was recorded to Retained Deficit as a deemed dividend on the repurchase of Series A Preferred Stock from the C&O Investors as part of the Transaction. A liability for excise tax, amounting to $6 million, was also recorded to Retained Deficit as a deemed dividend.

In connection with the 2023 Conversion, the Company also recognized a deemed dividend on the 2023 Conversion for $25 million, corresponding to the Additional Amounts paid to the holders of Series A Preferred Stock on the shares of Series A Preferred Stock that were converted.

Effective after the close of market on June 12, 2023, trading of the Series A Preferred Stock on Nasdaq was suspended, and each holder of shares of Series A Preferred Stock as of the conversion was deemed to hold one share of the Company’s Common Stock for each share of Series A Preferred Stock previously held.

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

The Company also announced an increase in its share repurchase authorization to $250 million. Under the share repurchase program, the Company may repurchase shares of Common Stock in open market transactions, privately negotiated purchases and other transactions from time to time.

The following table summarizes the effects of the Transaction on the Consolidated Interim Balance Sheet as of June 30, 2023 and the Consolidated Interim Statement of Operations for the six months ended June 30, 2023:


	Series A Repurchase		2023 Conversion		Settlement of Accumulated Dividends		Excise tax on share repurchase		Total
	(Dollars in millions)
Consolidated Interim Balance Sheet - increase/(decrease):
Cash and cash equivalents	$	(580)	$	(25)	$	—	$	—	$	(605)
Accrued liabilities	—		—		—		6		6
Preferred Stock	—		—		—		—		—
Common Stock	—		—		—		—		—
Additional Paid-in capital	(366)		—		209		—		(157)
Retained earnings	(201)		(25)		(209)		(6)		(441)
Consolidated Interim Statement of Operations:

Non-operating expenses	13		—		—		—		13
Consolidated Interim Statement of Cash Flows
Repurchases of Series A Preferred Stock	(580)		—		—		—		(580)
Payments for Additional Amounts for conversion of Series A Preferred Stock	—		(25)		—		—		(25)

The Company has also incurred $7 million of Transaction-related costs for the six months ended June 30, 2023, primarily for legal and advisory services that are included in Selling, general and administrative expenses in the Consolidated Interim Statement of Operations.

Note 16. Financial Instruments and Fair Value Measures

Our credit, market and foreign currency risk management policies are described in Note 19, Financial Instruments and Fair Value Measures, to the Consolidated Financial Statements for the year ended December 31, 2022 included in our 2022 Form 10-K. As of June 30, 2023 and December 31, 2022, we had contracts with aggregate gross notional amounts of $3,309 million and $2,621 million, respectively, to hedge interest rates and foreign currencies, principally the U.S. Dollar, Swiss Franc, British Pound, Euro, Chinese Yuan, Japanese Yen, Mexican Peso, New Romanian Leu, Czech Koruna, Australian Dollar and Korean Won.

Fair Value of Financial Instruments

The FASB’s accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Financial and nonfinancial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table sets forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2023 and December 31, 2022:


					Fair Value
	Notional Amounts				Assets					Liabilities
	June 30, 2023		December 31, 2022		June 30, 2023		December 31, 2022			June 30, 2023		December 31, 2022
Designated instruments:
Designated forward currency exchange contracts	$	483	$	565	$	19	$	22	(a)	$	8	$	6	(c)
Designated cross-currency swaps	1,015		715		47		74		(b)	2		—		(d)
Designated interest-rate swaps	270		—		1		—		(b)	—		—
Total designated instruments	1,768		1,280		67		96			10		6
Undesignated instruments:
Undesignated interest rate swaps	901		1,024		70		76		(b)	—		—
Undesignated forward currency exchange contracts	640		317		5		4		(a)	8		2		(c)
Total undesignated instruments	1,541		1,341		75		80			8		2
Total designated and undesignated instruments	$	3,309	$	2,621	$	142	$	176		$	18	$	8

(a) Recorded within Other current assets

(b) Recorded within Other assets

(d) Recorded within Other liabilities

As of June 30, 2023, the Company had outstanding interest rate swaps with aggregate notional amounts of €830 million ($901 million based on June 30, 2023 foreign exchange rates) and $270 million, with maturities of January 2024, April 2024, July 2024, October 2024, April 2025, April 2026, April 2027 and April 2028. The Company uses interest rate swaps specifically to mitigate variable interest risk exposure on its long-term debt portfolio. The $270 million interest rate swaps have been designated as cash flow hedges. The designated interest rate swaps' fair value were net assets of $1 million as of June 30, 2023.

The Company executed cross-currency swaps which have been designated as net investment hedges of its Euro-denominated operations and cash flow hedges to hedge the foreign currency exposure from foreign currency-denominated debt. In May 2023, the Company re-couponed the cross-currency swap contracts which have been designated as net investment hedges and received a cash settlement of $9 million. As of June 30, 2023, an aggregate notional amount of €615 million was designated as net investment hedges of the Company’s investment in Euro-denominated operations and €280 million was designated as cash flow hedges. The cross-currency swaps’ fair values were net assets of $45 million as of June 30, 2023. Our Consolidated Interim Statements of Comprehensive Income include Changes in fair value of net investment hedges and cash flow hedges, net of tax, of $3 million and $(2) million, during the three and six months ended June 30, 2023, respectively, related to these designated cross-currency swaps. No ineffectiveness has been recorded on the designated cross-currency hedges.

The Company's forward currency exchange contract under our cash flow hedging program are assessed as highly effective and are designated as cash flow hedges. Gains and losses on derivatives qualifying as cash flow hedges are recorded in Accumulated other comprehensive income until the underlying transactions are recognized in earnings.

The foreign currency exchange, interest rate swap and cross-currency swap contracts are valued using market observable inputs. As such, these derivative instruments are classified within Level 2. The assumptions used in measuring the fair value of the cross-currency swap are considered Level 2 inputs, which are based upon market-observable interest rate curves, cross-currency basis curves, credit default swap curves, and foreign exchange rates.

The carrying value of Cash, cash equivalents and restricted cash, Account receivables and Notes and Other receivables contained in the Consolidated Interim Balance Sheet approximates fair value.

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


	June 30, 2023				December 31, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(Dollars in millions)
Term Loan Facilities	$	1,831	$	1,828	$	1,156	$	1,151

The Company determined the fair value of certain of its long-term debt and related current maturities utilizing transactions in the listed markets for similar liabilities. As such, the fair value of the long-term debt and related current maturities is considered Level 2.

Note 17. Accumulated Other Comprehensive Income

The changes in Accumulated Other Comprehensive Income by component are set forth below:

Foreign

Exchange

Translation

Adjustment

Changes in

Fair Value of

Effective

Cash Flow

Hedges

Changes in Fair Value of
Net Investment Hedges

Pension

Adjustments

Total Accumulated

Other

Comprehensive

Income

(Dollars in millions)

Balance at December 31, 2022

(44)

Garrett Motion Inc. [GTX] Filings
10-Q	[2023-07-27]
10-Q	[2023-04-24]
10-K	[2023-02-14]
10-Q	[2022-10-26]
10-Q	[2022-07-28]
10-Q	[2022-04-28]
10-K	[2022-02-14]
10-Q	[2021-10-28]
10-Q	[2021-07-29]
S-1	[2021-05-28]
10-Q	[2021-04-29]
10-K	[2021-02-16]
10-Q	[2020-11-02]
10-Q	[2020-07-30]
10-Q	[2020-05-11]
10-K	[2020-02-27]
10-Q	[2019-11-08]
10-Q	[2019-07-30]
10-Q	[2019-05-08]
10-K	[2019-03-01]
10-Q	[2018-11-06]