SEC Filing | Garrett Motion

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gtx-20210930

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 September 30, 2021


☐			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
Series A Cumulative Convertible Preferred Stock, par value $0.001 per share	GTXAP	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 October 21, 2021, the registrant had 65,062,806 shares of Common Stock, $0.001 par value per share, outstanding.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Interim Statements of Operations (Unaudited)	3
	Consolidated Interim Statements of Comprehensive Income (Loss) (Unaudited)	4
	Consolidated Interim Balance Sheets (Unaudited)	5
	Consolidated Interim Statements of Cash Flows (Unaudited)	6
	Consolidated Interim Statements of Equity (Deficit) (Unaudited)	7
	Notes to Unaudited Consolidated Interim Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58
Item 4.	Controls and Procedures	59
PART II.	OTHER INFORMATION	60
Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	76
Item 3.	Defaults Upon Senior Securities	76
Item 4.	Mine Safety Disclosures	76
Item 5.	Other Information	76
Item 6.	Exhibits	76
Signatures		79

BASIS OF PRESENTATION

Unless the context otherwise requires, references to “Garrett,” “we,” “us,” “our,” and “the Company” in this Quarterly Report on Form 10-Q refer to Garrett Motion Inc. and its subsidiaries.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

GARRETT MOTION INC.

CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS

(Unaudited)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
	(Dollars in millions, except per share amounts)
Net sales (Note 4)	$	839	$	804	$	2,771	$	2,026
Cost of goods sold	676		657		2,219		1,661
Gross profit	163		147		552		365
Selling, general and administrative expenses	60		98		166		202
Other expense, net (Note 6)	—		14		1		45
Interest expense	25		20		70		56
Non-operating (income) expense	(4)		1		(4)		(7)
Reorganization items, net (Note 2)	(9)		4		(130)		4
Income before taxes	91		10		449		65
Tax expense (Note 7)	28		(1)		82		11
Net income	63		11		367		54
Less: preferred dividend (Note 18)	(36)		—		(60)		—
Net income available to common shareholders	$	27	$	11	$	307	$	54

Earnings per common share
Basic	$	0.42	$	0.15	$	4.34	$	0.72
Diluted	$	0.20	$	0.14	$	1.75	$	0.71

Weighted average common shares outstanding
Basic	65,056,274		75,739,152		70,802,999		75,456,358
Diluted	312,844,469		75,943,994		209,664,275		76,123,548

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

GARRETT MOTION INC.

CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
	(Dollars in millions)
Net income	$	63	$	11	$	367	$	54
Foreign exchange translation adjustment	(6)		(100)		37		(111)
Changes in fair value of effective cash flow hedges, net of tax (Note 17)	2		—		7		—
Changes in fair value of net investment hedges, net of tax	12		(6)		27		(8)
Total other comprehensive income (loss) , net of tax	8		(106)		71		(119)
Comprehensive income (loss)	$	71	$	(95)	$	438	$	(65)

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

GARRETT MOTION INC.

CONSOLIDATED INTERIM BALANCE SHEETS

(Unaudited)


	September 30, 2021		December 31, 2020
	(Dollars in millions)
ASSETS
Current assets:
Cash and cash equivalents	$	456	$	592
Restricted cash	78		101
Accounts, notes and other receivables – net (Note 8)	741		841
Inventories – net (Note 10)	278		235
Other current assets	56		110
Total current assets	1,609		1,879
Investments and long-term receivables	31		30
Property, plant and equipment – net	472		505
Goodwill	193		193
Deferred income taxes	253		275
Other assets (Note 11)	159		135
Total assets	$	2,717	$	3,017
LIABILITIES
Current liabilities:
Accounts payable	$	921	$	1,019
Borrowings under revolving credit facility (Note 2)	—		370
Current maturities of long-term debt (Note 15)	5		—
Debtor-in-possession Term Loan (Note 2)	—		200
Mandatorily redeemable Series B Preferred Stock (Note 16)	248		—
Accrued liabilities (Note 12)	325		248
Total current liabilities	1,499		1,837
Long-term debt (Note 15)	1,195		1,082
Mandatorily redeemable Series B Preferred Stock – long-term (Note 16)	347		—
Deferred income taxes	23		2
Other liabilities (Note 13)	286		114
Total liabilities not subject to compromise	3,350		3,035
Liabilities subject to compromise (Note 2)	—		2,290
Total liabilities	$	3,350	$	5,325
COMMITMENTS AND CONTINGENCIES (Note 22)
EQUITY (DEFICIT)
Series A Preferred Stock, par value $0.001; 247,757,290 shares issued and outstanding as of September 30, 2021 (Note 18)	$	—	$	—
Common Stock, par value $0.001; 1,000,000,000 and 400,000,000 shares authorized, 65,062,181 and 76,229,578 issued and 65,062,181 and 75,813,634 outstanding as of September 30, 2021 and December 31, 2020, respectively (Note 18)	—		—
Additional paid–in capital	1,334		28
Retained deficit	(1,909)		(2,207)
Accumulated other comprehensive loss (Note 19)	(58)		(129)
Total deficit	(633)		(2,308)
Total liabilities and deficit	$	2,717	$	3,017

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)


	For the Nine Months Ended September 30,
	2021		2020
	(Dollars in millions)
Cash flows from operating activities:
Net income	$	367	$	54
Adjustments to reconcile net income to net cash provided by operating activities:
Reorganization items, net	(423)		4
Deferred income taxes	10		(25)
Depreciation	70		60
Accretion and amortization of debt discount and deferred financing costs	23		5
Foreign exchange loss	7		(15)
Stock compensation expense	5		8
Pension expense	(1)		1
Other	(3)		9
Changes in assets and liabilities:
Accounts, notes and other receivables	48		(35)
Inventories	(59)		(26)
Other assets	40		(54)
Accounts payable	(161)		(126)
Accrued liabilities	(19)		(22)
Obligations payable to Honeywell	(375)		6
Other liabilities	25		20
Net cash used for operating activities	$	(446)	$	(136)
Cash flows from investing activities:
Expenditures for property, plant and equipment	(74)		(79)
Other	1		—
Net cash used for investing activities	$	(73)	$	(79)
Cash flows from financing activities:
Proceeds from issuance of Series A Preferred Stock	1,301		—
Proceeds from issuance of long-term debt, net of deferred financing costs	1,221		—
Proceeds from revolving credit facility	—		1,449
Payments of long-term debt	(1,513)		(2)
Payments of revolving credit facility	(370)		(1,100)
Payments of debtor-in-possession financing	(200)		—
Payments for Cash-Out election	(69)		—
Revolving facility financing costs	(8)		—
Debtor-in-possession financing fees	—		(4)
Other	—		(3)
Net cash provided by financing activities	$	362	$	340
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	(2)		3
Net (decrease) increase in cash, cash equivalents and restricted cash	(159)		128
Cash, cash equivalents and restricted cash at beginning of the period	693		187
Cash, cash equivalents and restricted cash at end of the period	$	534	$	315
Supplemental cash flow disclosure:
Income taxes paid (net of refunds)	47		27
Interest expense paid	67		40
Reorganization items paid	337		—
Supplemental disclosure of non-cash investing and financing activities:
Issuance of Series B Preferred Stock	577		—

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/(Loss)		Total Deficit
	Shares	Amount	Shares	Amount
	(in millions)
Balance at December 31, 2019	—	—	75	—	$	19	$	(2,282)	$	130	$	(2,133)
Net income	—	—	—	—	—		52		—		52
Other comprehensive income, net of tax	—	—	—	—	—		—		39		39
Stock-based compensation	—	—	—	—	2		—		—		2
Tax withholding related to vesting of restricted stock units and other	—	—	—	—	(1)		—		—		(1)
Adoption impact of ASU 2016-13, Financial Instruments - Credit Losses	—	—	—	—	—		(5)		—		(5)
Balance at March 31, 2020	—	—	75	—	$	20	$	(2,235)	$	169	$	(2,046)
Net loss	—	—	—	—	—		(9)		—		(9)
Other comprehensive loss, net of tax	—	—	—	—	—		—		(52)		(52)
Stock-based compensation	—	—	—	—	4		—		—		4
Balance at June 30, 2020	—	—	75	—	$	24	$	(2,244)	$	117	$	(2,103)
Net income	—	—	—	—	—		11		—		11
Other comprehensive loss, net of tax	—	—	—	—	—		—		(106)		(106)
Stock-based compensation	—	—	—	—	2		—		—		2
Balance at September 30, 2020	—	—	75	—	$	26	$	(2,233)	$	11	$	(2,196)

Balance at December 31, 2020	—	—	76	—	28		(2,207)		(129)		(2,308)
Net loss	—	—	—	—	—		(105)		—		(105)
Other comprehensive income, net of tax	—	—	—	—	—		—		111		111
Stock-based compensation	—	—	—	—	2		—		—		2
Balance at March 31, 2021	—	—	76	—	$	30	$	(2,312)	$	(18)	$	(2,300)
Net income	—	—	—	—	—		409		—		409
Cash-Out election	—	—	(11)	—	—		(69)		—		(69)
Issuance of Series A Preferred Stock	248	—	—	—	1,301		—		—		1,301
Other comprehensive loss, net of tax	—	—	—	—	—		—		(48)		(48)
Stock-based compensation	—	—	—	—	1		—		—		1
Balance at June 30, 2021	248	—	65	—	$	1,332	$	(1,972)	$	(66)	$	(706)
Net income	—	—	—	—	—		63		—		63
Other comprehensive income, net of tax	—	—	—	—	—		—		8		8
Stock-based compensation	—	—	—	—	2		—		—		2
Balance at September 30, 2021	248	—	65	—	$	1,334	$	(1,909)	$	(58)	$	(633)

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.

Voluntary Filing Under Chapter 11

On September 20, 2020 (the “Petition Date”), the Company and certain of its subsidiaries (collectively, the “Debtors”) each filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). The Debtors’ chapter 11 cases (the “Chapter 11 Cases”) were jointly administered under the caption “In re: Garrett Motion Inc., 20-12212.” On April 20, 2021, the Debtors filed the Revised Amended Plan of Reorganization (the “Plan”). On April 26, 2021, the Bankruptcy Court entered an order (the “Confirmation Order”) among other things, confirming the Plan. On April 30, 2021 (the “Effective Date”), the conditions to the effectiveness of the Plan were satisfied or waived and the Company emerged from bankruptcy. See Note 2, Plan of Reorganization, for further details.

Basis of Presentation

The accompanying Consolidated Interim Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All amounts presented are in millions, except per share amounts.

The accompanying Consolidated Interim Financial Statements have been prepared assuming that the Company will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. Our ability to continue as a going concern was contingent upon the Company’s ability to successfully implement a Plan of Reorganization in the Chapter 11 Cases, among other factors. As a result of the Chapter 11 Cases, the realization of assets and the satisfaction of liabilities were subject to uncertainty. While the Company was operating as debtors-in-possession under the Bankruptcy Code, we have sold or otherwise disposed of or liquidated assets or settled liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business, for amounts other than those reflected in our Consolidated Interim Financial Statements. As a result of our improved liquidity (see Note 2, Plan of Reorganization; Note 15, Long-term Debt and Credit Agreements; Note 16, Mandatorily Redeemable Series B Preferred Stock; and Note 18, Equity), and removal of the risks and uncertainties surrounding the Chapter 11 Cases, substantial doubt no longer exists that we will be able to continue as a going concern.

Upon emergence from the Chapter 11 bankruptcy proceedings, the Company did not meet the requirements under Accounting Standards Codification (“ASC”) 852, Reorganizations (“ASC 852”) for fresh start accounting. Fresh start accounting is applicable if both of the following criteria are met:

i)The reorganization value of the assets of the emerging entity immediately before the date of confirmation of the Plan of Reorganization is less than the total of all post-petition liabilities and allowed claims; and

ii)The holders of existing voting shares immediately before confirmation of the Plan of Reorganization receive less than 50% of the voting shares of the emerging entity.

Based on the Company’s analysis, the Company was not required to apply fresh start accounting based on the provisions of ASC 852 since holders of the Company’s outstanding voting shares immediately before confirmation of the Plan received more than 50% of the Company’s outstanding voting shares upon emergence. Accordingly, a new reporting entity was not created for accounting purposes.

While the Company was a Debtor-in-possession, it applied ASC 852 in preparing Consolidated Interim Financial Statements. ASC 852 required the financial statements 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, revenues, expenses, realized gains and losses, and provisions for losses directly resulting from the reorganization and restructuring were reported separately as Reorganization items, net in the Consolidated Interim Statements of Operations. In addition, the balance sheet distinguished pre-petition liabilities subject to compromise from those pre-petition liabilities that were not subject to compromise and post-petition liabilities. Pre-petition liabilities that were not fully secured or those that had at least a possibility of not being repaid at the allowed claim amount were classified as liabilities subject to compromise on the Consolidated Balance Sheet at December 31, 2020.

The Consolidated Interim Financial Statements are unaudited; however, in the opinion of management, they contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to state fairly the financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP applicable to interim periods. The Consolidated Interim Financial Statements should be read in conjunction with the audited annual Consolidated and Combined Financial Statements for the year ended December 31, 2020 included in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on February 16, 2021 (our “2020 Form 10-K”). The results of operations for the three and nine months ended September 30, 2021 and cash flows for the nine months ended September 30, 2021 should not necessarily be taken as indicative of the entire year.

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. The effects of this practice are generally not significant to reported results for any quarter and only exist within a reporting year. For differences in actual closing dates that are material to year-over-year comparisons of quarterly or year-to-date results, such differences have been adjusted for the three months ended September 30, 2021. Our actual closing dates for the three months ended September 30, 2021 and 2020 were October 2, 2021 and September 26, 2020, respectively.

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, including considerations for the impact of the outbreak of the COVID-19 pandemic on the Company's business due to various global macroeconomic, operational and supply-chain risks as a result of COVID-19. Actual results could differ from the original estimates, requiring adjustments to these balances in future periods.

Note 2. Plan of Reorganization

Emergence from Chapter 11

As previously reported, on the Petition Date, the Debtors each filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. On April 20, 2021, the Debtors filed the Plan. On April 26, 2021, the Bankruptcy Court entered the Confirmation Order among other things, confirming the Plan. On the Effective Date, April 30, 2021, the conditions to the effectiveness of the Plan were satisfied or waived and the Company emerged from bankruptcy.

On the Effective Date, pursuant to the Plan:

•All shares of the Common Stock of the Company outstanding prior to the Effective Date (the “Old Common Stock”) were cancelled;

•The Company paid $69 million to holders of old Common Stock who had made the cash-out election under the Plan (the “Cash-Out Election”) in consideration of the cancellation of the Old Common Stock held by such holders;

•The Company issued 65,035,801 shares of its new Common Stock (the “Common Stock”), to holders of the Old Common Stock who had not made the Cash-Out Election under the Plan in consideration of the cancellation of the Old Common Stock held by such holders;

•The Company issued 247,768,962 shares of its new convertible series A preferred stock (the “Series A Preferred Stock”) to the parties to the Plan Support Agreement, the Backstop Commitment Agreement and participants in the rights offering by the Company for aggregate consideration of $1,301 million;

•The Company issued 834,800,000 shares of its new mandatorily redeemable series B preferred stock (the “Series B Preferred Stock”) to Honeywell International Inc. (“Honeywell”) in satisfaction and discharge of certain claims of Honeywell;

•The Company also paid $375 million to Honeywell in addition to the issuance of the Series B Preferred Stock in satisfaction and discharge of certain claims of Honeywell;

•The Company was authorized to grant up to 10% of the equity in the reorganized Company (on a fully-diluted basis) from time to time to the directors, officers and other employees of the reorganized Company, for awards under the Garrett Motion Inc. 2021 Long-Term Incentive Plan adopted by the board of directors (the “Board”) on May 25, 2021;

•The Company paid in full $101 million of interest and principal outstanding on, and terminated, that certain Senior Secured Super-Priority Debtor-in-Possession Credit Agreement (the “Debtor-in-possession Term Loan”);

•The obligations of the Debtors under the Credit Agreement, dated as of September 27, 2018, by and among the Company, as holdings, Garrett LX III S.à r.l., as Lux Borrower, Garrett Borrowing LLC, as U.S. Co-Borrower, Garrett Motion Sàrl (f/k/a Honeywell Technologies Sàrl), as Swiss Borrower, the Lenders and Issuing Banks party thereto and the Pre-petition Credit Agreement Agent (as defined in the Plan), as Administrative Agent, as amended, restated, supplemented or otherwise modified from time to time in accordance with its terms (the “Pre-petition Credit Agreement”) were cancelled, the applicable agreements governing such obligations were terminated and holders of Allowed Pre-petition Credit Agreement Claims (as defined in the Plan) received payment in cash in an amount equal to such holder’s Allowed Pre-petition Credit Agreement Claim. With respect to the Pre-petition Credit Agreement:

◦The Company repaid its outstanding principal balance, accrued pre-petition and default interest of $307 million on its five-year term A loan facility (the “Old Term A Facility”);

◦The Company repaid its outstanding principal balance, accrued pre-petition and default interest of (i) $374 million with respect to the EUR tranche and (ii) $422 million with respect to the USD tranche, on its seven-year term B loan facility (the “Old Term B Facility”);

◦The Company repaid its outstanding principal balance and accrued interest of $374 million on its revolving credit facility (the “Old Revolving Facility”); and

◦The Company repaid its accrued pre-petition hedge obligations of $20 million;

•The obligations of the Debtors under that certain Indenture, dated as of September 27, 2018, among the Company, as Parent, Garrett LX I S.à r.l., as Issuer, Garrett Borrowing LLC, as Co-Issuer, the guarantors named therein, Deutsche Trustee Company Limited, as Trustee, Deutsche Bank AG, as Security Agent and Paying Agent, and Deutsche Bank Luxembourg S.A., as Registrar and Transfer Agent, as may be amended, supplemented or otherwise modified from time to time (the “Indenture”), were cancelled, the applicable agreements governing such obligations were terminated and holders of Allowed Pre-petition Credit Agreement

Claims (as defined in the Plan) received payment in cash in an amount equal to such holder’s Allowed Senior Subordinated Noteholder Claims (as defined in the Plan). With respect to the Indenture and the Allowed Senior Subordinated Noteholder Claims, the Company repaid its outstanding principal balance of €350 million, or $423 million, (the “Senior Notes”), accrued pre-petition interest of $10 million, post-petition interest of $13 million, and payment of $15 million in connection with the complaint in the Bankruptcy Court against the indenture trustee (the “Indenture Trustee”) of the 5.125% senior notes due 2026 (the “Senior Notes”) seeking declaratory judgment on two claims for relief that the Debtors did not owe, and the holders of the Senior Notes (the “Noteholders”) were not entitled to, any make-whole premium under the Indenture (the “Make-Whole” and such litigation, the “Make-Whole Litigation”);

•The Company and certain of its subsidiaries entered into secured debt facilities consisting of:

◦a seven-year secured first-lien U.S. Dollar term loan facility in the amount of $715 million (the “Dollar Facility”);

◦a seven-year secured first-lien Euro term loan facility in the amount of €450 million (the “Euro Facility,” and together with the Dollar Facility, the “Term Loan Facilities”); and

◦a five-year senior secured first-lien revolving credit facility in the amount of $300 million providing for multi-currency revolving loans, (the “Revolving Facility,” and together with the Term Loan Facilities, the “Credit Facilities”);

•The proceeds drawn under the Credit Facilities were reduced by deferred financing costs of $38 million, and deferred financing costs of $25 million on repaid historical debt were expensed; and

•The Company paid or will pay certain pre-petition claims, transaction fees, stock incentive payments and other expenses incurred in connection with the Plan.

See Note 16, Mandatorily Redeemable Series B Preferred Stock for further discussion of the Series B Preferred Stock. See Note 18, Equity for further discussion of the Common Stock and the Series A Preferred Stock. See Note 15, Long-term Debt and Credit Agreements for further discussion of the Credit Facilities.

Reorganization Items, Net

Reorganization items, net represent amounts incurred after the Petition Date as a direct result of the Chapter 11 Cases and are comprised of the following for the three and nine months ended September 30, 2021:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2021		2021
	(Dollars in millions)
Gain on settlement of Honeywell claims(1)	$	—	$	(502)
Advisor fees	(8)		172
Director's and officers insurance	—		39
Write off pre-petition debt issuance cost	—		25
Employee stock cash out	—		13
Expenses related to Senior Notes(2)	—		28
DIP Financing fees	—		1
Bid termination and expense reimbursement	—		79
Other	(1)		15
Total reorganization items, net	$	(9)	$	(130)

(1)The gain on settlement of Honeywell claims of $502 million is comprised of the pre-emergence Honeywell claims of $1,459 million, less the $375 million payment to Honeywell, less the Series B Preferred Stock issued to Honeywell, which was recorded at $577 million, less a currency translation adjustment of $5 million.

(2)Includes $15 million in connection with Make-Whole Litigation and $13 million related to post-petition interest.

There was $4 million recorded to Reorganization items, net in the Consolidated Interim Statement of Operations for the three and nine months ended September 30, 2020.

Exit Financing and Entry into Credit Facilities

On the Effective Date, in accordance with the Plan, the Company and certain of its subsidiaries entered into secured debt facilities consisting of:

•a seven-year secured first-lien U.S. Dollar term loan facility in the amount of $715 million;

•a seven-year secured first-lien Euro term loan facility in the amount of €450 million; and

•a five-year senior secured first-lien Revolving Facility in the amount of $300 million providing for multi-currency revolving loans.

The Company may use up to $125 million under the Revolving Facility for the issuance of letters of credit to the Swiss Borrower (as defined below) or any of 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 will reduce availability under the Revolving Facility.

The proceeds of the Term Loan Facilities were used on the Effective Date (i) for the payment of fees and expenses payable in connection with entry into the Credit Agreement, the effectiveness of the Plan, the refinancing of the Company’s existing indebtedness and the preferred equity investments that were made on the Effective Date, (ii) to fund distributions in accordance with the Plan, (iii) to pay off the Company’s existing indebtedness, including under its pre-petition Credit Agreement, notes indenture and Debtor-in-possession Term Loan and (iv) for general corporate purposes. The Revolving Facility was undrawn on the Effective Date. Proceeds of the Revolving Facility are available to be used for working capital and other general corporate purposes, including acquisitions permitted under the Credit Agreement. Any letters of credit will be used for general corporate purposes.

The table below presents changes to our debt outstanding as a result of the Plan:


	December 31, 2020		Movement (1)		Less debt repaid		Exit financing (2)		September 30, 2021
	(Dollars in millions)
Secured Term Loan Facilities and accrued interest	$	1,082	$	21	$	(1,103)	$	—	$	—
Borrowings under Old Revolving Facility	370		4		(374)		—		—
Senior Notes and accrued interest	429		32		(461)		—		—
Debtor-in-possession Term Loan	200		—		(200)		—		—
Term Loan Facilities	—		—		—		1,200		1,200
Total long-term debt	$	2,081	$	57	$	(2,138)	$	1,200	$	1,200

(1)Amounts primarily are related to accrued interest, unamortized deferred financing cost as of December 31, 2020 and the impact of foreign exchange.

(2)Exit financing amounts as of the Effective Date of $1,221 million were adjusted to September 30, 2021 foreign exchange rate and reflect the amortization of deferred financing costs.

Financial Statement Classification of Liabilities Subject to Compromise

As a result of the Chapter 11 Cases, the payment of pre-petition liabilities is generally subject to compromise pursuant to a Plan of Reorganization. Generally, actions to enforce or otherwise effect payment of pre-bankruptcy filing liabilities are enjoined. Although payment of pre-petition claims generally was not permitted during the Chapter 11 Cases, the Bankruptcy Court granted the Debtors authority to pay certain pre-petition claims in designated categories and subject to certain terms and conditions. This relief generally was designed to preserve the value of the Debtors’ business and assets. Among other things, the Bankruptcy Court authorized, but did not require, the Debtors to pay certain pre-petition claims relating to employee wages and benefits, taxes, critical vendors and foreign vendors. The amounts classified as liabilities subject to compromise may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, the determination of the secured status of certain claims, the determination as to the value of any collateral securing claims, proof of claims or other events. Prior to emergence, pre-petition liabilities that were subject to compromise were required to be reported at the amounts expected to be allowed. Therefore, liabilities subject to compromise in the table below reflected management’s estimates of amounts expected to be allowed by the Bankruptcy Court, based upon the status of negotiations with creditors. Upon emergence or shortly thereafter, amounts recorded as liabilities subject to compromise were either settled, as reflected in the table below or such amounts have been reinstated to current or non-current liabilities in the Condensed Consolidated Balance Sheet, based upon management’s judgment as to the timing for settlement of such claims.

The following table presents the movements in the liabilities subject to compromise as reported in the Consolidated Balance Sheet from December 31, 2020 to September 30, 2021:


	December 31, 2020		Change in estimated allowed claims		Cash payment		Issuance of Series B Preferred Stock		Reinstatements		Reorganization		OCI		September 30, 2021
	(Dollars in millions)
Obligations payable to Honeywell	$	1,482	$	(23)	$	(375)	$	(577)	$	—	$	(502)	$	(5)	$	—
Senior Notes	429		32		(461)		—		—		—		—		—
Pension, compensation, benefit and other employee-related	92		(10)		—		—		(82)		—		—		—
Uncertain tax positions and deferred taxes	69		(8)				—		(61)		—		—		—
Accounts payable	82		(50)		—		—		(32)		—		—		—
Advanced discounts from suppliers	33		(6)		—		—		(27)		—		—		—
Lease liabilities (Note 14)	19		(2)		—		—		(17)		—		—		—
Product warranties and performance guarantees	16		—		—		—		(16)		—		—		—
Freight Accrual	27		(27)		—		—		—		—		—		—
Other	41		(14)		—		—		(27)		—		—		—
Total liabilities subject to compromise	$	2,290	$	(108)	$	(836)	$	(577)	$	(262)	$	(502)	$	(5)	$	—

As discussed above, the Confirmation Order has been entered, the Company emerged from Chapter 11 bankruptcy on the Effective Date of April 30, 2021. The amounts in the table above represent the best estimate of our pre-petition liabilities prior to emergence on the Effective Date.

Note 3. Summary of Significant Accounting Policies

The accounting policies of the Company are set forth in Note 3 to the audited annual Consolidated and Combined Financial Statements for the year ended December 31, 2020 included in our 2020 Form 10-K. There were no new accounting pronouncements adopted during the nine months ended September 30, 2021.

Related Party Transactions

We lease certain facilities and receive property maintenance services from Honeywell, which as of emergence from Chapter 11 is the owner of our Series B Preferred Stock and appoints a director to the Board of Directors ("the Board"). Lease and service agreements were made at commercial terms prevalent in the market at the time they were executed. Our payments under the agreements with Honeywell were $2 million and $6 million for the three and nine months ended September 30, 2021, respectively, and were included in Cost of goods sold in our Consolidated Interim Statements of Operations. Related to the agreements with Honeywell, our Consolidated Interim Balance Sheets includes liabilities of $16 million as of September 30, 2021. Liability balances are primarily related to lease contracts of $13 million as of September 30, 2021.

During the three and nine months ended September 30, 2021, certain of our related parties participated in our Plan as follows, as more fully discussed in Note 2, Plan of Reorganization and Note 18, Equity:

•The company paid $74 million in connection with the following:

◦We reimbursed Centerbridge Partners, L.P. (together with its affiliated funds, “Centerbridge”) and Oaktree Capital Management, L.P. (together with its affiliated funds, “Oaktree”), who are significant shareholders, and Honeywell for professional fees and expenses related to their support of our emergence from Chapter 11 bankruptcy;

•We reimbursed Centerbridge and Oaktree for their participation in the Equity Backstop; and

•Centerbridge and Oaktree were parties to our Registration Rights Agreement (see definition in Note 18, Equity) for the registration of our Series A Preferred Stock and our Series A Investor Rights Agreement.

Series A Preferred Stock

Our Series A Preferred Stock is not a mandatorily redeemable financial instrument and is classified as permanent equity in our Consolidated Interim Balance Sheets. The Series A Preferred stock contains a conversion feature which is not required to be bifurcated, is not a derivative, and does not contain a beneficial conversion feature. It is not a participating security with the Company’s Common Stock. See Note 2, Plan of Reorganization and Note 18, Equity, of the Consolidated Interim Financial Statements for further details.

Series B Preferred Stock

Our Series B Preferred Stock is a mandatorily redeemable financial instrument and is classified as debt in our Consolidated Interim Balance Sheets. The Series B Preferred stock does not require physical settlement by the repurchase of a fixed number of the issuer’s equity shares in exchange for cash, and therefore not required to be subsequently remeasured. The Series B Preferred Stock redemption options are not required to be bifurcated and are not considered derivatives. On September 30, 2021, the Company filed an amended and restated Certificate of Designations (the “A&R Certificate of Designations”) amending and restating the terms of the Series B Preferred Stock. The A&R Certificate of Designations became effective on October 1, 2021. See Note 2, Plan of Reorganization and Note 16, Mandatorily Redeemable Series B Preferred Stock, of the Consolidated Interim Financial Statements for further details. The amendment was accounted for as a debt modification that did not result in an extinguishment or have a material impact on our Consolidated Interim Financial Statements.