SEC Filing | Garrett Motion

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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 March 31, 2022


☐			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 April 21, 2022, the registrant had 64,506,104 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	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	34
PART II.	OTHER INFORMATION	35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37
Signatures		39

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

GARRETT MOTION INC.

CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended March 31,
	2022		2021
	(Dollars in millions, except per share amounts)
Net sales (Note 3)	$	901	$	997
Cost of goods sold	726		801
Gross profit	175		196
Selling, general and administrative expenses	53		55
Other expense, net	1		1
Interest expense	23		21
Non-operating (income) expense	(28)		26
Reorganization items, net (Note 1)	1		174
Income (loss) before taxes	125		(81)
Tax expense (Note 5)	37		24
Net income (loss)	88		(105)
Less: preferred stock dividend (Note 17)	(38)		—
Net income (loss) available for distribution	$	50	$	(105)

Earnings (loss) per common share
Basic	$	0.15	$	(1.38)
Diluted	$	0.15	$	(1.38)

Weighted average common shares outstanding
Basic	64,538,527		75,904,898
Diluted	64,732,090		75,904,898

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 March 31,
	2022		2021
	(Dollars in millions)
Net income (loss)	$	88	$	(105)
Foreign exchange translation adjustment	2		110

Changes in fair value of effective cash flow hedges, net of tax (Note 15)	8		1
Changes in fair value of net investment hedges, net of tax (Note 15)	13		—
Total other comprehensive income, net of tax	23		111
Comprehensive income	$	111	$	6

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

GARRETT MOTION INC.

CONSOLIDATED INTERIM BALANCE SHEETS

(Unaudited)


	March 31, 2022		December 31, 2021
	(Dollars in millions)
ASSETS
Current assets:
Cash and cash equivalents	$	315	$	423
Restricted cash	5		41
Accounts, notes and other receivables – net (Note 6)	786		747
Inventories – net (Note 8)	301		244
Other current assets	73		56
Total current assets	1,480		1,511
Investments and long-term receivables	33		28
Property, plant and equipment – net	469		485
Goodwill	193		193
Deferred income taxes	278		289
Other assets (Note 9)	235		200
Total assets	$	2,688	$	2,706
LIABILITIES
Current liabilities:
Accounts payable	$	1,071	$	1,006

Current maturities of long-term debt (Note 13)	7		7

Mandatorily redeemable Series B Preferred Stock (Note 14)	—		200
Accrued liabilities (Note 10)	302		295
Total current liabilities	1,380		1,508
Long-term debt (Note 13)	1,166		1,181
Mandatorily redeemable Series B Preferred Stock – long-term (Note 14)	204		195
Deferred income taxes	24		21
Other liabilities (Note 11)	271		269


Total liabilities	$	3,045	$	3,174
COMMITMENTS AND CONTINGENCIES (Note 19)
EQUITY (DEFICIT)
Series A Preferred Stock, par value $0.001; 245,715,735 and 245,921,617 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively	$	—	$	—
Common Stock, par value $0.001; 1,000,000,000 and 1,000,000,000 shares authorized, 64,506,104 and 64,570,950 issued and 64,506,104 and 64,570,950 outstanding as of March 31, 2022 and December 31, 2021, respectively	—		—
Additional paid–in capital	1,327		1,326
Retained deficit	(1,703)		(1,790)
Accumulated other comprehensive income (loss) (Note 16)	19		(4)
Total deficit	(357)		(468)
Total liabilities and deficit	$	2,688	$	2,706

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)


	Three Months Ended March 31,
	2022		2021
	(Dollars in millions)
Cash flows from operating activities:
Net income (loss)	$	88	$	(105)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Reorganization items, net	—		19
Deferred income taxes	13		4
Depreciation	22		23
Amortization of deferred issuance costs	2		2
Interest payments, net of debt discount accretion	(6)		—
Foreign exchange (gain) loss	(4)		33
Stock compensation expense	2		2

Other	12		(6)
Changes in assets and liabilities:
Accounts, notes and other receivables	(61)		(2)
Inventories	(62)		(34)
Other assets	(42)		14
Accounts payable	116		74
Accrued liabilities	—		17

Other liabilities	(7)		(9)
Net cash provided by operating activities	$	73	$	32
Cash flows from investing activities:
Expenditures for property, plant and equipment	(29)		(18)
Other	—		1
Net cash used for investing activities	$	(29)	$	(17)
Cash flows from financing activities:



Payments of long-term debt	(2)		—

Payments of debtor-in-possession financing	—		(100)
Redemption of Series B Preferred stock	(186)		—

Payments for share repurchases	(2)		—

Debt financing costs	(6)		(1)

Net cash used for financing activities	$	(196)	$	(101)
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	8		(30)
Net decrease in cash, cash equivalents and restricted cash	(144)		(116)
Cash, cash equivalents and restricted cash at beginning of the period	464		693
Cash, cash equivalents and restricted cash at end of the period	$	320	$	577
Supplemental cash flow disclosure:
Income taxes paid (net of refunds)	14		15
Interest paid	21		16
Reorganization items paid	2		145

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 (Loss)/Income		Total Deficit
	Shares	Amount	Shares	Amount
	(in millions)
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)

Balance at December 31, 2021	246	—	64	—	$	1,326	$	(1,790)	$	(4)	$	(468)
Net income	—	—	—	—	—		88		—		88
Share repurchases	—	—	—	—	(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)

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, 2021 included in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on February 14, 2022 (our “2021 Form 10-K”). The results of operations and cash flows for the three months ended March 31, 2022 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. 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 March 31, 2022. Our actual closing dates for the three months ended March 31, 2022 and 2021 were April 2, 2022 and April 3, 2021, 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.

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 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 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 (“Emergence”).

Emergence from Chapter 11

Upon Emergence or shortly thereafter, amounts recorded as liabilities subject to compromise were either settled, or such amounts have been reinstated to current or non-current liabilities in the Consolidated Interim Balance Sheet, based upon management’s judgment as to the timing for settlement of such claims.

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 months ended March 31, 2022 and March 31, 2021, respectively:


	Three Months Ended March 31,
	2022		2021
	(Dollars in millions)

Advisor fees	$	1	$	84
Bid termination and expense reimbursement	—		79




Debtor in Possession ("DIP") financing fees	—		1
Other	—		10
Total reorganization items, net	$	1	$	174

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, 2021 included in our 2021 Form 10-K.

Recently Adopted Accounting Pronouncements

In November 2021, the Financial Accounting Standards Board (“FASB”) issued accounting standards update ("ASU") 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. The amendments in this update increase the transparency surrounding government assistance by requiring disclosure of 1) the types of assistance received, 2) an entity’s accounting for the assistance, and 3) the effect of the assistance on the entity’s financial statements. The update is effective for annual periods beginning after December 15, 2021. The Company adopted the new guidance as of January 1, 2022. The adoption did not have a material impact on our Consolidated Interim Financial Statements; however, the Company expects to increase its disclosures with respect to government assistance beginning with our Annual Report on Form 10-K for the year ended December 31, 2022.

Recently Issued Accounting Pronouncements

We consider the applicability and impact of all recent ASU’s issued by the FASB. For the three months ended March 31, 2022, there were no recently issued, but not yet adopted accounting pronouncements that are expected to have a material impact on the Company’s Consolidated Interim Financial Statements and related disclosures.

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 March 31, 2022
	OEM		Aftermarket		Other		Total
	(Dollars in millions)
United States	$	102	$	51	$	—	$	153
Europe	406		38		7		451
Asia	266		10		6		282
Other International	9		6		—		15
	$	783	$	105	$	13	$	901

	Three Months Ended March 31, 2021
	OEM		Aftermarket		Other		Total
	(Dollars in millions)
United States	$	100	$	36	$	2	$	138
Europe	481		39		8		528
Asia	302		10		7		319
Other International	6		6		—		12
	$	889	$	91	$	17	$	997

Contract Balances

The following table summarizes our contract assets and liabilities balances:


	2022		2021
	(Dollars in millions)
Contract assets—January 1	$	63	$	61
Contract assets—March 31	60		65
Change in contract assets—(Decrease)/Increase	$	(3)	$	4
Contract liabilities—January 1	$	(5)	$	(2)
Contract liabilities—March 31	(9)		(1)
Change in contract liabilities—(Increase)/Decrease	$	(4)	$	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 March 31,
	2022		2021
	(Dollars in millions)
Research and development costs	$	36	$	33
Engineering-related expenses	6		6
	$	42	$	39

Note 5. Income Taxes


	Three Months Ended March 31,
	March 31, 2022			2021
	(Dollars in millions)
Tax expense	$	37		$	24
Effective tax rate	29.6		%	(29.6)		%

The effective tax rates for the three months ended March 31, 2022 and 2021 were 29.6% and (29.6)%, respectively.

The effective tax rate for the three months ended March 31, 2022 was higher than the U.S. federal statutory rate of 21% primarily because of withholding taxes and tax reserves, partially offset by lower taxes on non-U.S. earnings. The negative effective tax rate for three months ended March 31, 2021 reflects a tax expense in a period of an overall pre-tax loss. The change in the effective tax rate for the three months ended March 31, 2022 compared to the prior period is primarily related to the decrease of nondeductible bankruptcy costs, partially offset by true ups to prior year tax reserves.

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


	March 31, 2022		December 31, 2021
	(Dollars in millions)
Trade receivables	$	606	$	553
Notes receivable	110		$	121
Other receivables	76		$	78
	792		752
Less—Allowance for expected credit losses	(6)		(5)
	$	786	$	747

Trade receivables include $60 million and $63 million of unbilled customer contract asset balances as of March 31, 2022 and December 31, 2021, 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 entered into arrangements with financial institutions to sell eligible trade receivables. During the three months ended March 31, 2022 and 2021, the Company sold $143 million and $180 million of eligible receivables, respectively, without recourse, and accounted for these arrangements as true sales. Expense of less than $1 million was recognized within Other expense, net for both the three months ended March 31, 2022 and 2021. As of March 31, 2022 and 2021, the amount of accounts receivable sold but not yet collected by the bank from the customer was $23 million and $64 million, respectively.

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. During the three months ended March 31, 2022, the Company sold $28 million of bank notes without recourse and accounted for these as true sales. No bank notes

were sold during the three months ended March 31, 2021. Expense of less than $1 million was recognized within Other expense, net for the three months ended March 31, 2022. As of March 31, 2022, the amount of bank notes receivable sold but not yet collected by the bank from the customer was $15 million. As of March 31, 2021, there were no bank notes receivable sold which had not yet been collected by the bank from the customer.

As of March 31, 2022 and December 31, 2021, the Company has pledged as collateral $31 million and $5 million of guaranteed bank notes, respectively, which have not been sold in order to be able to issue bank notes as payment to certain suppliers. Such pledged amounts are included as Notes receivable in our Consolidated Interim Balance Sheet.

Note 8. Inventories—Net


	March 31, 2022		December 31, 2021
	(Dollars in millions)
Raw materials	$	192	$	162
Work in process	20		19
Finished products	112		92
	324		273
Less—Reserves	(23)		(29)
	$	301	$	244

Note 9. Other Assets


	March 31, 2022		December 31, 2021
	(Dollars in millions)
Advanced discounts to customers, non-current	$	57	$	61
Operating right-of-use assets (Note 12)	50		51
Income tax receivable	27		27
Pension and other employee related	15		15
Designated cross-currency swaps	44		30
Designated and undesignated derivatives	31		7
Other	11		9
	$	235	$	200

Note 10. Accrued Liabilities


	March 31, 2022		December 31, 2021
	(Dollars in millions)
Customer pricing reserve	$	72	$	72
Compensation, benefit and other employee related	63		76
Repositioning	8		10
Product warranties and performance guarantees - short-term (Note 19)	21		21
Income and other taxes	29		25
Advanced discounts from suppliers, current	12		14
Customer advances and deferred income (1)	34		23
Accrued interest	8		8
Short-term lease liability (Note 12)	10		9
Other (primarily operating expenses) (2)	45		37
	$	302	$	295

(1)Customer advances and deferred income include $9 million and $5 million of contract liabilities as of March 31, 2022 and December 31, 2021, respectively. See Note 3, Revenue Recognition and Contracts with Customers.

(2)Includes $4 million and $3 million of environmental liabilities as of March 31, 2022 and December 31, 2021, respectively.

The Company accrued 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 in our Consolidated Interim Statements of Operations.


	Severance Costs		Exit Costs		Total
	(Dollars in millions)
Balance at December 31, 2021	$	10	$	—	$	10
Charges	1		—		1
Usage—cash	(3)		—		(3)
Balance at March 31, 2022	$	8	$	—	$	8


	Severance Costs		Exit Costs		Total
	(Dollars in millions)
Balance at December 31, 2020	$	7	$	—	$	7
Charges	8		—		8
Usage—cash	(2)		—		(2)
Balance at March 31, 2021	$	13	$	—	$	13

Note 11. Other Liabilities


	March 31, 2022		December 31, 2021
	(Dollars in millions)
Income taxes	$	114	$	106

Pension and other employee related	58		61
Long-term lease liability (Note 12)	42		42
Advanced discounts from suppliers	13		16
Product warranties and performance guarantees – long-term (Note 19)	11		11
Environmental remediation – long term	15		15
Other	18		18
	$	271	$	269

Note 12. Leases

We have operating leases that primarily consist of real estate, machinery and equipment. Our leases have remaining lease terms of up to 16 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 March 31,
	2022		2021
	(Dollars in millions)
Operating lease cost	$	4	$	4

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


	Three Months Ended March 31,
	2022		2021
	(Dollars in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases	$	3	$	3
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	1		1

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


	March 31, 2022		December 31, 2021
	(Dollars in millions)
Other assets	$	50	$	51
Accrued liabilities	10		9
Other liabilities	42		42


	March 31, 2022		December 31, 2021
Weighted-average remaining lease term (in years)	8.98		8.88
Weighted-average discount rate	5.57	%	5.65	%

Maturities of operating lease liabilities as of March 31, 2022 were as follows:


	(Dollars in millions)
2022	$	9
2023	10
2024	8
2025	7
2026	6
Thereafter	26
Total lease payments	66
Less imputed interest	(14)
	$	52

Note 13. Long-term Debt and Credit Agreements

The principal outstanding and carrying amounts of our long-term debt as of March 31, 2022 are as follows:


	Due	Interest Rate		March 31, 2022
Dollar Facility	4/30/2028	3.75	%	$	711
Euro Facility	4/30/2028	3.50	%	497
Total principal outstanding				1,208
Less: unamortized deferred financing costs				(35)
Less: current portion of long-term debt				(7)
Total long-term debt				$	1,166

Credit Facilities

On the Effective Date, in accordance with the Plan, 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 “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 together with the Dollar Facility, the “Term Loan Facilities”); 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,” and together with the Term Loan Facilities, the “Credit Facilities”). On January 11, 2022 and March 22, 2022, the Company amended the Credit Agreement, increasing the maximum amount of borrowings available under the Revolving Facility from $300 million to approximately $475 million. The maturity date of the Revolving Facility remains unchanged at April 30, 2026, with certain extension rights at the discretion of each lender.

Under the first amendment, LIBOR was replaced as an available rate at which borrowings under the Revolving Facility could accrue with, for loans borrowed in U.S. Dollars, the daily overnight secured financing rate (“SOFR”) published by the Federal Reserve Bank of New York and for loans borrowed in Australian Dollars, the average bid reference rate administered by ASX Benchmarks Pty Limited. The Term Loan Facilities under the Credit Agreement continue to be able to accrue interest under the London Inter-bank Offered Rate (“LIBOR”), but will switch to an alternative benchmark rate upon the cessation of LIBOR after June 30, 2023. The Euro Facilities under the Credit Agreement continue to accrue interest under the Euro Interbank Offered Rate (“EURIBOR”).

The second amendment also removed the requirement that payments made in cash for the benefit of holders of the Series A Preferred Stock on or before December 31, 2022 be made on a ratable basis to the holders of the Common Stock, and made additional clarifying amendments to certain provisions.

The amendments to our Credit Agreement as described above were accounted under ASC 470-50, Debt Modifications and Extinguishments as a debt modification that did not result in an extinguishment or have a material impact on our Consolidated Interim Financial Statements.

Under the Revolving Facility, the Company may use up to $125 million for the issuance of letters of credit to the Swiss Borrower 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 reduce availability under the Revolving Facility. As of March 31, 2022 the Company had no loans outstanding under the Revolving Facility, $2 million of outstanding letters of credit, and available borrowing capacity of approximately $473 million.

Separate from the Revolving Facility, the Company has a $35 million bilateral letter of credit facility, which also matures on April 30, 2026. As of March 31, 2022, the Company had $10 million utilized and $25 million of remaining available capacity under such facility.

Interest Rate and Fees

The 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 LIBOR rate (“LIBOR”) (which shall not be less than 0.50%), in each case, plus an applicable margin equal to 3.25% in the case of LIBOR 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 (“EURIBOR”) (which shall not be less than zero) plus an applicable margin equal to 3.50%. Interest payments with respect to the Dollar and Euro Term Facilities

are required either on a quarterly basis (for ABR loans) or at the end of each interest period (for LIBOR and EURIBOR loans) or, if the duration of the applicable interest period exceeds three months, then every three months.

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 also 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, starting with the fiscal year ending on December 31, 2022, 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 March 31, 2022, the Company was in compliance with all covenants.

The Credit Agreement also contained certain restrictions on the Company’s ability to pay cash dividends on or to redeem or otherwise acquire for cash the Series A Preferred Stock unless a ratable payment (on an as-converted basis) was made to holders of our common equity and such payments would otherwise be permitted under the terms of the Credit Agreement. These restrictions were removed as part of the credit amendments noted above.

The Company's ability to pay cash dividends on shares of Common Stock is also subject to conditions set forth in the Certificate of Designations for the Series A Cumulative Convertible Preferred Stock (the "Series A Certificate of Designations") as described in Note 21, Equity, of the Consolidated Financial Statements and accompanying notes for the year ended December 31, 2021 included in our 2021 Form 10-K. On March 3, 2022, the terms of the Series A Certificate of Designations were further amended to (i) expand the scope of permitted Distributions on Dividend Junior Stock (each as defined in the Series A Certificate of Designations) to include purchases by the Company of shares of Dividend Junior Stock in individually negotiated transactions, (ii) remove the requirement that dividends or Distributions on Dividend Junior Stock must occur on or prior to December 31, 2022, and (iii) expressly permit the purchase, redemption or other acquisition for cash by the Company of shares of Dividend Junior Stock without requiring ratable participation by holders of Series A Preferred Stock.

Note 14. Mandatorily Redeemable Series B Preferred Stock

On February 18, 2022, Garrett completed a second planned partial early redemption of its Series B Preferred Stock. Under this partial early redemption, the Company redeemed 217,183,244 shares of its Series B Preferred Stock for an aggregate price of $197 million.

As of March 31, 2022, the remaining scheduled redemptions were $18 million, $100 million, $100 million and $54 million for April 30, 2024, 2025, 2026 and 2027, respectively, totaling $272 million. The net present value of the remaining scheduled redemptions as of March 31, 2022 is $204 million which reflects an effective interest rate of 7.71% and is classified as a long-term liability on the Consolidated Interim Balance Sheet.

Note 15. 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, 2021 included in our 2021 Form 10-K. As of March 31, 2022 and December 31, 2021, we had contracts with aggregate gross notional amounts of $2,553 million and $2,788 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 March 31, 2022 and December 31, 2021:


					Fair Value
	Notional Amounts				Assets					Liabilities
	March 31, 2022		December 31, 2021		March 31, 2022		December 31, 2021			March 31, 2022		December 31, 2021
Designated instruments:
Designated forward currency exchange contracts	$	569	$	382	$	20	$	9	(a)	$	3	$	1	(c)
Designated cross-currency swap	715		715		44		30		(b)	—		—
Total designated instruments	1,284		1,097		64		39			3		1
Undesignated instruments:
Undesignated interest rate swap	917		940		31		7		(a)	—		—
Undesignated forward currency exchange contracts	352		751		3		2		(a)	3		4		(c)
Total undesignated instruments	1,269		1,691		34		9			3		4
Total designated and undesignated instruments	$	2,553	$	2,788	$	98	$	48		$	6	$	5

(a) Recorded within Other current assets

(b) Recorded within Other assets

As of March 31, 2022, the Company had outstanding interest rate swaps with an aggregate notional amount of €830 million, with maturities of April 2023, April 2024, April 2025, April 2026 and April 2027. The Company uses interest rate swaps specifically to mitigate variable interest risk exposure on its long-term debt portfolio and has not designated them as hedging instruments for accounting purposes.

The cross-currency swaps have been designated as net investment hedges of its Euro-denominated operations. As of March 31, 2022, an aggregate notional amount of €606 million was designated as net investment hedges of the Company’s investment in Euro-denominated operations. The cross-currency swaps’ fair values were net assets of $44 million at March 31, 2022. Our Consolidated Interim Statements of Comprehensive Income include Changes in fair value of net investment hedges, net of tax of $13 million, during the three months ended March 31, 2022, related to these net investment hedges. No ineffectiveness has been recorded on the net investment hedges.

The Company's forward currency exchange contracts 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 (loss) 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:


	March 31, 2022				December 31, 2021
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(Dollars in millions)
Term Loan Facilities	$	1,173	$	1,198	$	1,188	$	1,227

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 16. Accumulated Other Comprehensive Income (Loss)

The changes in Accumulated Other Comprehensive Income (Loss) 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 (Loss)
	(Dollars in millions)
Balance at December 31, 2020	$	(81)	$	(3)	$	—	$	(45)	$	(129)
Other comprehensive income before reclassifications	110		—		—		—		110
Amounts reclassified from accumulated other comprehensive income	—		1		—		—		1
Net current period other comprehensive income	110		1		—		—		111
Balance at March 31, 2021	$	29	$	(2)	$	—	$	(45)	$	(18)


	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 (Loss)
	(Dollars in millions)
Balance at December 31, 2021	$	(43)	$	7	$	41	$	(9)	$	(4)
Other comprehensive income before reclassifications	2		13		13		—		28
Amounts reclassified from accumulated other comprehensive income	—		(5)		—		—		(5)
Net current period other comprehensive income	2		8		13		—		23
Balance at March 31, 2022	$	(41)	$	15	$	54	$	(9)	$	19

Note 17. Earnings Per Share

Earnings per share ("EPS") is calculated using the two-class method pursuant to the issuance of our Series A Preferred Stock on the Effective Date. Our Series A Preferred Stock is considered a participating security because holders of the Series A Preferred Stock will also be entitled to such dividends paid to holders of Common Stock to the same extent on an as-converted basis. The two-class method requires an allocation of earnings to all securities that participate in dividends with common shares, such as our Series A Preferred Stock, to the extent that each security may share in the entity’s earnings. Basic earnings per share are then calculated by dividing undistributed earnings allocated to common stock by the weighted average number of common shares outstanding for the period. The Series A Preferred Stock is not included in the computation of basic earnings per share in periods in which we have a net loss, as the Series A Preferred Stock is not contractually obligated to share in our net losses.

Diluted earnings per share for the three months ended March 31, 2022 is calculated using the more dilutive of the two-class or if-converted methods. The two-class method uses net income available to common shareholders and assumes conversion of all potential shares other than the participating securities. The if-converted method uses net income and assumes conversion of all potential shares including the participating securities. Diluted earnings per share for the three months ended March 31, 2021 is computed based upon the weighted average number of common shares outstanding and all dilutive potential common shares outstanding and all potentially issuable performance stock units at the end of the period (if any) based on the number of shares issuable if it were the end of the vesting period using the treasury stock method and the average market price of our Common Stock for the year.

The details of the EPS calculations for the three months ended March 31, 2022 and 2021 are as follows:


	Three Months Ended March 31,
	2022		2021
	(Dollars in millions except per share)
Basic earnings per share:
Net income (loss)	$	88	$	(105)
Less: preferred stock dividend	(38)		—
Net income available for distribution	50		(105)
Less: earnings allocated to participating securities	(40)		—
Net income (loss) available to common shareholders	$	10	$	(105)
Weighted average common shares outstanding- Basic	64,538,527		75,904,898
EPS – Basic	$	0.15	$	(1.38)

Diluted earnings per share:
Method used:	Two-class
Weighted average common shares outstanding - Basic	64,538,527		75,904,898
Dilutive effect of unvested RSUs and other contingently issuable shares	193,563		—

Weighted average common shares outstanding – Diluted	64,732,090		75,904,898
EPS – Diluted	$	0.15	$	(1.38)

The diluted earnings per share calculations exclude the effect of stock options when the options’ assumed proceeds exceed the average market price of the common shares during the period. There were no options outstanding as of or during the three months ended March 31, 2022. For the three months ended March 31, 2021, the weighted average number of stock options excluded from the computation was 399,489.

Note 18. Related Party Transactions

We lease certain facilities and receive property maintenance services from Honeywell, which is the owner of our Series B Preferred Stock and appoints a director to our board of directors (the “Board”). We also contract with Honeywell for the occasional purchase of certain goods and services. 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 for the three months ended March 31, 2022, and were included in Cost of goods sold and Selling, general and

administrative expenses in our Consolidated Interim Statements of Operations. For the three months ended March 31, 2021, Honeywell was not considered a related party. Related to the agreements with Honeywell, our Consolidated Interim Balance Sheet at March 31, 2022 and our Consolidated Balance Sheet at December 31, 2021, includes liabilities of $