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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 30, 2020

 

 

GARRETT MOTION INC.

(Exact name of Registrant as specified in its Charter)

 

 

 

Delaware		1-38636			82-4873189
(State or other jurisdiction of incorporation)		(Commission File Number)			(I.R.S. Employer Identification Number)
La Pièce 16, Rolle, Switzerland					1180
(Address of principal executive offices)					(Zip Code)

Registrant’s telephone number, including area code: +41 21 695 30 00

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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	New York Stock Exchange

Indicate by check mark whether the Registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

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.  ☐

 

 

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Item 2.02.

Results of Operations and Financial Condition.

On July 30, 2020, Garrett Motion Inc. (the “Company”), issued a press release to report the Company’s financial results for the three months ended June 30, 2020. The full text of the press release is attached to this Current Report on Form 8-K as Exhibit 99.1.

The information in Item 2.02 and Exhibit 99.1 of this Current Report on Form 8-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing.

 

Item 9.01.

Financial Statements and Exhibits.

 

(d)     Exhibits.

 

99.1*		Press Release of Garrett Motion Inc., dated July 30, 2020.
104		Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.

 

*	Furnished herewith.

 

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: July 30, 2020				Garrett Motion Inc.
				By:		/s/ Sean Deason
						Sean Deason
						Senior Vice President and Chief Financial Officer

 

 

 

Garrett Motion Reports Second Quarter 2020 Financial Results

 

Second Quarter 2020 Highlights

 

First Half 2020 Highlights

 

ROLLE, Switzerland, July 30, 2020 – Garrett Motion Inc. (NYSE: GTX), a leading differentiated technology provider for the automotive industry, today announced its financial results for the second quarter and six months ended June 30, 2020.

 

 

 

“Our performance for the second quarter and first half of 2020 reflects the various effective actions we have taken flexing our global operating structure and executing strict cost controls to confront the COVID-19 pandemic,” said Olivier Rabiller, Garrett President and CEO. “All of our manufacturing facilities have safely resumed operations with plants in China producing at pre-crisis levels while Europe and North America are slowly improving in-line with demand. I am proud of the dedication and resolve our employees have demonstrated during this challenging period, teaming together to maintain business continuity and support our local communities.”

 

“We also successfully amended our credit agreement and further postponed payments to our former parent in the second quarter,” Mr. Rabiller added. “As we gradually implement a comprehensive return-to-work program that adheres to best practices, we continue to focus on meeting customer commitments. We remain concerned however of a return to lower production levels, plant shutdowns and a challenging demand environment extending into 2021, which could further challenge our capital structure and limit our ability to expand on our strategy now and in the future. Garrett’s proven track record in operational excellence has helped us navigate the current pandemic-induced downturn. Although the market environment remains highly uncertain, we continue to benefit from our robust infrastructure and agile working capabilities as we execute on our long-term strategy and lead the evolution of advanced turbocharging, electric-boosting, and software solutions for the global automotive industry.”

 

 

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Results of Operations

Net sales for the second quarter of 2020 were $477 million compared to $802 million in the second quarter of 2019, a decrease of 40.5%. Net sales at constant currency decreased 39.2%. During the second quarter of 2020, Garrett’s manufacturing facilities in Mexico and India were shut down for approximately five weeks due to the COVID-19 pandemic before gradually restarting operations. Additionally, facilities across Europe reduced production in response to lower demand and local government mandates stemming from the pandemic. Reported net sales in the second quarter for light vehicles OEM products decreased $231 million due to lower diesel volumes in Europe and Asia as well as lower gasoline volumes in Europe and North America. This decline was partially offset by higher gasoline volumes in China due to increased turbocharger penetration in gasoline engines and new product launches. Reported net sales for commercial vehicles and aftermarket products declined by $62 million and $28 million, respectively, mainly as a result of lower volumes in Europe and North America.

 

For the six months ended June 30, 2020, reported net sales totaled $1,222 versus $1,637 million for the six months ended June 30, 2019. Net sales at constant currency decreased 23.6% for the six months ended June 30, 2020.

 

Cost of goods sold for the second quarter of 2020 was $393 million versus $620 million in the second quarter of 2019 primarily due to lower volumes stemming from the impact of COVID-19. Research and development expenses in the quarter decreased to $25 million from $29 million in the second quarter of 2019.

 

For the six months ended June 30, 2020, cost of goods sold was $996 million, compared to $1,259 million for the same period in 2019. Research and development expenses were $52 million for the six months ended June 30, 2020 versus $61 million for the same period in 2019.

 

Gross profit percentage for the second quarter of 2020 declined to 17.6% from 22.7% in the second quarter of 2019 primarily due to lower volume leverage.

 

For the six months ended June 30, 2020, gross profit percentage was 18.5% compared to 23.1% for the six months ended June 30, 2019.

 

Selling, general and administrative (“SG&A”) expenses for the second quarter of 2020 decreased to $51 million from $58 million in the prior year period due to the implementation of cost controls to mitigate the impact of the COVID-19 pandemic on Garrett’s performance, partially offset by higher professional service fees. As a percentage of net sales, SG&A for the quarter was 10.7% versus 7.2% in the second quarter of 2019.

 

For the six months ended June 30, 2020, SG&A totaled $112 million compared to $118 million for the same period in 2019. As a percentage of net sales, SG&A increased to 9.2% from 7.2% for the six months ended June 30, 2019, primarily due to lower net sales.

 

Other expenses - net for the second quarter of 2020 decreased to $15 million versus $17 million in the second quarter of 2019 due to a decrease in legal fees in connection with Garrett’s indemnification and reimbursement agreement with Honeywell (the “Subordinated Indemnity Agreement”).

 

Other expenses - net for the six months ended June 30, 2020 totaled $31 million versus $36 million for the same period in 2019.

 

Interest expense for the second quarter of 2020 was $20 million versus $18 million in the second quarter of 2019 mainly due to the higher fees related to drawdowns on the company’s revolving credit facility and amendments to Garrett’s credit agreement. For the six months ended June 30, 2020, interest expense totaled $36 million versus $34 million for the same period in 2019.

 

Net loss for the second quarter of 2020 was $9 million, or ($0.12) per basic and diluted share, compared to net income of $66 million, or $0.88 per basic share and $0.86 per diluted share, in the second quarter of 2019.  

 

Adjusted net income, which excludes Honeywell indemnity obligation expenses and litigation fees, for the second quarter of 2020 was $5 million, or $0.07 per basic and diluted share. This compares to adjusted net income of $83 million, or $1.11 per basic share and $1.08 per diluted share, in the second quarter of 2019.

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For the six months ended June 30, 2020, net income was $43 million, or $0.57 per basic and diluted share, compared to net income of $139 million, or $1.87 per basic share and $1.83 per diluted share, for the same period in 2019. Adjusted net income for the six months ended June 30, 2020 was $73 million, or $0.97 per basic share and $0.96 per diluted share, versus $175 million, or $2.35 per basic share and $2.30 per diluted share, for the same period in 2019.

 

Expenditures for property, plant and equipment (capital expenditures) for the second quarter of 2020 totaled $24 million, or 5.0% of net sales, compared to $30 million, or 3.7% of net sales, in the second quarter of 2019. For the six months ended June 30, 2020, capital expenditures were $63 million, or 5.2% of net sales, compared to $51 million, or 3.1% of net sales, for the six months ended June 30, 2019.

 

Additional Non-GAAP Financial Measures

Adjusted EBITDA for the second quarter of 2020 was $63 million versus $154 million for the same period in 2019. The Adjusted EBITDA margin decreased to 13.2% in the quarter from 19.2% in the second quarter of 2019 primarily due to lower volumes stemming from the impact of COVID-19. Adjusted free cash flow, which excludes Indemnity-related payments and mandatory transition tax (“MTT”) payments to Honeywell, was ($174) million for the second quarter of 2020 versus $27 million for the same period in 2019.

 

For the six months ended June 30, 2020, Adjusted EBITDA and Adjusted EBITDA margin were $171 million and 14.0%, respectively, compared to $313 million and 19.1% for the same period in 2019. For the six months ended June 30, 2020, adjusted free cash flow was ($117) million versus $80 million for the same period in 2019.

 

Liquidity and Capital Resources

As of June 30, 2020, Garrett had $482 million in available liquidity, including $139 million in cash and cash equivalents and approximately $347 million undrawn commitments under its revolving credit facility, partially offset by $4 million in uncommitted debt.

 

As of June 30, 2020, consolidated debt was $1,572 million, an increase of approximately $88 million compared to March 31, 2020. As of June 30, 2020, net debt totaled $1,433 million, an increase of approximately $203 million compared to March 31, 2020. Secured Net Debt to Consolidated EBITDA (as defined in Garrett’s amended credit agreement) was 3.07x as of June 30, 2020 versus 2.44x as of March 31, 2020. During the second quarter of 2020, Garrett reached an agreement with its senior lenders under the credit agreement to, among other items, amend certain covenants and conditions, including a modified maximum leverage ratio and a waiver of the interest coverage ratio requirements for up to a two-year period through June 30, 2022. Garrett’s weighted average stated interest rate was approximately 3.6% as of June 30, 2020, and the company has no significant debt maturities before September 2023.

 

Conference Call

Garrett will host a conference call on Thursday, July 30, 2020 at 8:30 am Eastern Time / 2:30 pm Central European Time. The dial-in number for callers in the U.S. is +1-844-835-9983 and the dial-in number for international callers is +1-412-317-5268. The access code for all callers is 10146088. A live webcast and related slide presentation will also be available at http://investors.garrettmotion.com/.

 

A replay of the conference call can be accessed through August 13, 2020 by dialing +1-877-344-7529 in the U.S. and +1-412-317-0088 outside the U.S., and then entering the access code 10146088. The webcast will also be archived on Garrett’s website.

 

Forward-Looking Statements

This presentation contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of fact, that address activities, events or developments that we or our management intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements including without limitation our statements regarding the anticipated impact of the COVID-19 pandemic on our business, financial results and financial condition, expectations regarding global automotive demand and execution of our strategy. Although we believe forward-looking statements are based upon reasonable assumptions, such statements involve known and unknown risks, uncertainties, and other factors, which may cause the actual results or performance of the company to be materially different from any future results or performance expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to risks related to the COVID-19 pandemic

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and its impact on our business, financial results and financial condition, risks related to our debt and those risks described in our annual report on Form 10-K for the year ended December 31, 2019, as updated by our quarterly report on Form 10-Q for the period ended June 30, 2020, as well as our other filings with the Securities and Exchange Commission, under the headings “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements.” You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. Forward-looking statements are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by our forward-looking statements.

 

Non-GAAP Financial Measures

This presentation includes EBITDA, Adjusted EBITDA, Net Debt, Consolidated Debt, Secured Net Debt, Net Debt to Consolidated EBITDA ratio, Consolidated Debt to Consolidated EBITDA ratio, Secured Net Debt to Consolidated EBITDA ratio, Adjusted Free Cash Flow, Consolidated EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted Earnings Per Share (“EPS”), Cash flow from operations minus capital expenditures, Free Cash Flow, Adjusted Free Cash Flow Conversion, constant currency sales growth and other financial measures not compliant with generally accepted accounting principles in the United States (“GAAP”). The Non-GAAP financial measures provided herein are adjusted for certain items as presented in the Appendix containing Non-GAAP Reconciliations and may not be directly comparable to similar measures used by other companies in our industry, as other companies may define such measures differently. Management believes that, when considered together with reported amounts, these measures are useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends. Garrett believes that Adjusted EBITDA, Adjusted EBITDA Margin and Consolidated EBITDA are important indicators of operating performance because they exclude the effects of income taxes and certain other items, as well as the effects of financing and investing activities by eliminating the effects of interest and depreciation expenses and therefore more closely measures our operational performance. These metrics should be considered in addition to, and not as replacements for, the most comparable GAAP measure. For additional information with respect to our Non-GAAP financial measures, see our annual report on Form 10-K for the year ended December 31, 2019 and our quarterly report for the period ended June 30, 2020.

 

About Garrett Motion Inc.  

Garrett Motion is a differentiated technology leader, serving customers worldwide for more than 65 years with passenger vehicle, commercial vehicle, aftermarket replacement and performance enhancement solutions. Garrett’s cutting-edge technology enables vehicles to become safer, more connected, efficient and environmentally friendly. Our portfolio of turbocharging, electric boosting and automotive software solutions empowers the transportation industry to redefine and further advance motion. For more information, please visit www.garrettmotion.com.

 

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GARRETT MOTION INC.

CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS

 

 

GARRETT MOTION INC.

CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

 

 

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GARRETT MOTION INC.

CONSOLIDATED AND COMBINED BALANCE SHEETS

 

 

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GARRETT MOTION INC.

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

 

 

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Reconciliation of Net Income to Adjusted EBITDA and Consolidated EBITDA⁽¹⁾

 

 

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Reconciliation of Constant Currency Sales % Change⁽¹⁾

 

 

¹ We previously referred to “constant currency sales growth” as “organic sales growth.” We define constant currency sales growth as the year-over-year change in reported sales relative to the comparable period, excluding the impact on sales from foreign currency translation. This is the same definition we previously used for “organic sales growth”. We believe this measure is useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends.

 

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Reconciliation of Cash Flow from Operations less Expenditures for property, plant and equipment

 

 

 

Reconciliation of Long-Term Debt to Net Debt

 

 

Reconciliation of Net Debt and Consolidated Debt, and Related Ratios

 

 

 

Reconciliation of Secured Net Debt and Related Ratio

 

 

 

 

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Reconciliation of Net Income – GAAP to EBITDA and Adjusted EBITDA, and to Adjusted Free Cash Flow and Free Cash Flow (FCF)

 

 

Reconciliation of Net Income to Adjusted Net Income and Adjusted EPS

 

 

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Reconciliation of Net Income to Adjusted FCF Conversion

 

 

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