UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________
FORM 10-K

__________________________
(Mark One)

☒

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


For the fiscal year ended December 31, 2018

or

2022
OR

☐

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

For the transition period from           to           

from_____to_____

Commission File Number 001-38636

__________________________
Garrett Motion Inc.

(Exact name of registrant as specified in its charter)

__________________________

Delaware

82-4873189

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)

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 YorkThe Nasdaq Stock Exchange

Market LLC
Series A Cumulative Convertible Preferred Stock, par value $0.001 per shareGTXAPThe Nasdaq Stock Market LLC

Securities registered pursuant to Sectionsection 12(g) of the Act: None


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐Yes ☐ No ☒  No


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐Yes ☐ No ☒  No

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 ☐  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 ☐  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

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 Registrantregistrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

x


The registrant was not a public company as of the last business day of its most recently completed second fiscal quarter and, therefore, cannot calculate the aggregate market value of itsthe voting and non-voting common equity held by non-affiliates as of such date.

the registrant was approximately $501 million based on the closing price of its shares of Common Stock, par value $0.001 per share, on the Nasdaq Global Select Market on June 30, 2022, the last business day of the registrant’s second fiscal quarter.

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 February 26, 2019,8, 2023, the registrant had 74,019,82564,842,997 shares of common stock, $0.001 par value, outstanding.


DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference into the Annual Report on Form 10-K:


Portions of the registrant’sRegistrant’s definitive proxy statement relating to its 2023 annual meeting of shareholders (the “2023 Proxy Statement for its 2019 Annual Meeting of StockholdersStatement”) are incorporated by reference into Part III of this Report.

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Annual Report on Form 10-K where indicated. The 2023 Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.

Table of Contents

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PART I

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Item 1.

Business

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PART III

Item 9C.

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BASIS OF PRESENTATION

On October 1, 2018 (the “Distribution Date”), Garrett Motion Inc. became an independent publicly-traded company through a pro rata distribution (the “Distribution”) by Honeywell International Inc. (“Former Parent” or “Honeywell”) of 100% of the then-outstanding shares of Garrett to Honeywell’s stockholders (the “Spin-Off”). Each Honeywell stockholder of record received one share of Garrett common stock for every 10 shares of Honeywell common stock held on the record date. Approximately 74 million shares of Garrett common stock were distributed on October 1, 2018 to Honeywell stockholders. In connection with the Spin-Off, Garrett´s common stock began trading “regular-way” under the ticker symbol “GTX” on the New York Stock Exchange on October 1, 2018.

Unless the context otherwise requires, references to “Garrett,” “we,” “us,” “our,” and “the Company” in this Annual Report on Form 10-K refer to (i) Honeywell’s Transportation Systems Business (the “Transportation Systems Business” or the “Business”) prior to the Spin-Off and (ii) Garrett Motion Inc. and its subsidiaries following the Spin-Off, as applicable.

This Annual Report on Form 10-K contains financial information that was derived partially from the consolidated financial statements and accounting records of Honeywell. subsidiaries.

The accompanying consolidated and combined financial statements of Garrett (“Consolidated and Combined Financial Statements”) reflect the consolidated and combined historical results of operations, financial position and cash flows of Garrett, for the 2018 period following the Spin-Off, and the Transportation Systems Business, for all periods prior to the Spin-Off, as it was historically managed in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP” or "GAAP"). Therefore,
Throughout this Annual Report on Form 10-K, we reference certain industry sources. While we believe the historical consolidatedcompound annual growth rate (“CAGR”) and combined financial information may not be indicative of our future performance and does not necessarily reflect what our consolidated and combined results of operations, financial condition and cash flows would have been had the Business operated as a separate, publicly traded company during the entiretyother projections of the periods presented, particularly becauseindustry sources referenced in this Annual Report on Form 10-K are reasonable, forecasts based upon such data involve inherent uncertainties, and actual outcomes are subject to change based upon various factors beyond our control. All data from industry sources is provided as of changes that we have experienced,the latest practicable date prior to the filing of this Annual Report on Form 10-K and expectmay be subject to continue to experience in the future, as a result of our separation from Honeywell, including changes in the financing, cash management, operations, cost structure and personnel needs of our business.

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change.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this "Annual Report") contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”("the Securities Act"). All statements other than statements of historical fact contained in this Annual Report, including without limitation statements regarding our future results of operations and financial position, expectations regarding the growth of the turbocharger and electric vehicle markets and connected vehicle markets,other industry trends, the sufficiency of our cash and cash equivalents, anticipated sources and uses of cash, anticipated investments in our business, our business strategy, anticipated payments under our agreements with Honeywell,pending litigation, anticipated interest expense, and the plans and objectives of management for future operations and capital expenditures are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these terms or other similar expressions. The forward-lookingforward-looking statements in this Annual Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Annual Report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including:

1.

changes in the automotive industry and economic or competitive conditions;

including the factors described in Part I, Item 1A. “Risk Factors,” of this Annual Report and in our other filings with the Securities and Exchange Commission (the "SEC").

2.

our ability to develop new technologies and products, and the development of either effective alternative turbochargers or new replacement technologies;

3.

failure to protect our intellectual property or allegations that we have infringed the intellectual property of others; our ability to license necessary intellectual property from third parties;

4.

potential material losses and costs as a result of any warranty claims and product liability actions brought against us;

5.

significant failure or inability to comply with the specifications and manufacturing requirements of our original equipment manufacturer customers or by increases or decreases to the inventory levels maintained by our customers;

6.

volume of products we produce and market demand for such products and prices we charge and the margins we realize from our sales of our products;

7.

loss of or a significant reduction in purchases by our largest customers, material nonpayment or nonperformance by any our key customers, and difficulty collecting receivables;

8.

inaccuracies in estimates of volumes of awarded business;

9.

work stoppages, other disruptions or the need to relocate any of our facilities;

10.

supplier dependency;

11.

failure to meet our minimum delivery requirements under our supply agreements;

12.

failure to increase productivity or successfully execute repositioning projects or manage our workforce;

13.

potential material environmental liabilities and hazards;

14.

natural disasters and physical impacts of climate change;

15.

technical difficulties or failures, including cybersecurity risks;

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16.

potential material litigation matters, including labor disputes;

17.

changes in legislation or government regulations or policies;

18.

risks related to international operations and our investment in foreign markets, including risks related to the withdrawal of the United Kingdom from the European Union, or Brexit;

19.

risks related to our agreements with Honeywell, such as the Indemnification and Reimbursement Agreement and Tax Matters Agreement;

20.

the terms of our indebtedness and our ability to access capital markets;

21.

unforeseen adverse tax effects;

22.

costs related to operating as a standalone public company and failure to achieve benefits expected from the Spin-Off;

23.

inability to recruit and retain qualified personnel; and

24.

the other factors described under the caption "Risk Factors" in this Annual Report on Form 10-K under Part I, Item 1A. “Risk Factors,” and in our other filings with the Securities and Exchange Commission (“SEC”).

You should read this Annual Report and the documents that we reference in this Annual Reportherein completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

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Part

PART I

Item 1. Business

Our Company

Our Company

Garrett designs, manufactures and sells highly engineered turbocharger electric-boosting and connected vehicleelectric-boosting technologies for light and commercial vehicle original equipment manufacturers (“OEMs”) and the aftermarket.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 acrossfor internal combustion engines ("ICE") using gasoline, diesel, natural gas and electrified powertrains (hybrid and fuel cell) powertrains.

Our. Additionally, we are currently in the development stage of turbochargers for internal combustion engines using hydrogen as fuel and other highly engineered components for zero emission vehicles. These products are highly engineeredkey enablers for each individual powertrain platform, requiring close collaboration with our customers in the earliest years of powertrain and new vehicle design. Our turbocharging and electric-boosting products enable our customers to improve vehicle performance while addressing continually evolving and converging regulations that mandate significant increases in fuel efficiency and reductions in exhaust emissions worldwide.

We offer light vehicle gasoline, light vehicle diesel and commercial vehicle turbochargers that enhance vehicle performance, fuel(and/or energy) economy and drivability. Aemissions standards compliance.

The turbocharger provides an engine with a controlled and pressurized air intake, which intensifies and improves the combustion of fuel to increase the amount of power sent through the transmission and to improve the efficiency and exhaust emissions of the engine. Market penetration of vehicles with a turbochargerindustry is expected to increase from approximately 49%46 million units in 20182022 to approximately 57%48 million units by 2022,2024, then gradually plateau and drop to approximately 41 million units by 2028, according to IHSS&P ("S&P", formerly IHS) for light vehicles and Knibb, Gormezano and Partners ("KGP") and Power Systems Research ("PSR") for on-highway and off-highway commercial vehicles. The turbocharger industry growth is mainly driven in the short and medium term by an expected increase in the penetration of hybrid vehicles, from approximately 13 million hybrid cars globally in 2022 to an anticipated 29 million hybrid cars globally in 2026.
In 2022, a significant increase in battery electric vehicle (“BEV”) production has been observed in Europe and China, with BEV representing, respectively, 8% and 18% of light vehicles produced. In China, renewed sales incentives, especially in Tier 2 and Tier 3 cities, as well as non-financial incentives such as more generous license-plate quotas for major metropolitan areas, have bolstered Chinese BEV penetration. In the long-term, the proposal in the European Union ("E.U.") for all new cars to be zero-emission at tail pipe by 2035, as well as local regulations, could drive a further increase of BEV penetration in Europe beyond currently forecasted levels. In the United States of America ("US" or "United States"), the tightening of CO2/mileage targets is expected to drive higher turbo penetration in the short to medium-term. The President of the United States signed an executive order with the goal of making half of all new vehicles sold in 2030 zero-emissions vehicles, including battery electric, plug-in hybrid electric, or fuel cell electric vehicles, which is expected to accelerate the electrification trend in the mid-to-long term. Garrett's portfolio for hybrid powertrains includes new electric boosting solutions that leverage our unique technologies for electrical high speed boosting machinery. Garrett's product portfolio also includes fuel cell compressors for which we are developing the third generation. We are well positioned to take advantage of growing opportunities especially in the application of commercial vehicles. In China, the roadmap released by the China Society of Automotive Engineers, Energy-saving and New Energy Vehicle Technology Roadmap 2.0, outlines a technology path for the next ten years that aims to find a balance between fuel consumption improvement for hybrids and the introduction of electric vehicles. In that context, the turbocharger industry is expected to keep contributing to fuel economy optimization of gasoline, diesel vehicles and hybrid vehicles.
In the short to medium term, we continue to believe that turbocharger demand will grow as turbochargers remain one of the most cost-efficient levers to improve the fuel efficiency of gasoline, diesel and hybrid vehicles. In 2021, Garrett won the prestigious Automotive News PACE™ award for the industry's first E-turbo that successfully launched in 2022. The unique high speed electric motor technology developed for this product came from Garrett's fuel cell compressors that are required by fuel cell vehicles. Additionally, this technology also offers opportunities for new products to support all types of electrified drivetrains. In the commercial vehicle industry, we expect a slower transition to BEVs due to the requirements of specific applications and associated range and charging time constraints, which translates into more resilient turbocharger demand, as most commercial vehicles are turbocharged. In addition, low or zero emission alternative fuels for ICE, like natural gas or hydrogen, are expected to gain momentum in coming years, supporting continued turbocharger demand. Growth in the turbocharger industry is expected globally, with special mention for high-growth regions in Asia, where rising income levels continue to drive long-term automotive demand. While these positive factors do not isolate the turbocharger industry from fluctuations in global vehicle production volumes, such factors may assist in mitigating the negative impact of macroeconomic cycles. In addition, approximately 30% of our revenue comes from commercial vehicle and aftermarket sales that are less sensitive to the trend of electrification.
Emergence from 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
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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 (the "Emergence").
Macroeconomic disruptions

The automotive industry sources, whichcontinues to be impacted by uncertainty due to worldwide semiconductor shortages, the Covid-19 pandemic, governmental responses to the pandemic including the lockdown measures in China, and geopolitical tensions. The semiconductor shortage is expected to continue into 2023 although to a lesser extent compared to the previous year, and production levels may be reduced further should Covid-related lockdown measures persist or extend. The evolution of geopolitical conflicts and the consequent energy shortage in Europe, especially during the winter season, may further expose supply related challenges for the automotive industry while adding inflationary pressure and triggering recessionary scenarios. The Company continues to review production levels at OEM plants and closely monitor supply-chain disruptions related to logistics and component shortages in order to minimize the impact of the bottleneck in supply and mitigate any potential disruption in production. Additionally, we have in place procedures for the monitoring of supplier risks and we believe we have substantially addressed such risks with manageable economic impacts including use of premium freight or adjusted payment terms that are limited in time. We have prepared contingency plans for multiple scenarios that we believe will allow us to react swiftly to changes in customer demand while protecting Garrett’s long-term growth potential. See "- Risks Relating to our businessBusiness - Volatility in the cost and availability of raw materials, components, energy and transportation, in addition to disruptions in the supply chain, including supplier insolvency, has increased, and may continue to increase, the cost of our products and services, and may impact our ability to meet commitments to customers and cause us to incur significant liabilities." - in Item 1A - Risk Factors of this Annual Report.
Analyst consensus for the full year 2022 estimates growth of approximately 6% in global light vehicle production and approximately 15% drop in commercial vehicle production. As for the turbocharger industry, a 5% increase for the combined light and commercial vehicle turbocharger industry volume occurred in 2022. In 2023, 4% growth is expected by S&P for light vehicle production, and commercial vehicles are expected by KGP and PSR to grow at a faster rate than overall automobile production.

Building on5%. We have prepared contingency plans for multiple scenarios that we believe will allow us to react swiftly to changes in customer demand while protecting Garrett’s long-term growth potential. The supplies needed for our expertiseoperations were generally available throughout 2022. In limited circumstances, certain suppliers experienced financial distress during 2022, resulting in turbocharger technology,supply disruptions. However, we had implemented new procedures in 2021 for monitoring of supplier risks associated with Covid-19 and we believe we have also developed electric-boosting technologies targetedsubstantially addressed such risks with manageable economic impacts including use of premium freight or adjusted payment terms that are limited in time. As the global supply chain restarts, it is possible that additional supply constraints will appear for use in electrified powertrains, primarily hybrid and fuel cell vehicles. Our products include electric turbochargers and electric compressors that provide more responsive driving and optimized fuel economy in electrified vehicles. Our early-stage and collaborative relationships with our global OEM customer base have enabled us to increase our knowledge of customer needs for vehicle safety, predictive maintenance, and advanced controllers to develop new connected and software-enabled products.

the industry. In addition, we have emerging opportunitiessustained cost control measures and cash management actions in technologies, products2022 including:

•Postponing capital expenditures;
•Optimizing working capital requirements;
•Lowering discretionary spending;
•Flexing organizational costs by implementing short-term working schemes;
•Reducing temporary workforce and services that supportcontract service workers; and
•Restricting external hiring.
The following charts show our percentage of revenues by geographic region and product line for the growing connected vehicle market, which include software focused on automotive cybersecurity and integrated vehicle health management (“IVHM”). Our focus is developing solutions for enhancing cybersecurity of connected vehicles, as well as in-vehicle monitoring to provide maintenance diagnostics, which reduce vehicle downtime and repair costs. For example, our Intrusion Detection and Prevention System uses anomaly detection technology that functions like virus detection software to perform real-time data analysis to ensure every message received by a car’s computer is valid. Our IVHM tools detect intermittent faults and anomalies within complex vehicle systems to provide a more thorough understanding of the real-time health of a vehicle system and enable customers to fix faults before they actually occur. We are collaborating with tier-one suppliers on automotive cybersecurity software solutions and with several major OEMs on IVHM technologies.

Our comprehensive portfolio of turbocharger, electric-boosting and connected vehicle technologies is supported by our five research and development (“R&D”) centers, 13 close-to-customer engineering facilities and 13 factories, which are strategically located around the world. Our operations in each region have self-sufficient sales, engineering and production capabilities, making us a nimble local competitor, while our standardized manufacturing processes, global supply chain, worldwide technology R&D and size enable us to deliver the scale benefits, technology leadership, cross-regional support and extensive resources of a global enterprise. In high-growth regions, including China and India, we have established a local footprint, which has helped us secure strong positions with in-region OEM customers who demand localized engineering and manufacturing content but also require the capabilities and track record of a global leader.

We also sell our technologies in the global aftermarket through our distribution network of more than 190 distributors covering 160 countries. Through this network, we provide approximately 5,300 part-numbers and products to service garages across the globe. Garrett is a leading brand in the independent aftermarket for both service replacement turbochargers as well as high-end performance and racing turbochargers. We estimate that over 100 million vehicles on the road today utilize our products, further supporting our global aftermarket business.

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Leading technology,continuousinnovation,productperformanceand OEMengineeringcollaborationare centralto our customervalue propositionand a core partof our cultureand heritage.In 1962, weintroduceda turbochargerfor a mass-producedpassengervehicle.Since then, wehave introducedmany othernotable technologiesin mass-productionvehicles,such as turbochargerswith variablegeometryturbines,dual-boost compressors,ball-bearingrotorsand electronicallyactuatedcontrols,allof which vastlyimproveengine responsewhenacceleratingat low speeds and increasepower at higherspeeds, and enablesignificant improvementsin overallengine fueleconomy and exhaustemissionsfor both gasolineand dieselengines.Our portfoliotoday includesmorethan 1,400 patentsand patentspending.

As ofyears ended December 31, 2018, we employed approximately 6,000 full-time employees2022, 2021 and 1,500 temporary2020, and contract workers globally, including 1,200 engineers. Our Company was incorporated on March 14, 2018 as a Delaware corporation in connection with the Spin-Offpercentage changes from Honeywell, and we maintain our headquarters in Rolle, Switzerland. See “Basis of Presentation” above for additional information on the Spin-Off.

prior years.



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Revenue Summary

By Product-line

Geography

gtx-20221231_g1.jpggtx-20221231_g2.jpggtx-20221231_g3.jpg

By Geography

North America

EuropeAsiaOther

gtx-20221231_g4.jpg

•We are a globalbusinessthatgeneratedrevenuesof approximately$3.4 $3.6 billionin 2018.

2022.

•In 2018,2022, our OEM sales contributed approximately 86% of our revenues while our aftermarket and other products contributed 14%.

•Amongst OEM sales, light vehicleproducts(products (products for passengercars,SUVs,lighttrucks,and otherproducts)accounted for approximately66% 78% of our revenues.Commercialvehicleproducts(products (products for on-highway trucks and off-highwaytrucks,construction,agricultureand power-generationmachines)accountedfor 20%22%.

In 2018, our OEMsalescontributed approximately86%•Approximately 48% of our 2022 revenueswhile came from sales shipped from Europe, 31% from sales shipped from Asia and 19% from sales shipped from North America. For more information, see Note 27, Concentrations, of the Notes to our aftermarketand otherproductscontributed14%.

Consolidated Financial Statements.
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•

Approximately56% of our 2018 revenuescamefromsalesshipped from Europe, 28% from salesshipped from Asia and 15% fromsales shipped from North America.For moreinformation,see Note 24 Concentrationsof Notes to Consolidated and Combined Financial Statements.

Our Industry

We currently compete in the global turbocharger marketindustry for gasoline, diesel and natural gas engines;engines, in the electric- boosting marketelectric-boosting industry for electrified (hybrid and fuel cell) vehicle powertrains;powertrains and in the emerging connected vehicle software market.industry. As vehicles become more electrified, our electric-boosting products use principles similar to our turbochargers to further optimize air intake and thus further enhance performance, fuel economy and exhaust emissions with the help of an integrated high-speed electric motor. By using a turbocharger or electric-boosting technology, an OEM can deploy smaller, lighter powertrains with better fuel economy and exhaust emissions while delivering the same power and acceleration as larger, heavier powertrains. As such, turbochargers have become one of the most highly effective technologies for helping global OEMs meet increasingly stricter emission standards.

Throughout this section At the same time, we have developed unique technological competencies, which we aim to continue leveraging to solve our customers’ energy related challenges in the electrification evolution related to ICE, hybrids and electric powertrains. We are developing solutions and increasing our research and development ("R&D") spend, focusing more than 50% of this Annual Reporttotal R&D expenditure in 2023 on Form 10-K, we reference certain industry sources. While we believe the compound annual growth rate (“CAGR”)electrification technologies like fuel cell compressors for a broad range of stack power (40kW to 250kW) and other projectionshigh value electric vehicle components. We are also continuing to develop Model Predictive Controls ("MPC") algorithms and cybersecurity software solutions that leverage our knowledge of the industry sources referenced in this Annual Report on Form 10-K are reasonable, forecasts based upon such data involve inherent uncertainties,vehicle powertrains and actual outcomes are subject to change based upon various factors beyond our control.

experience working closely with OEM manufacturers.

Global Turbocharger market

Industry

The global turbocharger marketindustry includes turbochargers for new light and commercial vehicles as well as turbochargers for replacement use in the global aftermarket. According to IHSS&P, KGP and other industry sources,PSR, the global turbocharger marketindustry consisted of approximately 5146 million unit salesturbocharged vehicles with an estimated total value of approximately $12$10 billion in 2018.2022. Within the global turbocharger market,industry in 2022, light vehicles accounted for approximately 88%86% of total unit volume and commercial vehicles accounted for the remaining 12%14%.

IHS

S&P, KGP and other industry sourcesPSR project that the turbocharger production volume will grow at a CAGR of approximately 6% from 2018 throughpeak in 2024 and return to 2022 levels by 2026, driven mainly by double-digit growth in turbochargers for light vehicle gasoline engines and continued low single-digitslow growth for commercial vehicles, offset by a modest decline in diesel turbochargers given a decline in diesel powertrains, particularly for light vehicles. This annual sales estimate would add approximately 307230 million new turbocharged vehicles on the road globally between 20182023 and 2022.

2027.

Key trends affecting our industry

Global

Current global economic conditions due to Covid-19 and geopolitical conflicts have adversely affected and may continue to adversely affect many industries including the automotive sector. Chip shortages and rising raw material prices and inflation also had significant impacts on the automotive industry, making it unable to serve the recovery in demand. Consequently, S&P reduced its light vehicle fuel efficiency and emissions standards. OEMsare facingincreasinglystrictconstraintsproduction volume forecast for vehiclefuelefficiencyand emissionsstandardsglobally.Regulatoryauthorities2023 from approximately 91 million units that they forecasted in key2021 to between 80 to 88 million units in their January 2023 light vehiclemarketssuch as the United States,the European Union, China, Japan, and Korea have institutedregulationsthatrequiresustained and significantimprovements industry production volume forecast.
Growth in CO2,NOxand particulatemattervehicleemissions.OEMsare requiredtoevaluateand adopt varioussolutionsto addressthesestricterstandards.Turbochargersallow OEMsto reduce engine sizewithout sacrificingvehicleperformance,therebyincreasingfuelefficiencyand decreasingharmful emissions.Furthermore,turbochargersallow moreprecise“aircontrol”over both engine intakeand exhaust conditionssuch as gas pressures,flows and temperatures,enablingoptimizationof the combustionprocess.This combustionoptimizationis criticalto engine efficiency,exhaustemissions,power and transientresponseand enablessuch conceptsas exhaustgas recirculationfor dieselenginesand Miller-cycleoperationfor gasoline engines.Consequently, we believeturbochargingwill continueto be a key technologyfor automakersto meetfuturetough fueleconomy and emissionsstandardswithout sacrificingperformance.

Turbocharger penetration. The utilizationof turbochargersand electric-boostingtechnologiesonoverall vehicle powertrainsystemsis one of the mostcost-effectivesolutionsto addressstricterstandards,and OEMsare increasingtheiradoptionof thesetechnologies.IHSand otherindustrysourcesexpectturbochargerpenetration to increase globally fromapproximately49% in 2018 to approximately57% by 2022. IHS forecasts particularly strong turbocharger penetration growth for gasoline turbochargers, expectingproduction. After an increase from approximately 36%of 3% in 2018 to 51% in 2022.

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Growthin overallvehicleproduction. Over the next 5 years, we expect that overalllight vehicle production will experienceand 1% in commercial vehicle production in 2021, a modest CAGRstronger growth was expected in 2022. However, supply chain disruptions, driven by shortages in semiconductors and the continuous impact of about 1 to 2%Covid-19 particularly in China, affected vehicle production in 2022 resulting in flat volumes versus 2021. For 2023, S&P, KGP and PSR expect limited growth in light vehicle production and growth in commercial vehicle production of approximately 6%. However, significant uncertainty level remains with further Covid-19 waves, continued supply chain disruptions and geopolitical tensions. The shift from pure gasoline and diesel internal combustion enginesICE to hybridized powertrains willis expected to continue in response to increasingly strict fuel efficiency and regulatory standards. In parallel, the share of pure electric vehicles willis expected to continue to increase from a low base as technology and supporting infrastructure continue to improve.

Global vehicle fuel efficiency and emissions standards. OEMs are facing increasingly strict constraints for vehicle fuel efficiency and emissions standards globally. Regulatory authorities in key vehicle regions such as the United States, the European Union, China, Japan, and Korea have instituted regulations that require sustained and significant reductions in greenhouse gas (including CO2 and NOx) and particulate matter vehicle emissions. OEMs are required to evaluate and adopt various solutions to address these stricter standards. Turbochargers allow OEMs to reduce engine size without sacrificing vehicle performance, thereby increasing fuel efficiency and decreasing harmful emissions. Furthermore, turbochargers allow more precise “air control” over both engine intake and exhaust conditions such as gas pressures, flows and temperatures, enabling optimization of the combustion process. This combustion optimization is critical to engine efficiency, exhaust emissions, power and transient response and enables such concepts as exhaust gas recirculation for diesel engines and Miller-cycle operation for gasoline engines. Consequently, we believe turbocharging will continue to be
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a key technology for automakers to meet future tough fuel economy and emissions standards without sacrificing performance.
Turbocharger penetration. The utilization of turbochargers and electric-boosting technologies on vehicle powertrain systems is one of the most cost-effective solutions to address stricter standards, and OEMs are increasing their adoption of these technologies. S&P, KGP and PSR expect total turbocharger penetration to increase globally from approximately 46 million units in 2022 to approximately 48 million units by 2024; after this year, the turbocharger penetration will plateau then start decreasing based on current expectations on hybrid solutions adopted by different OEMs, reaching the same volumes from 2022 in 2026. S&P forecasts turbocharger penetration growth for gasoline turbochargers, expecting an increase in light vehicles from approximately 47% in 2022 to 51% in 2025.
Medium-Term Powertrain Trends

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Note - Years 2020 - 2022 represent actual data and years 2023 - 2027 represent forecasted data.
Source: IHS

S&P, KGP, PSR

Engine size and complexity. In orderto addressstricterfueleconomy standards,OEMshave usedturbochargersto reducethe averageengine sizeon theirvehiclesover timewithout compromisingperformance. Stricterpollutantsemissionsstandards(primarily (primarily for NOxand particulates)have drivenhigherturbochargeradoptionas well, which we believe will continuein the future,with a predicted totalautomotiveturbochargersales production volumeCAGRof 6%1% between 20182022 and 2022,2025, in an industrywith a predicted totalautomobilesales production volumeCAGRof approximately2% 3% over the sameperiod, in each case accordingto IHSS&P, KGP and otherindustrysources. In addition,increasinglydemandingPSR.
Electrification. To address stricter fueleconomy standards,requirecontinuousincreasesin turbochargertechnologycontent(e.g., variablegeometry,electronicactuation,multiplestages,ballbearings,electricalcontrol,etc.)which resultsin steadyincreasesin averageturbochargercontentper vehicle.

Powertrain electrification. Toaddressstricterfueleconomy standards,OEMsalso have been increasingtheelectrificationof theirvehicleofferings,primarilywith the additionof hybrid vehicles,which have powertrains equipped with a gasolineor dieselinternalcombustionengine in combinationwith an electricmotor.IHS S&P estimatesthathybrid vehicles produced globally will grow froma totalof approximately4.6 17.4 millionvehiclesin 20182023 to a totalof approximately18.128.6 million vehicles by 2022,2026, representinga CAGRof 41%17%. The electrifiedpowertrainof hybrid vehicles enablesthe usage of highly synergisticelectric-boostingtechnologieswhich augmentstandardturbochargers with electricallyassistedboostingand electrical-generationcapability.Furthermore,the applicationof electric boostingextendsthe requirementfor engineeringcollaborationwith OEMsto includeelectricalintegration, softwarecontrols,and advanced sensing.Overall,thismove to electricboostingfurtherincreasesthe roleand value of turbochargingin improvingvehiclefueleconomy and exhaustemissions.

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Battery electric and fuel cell technologies. OEMs are also investing in full battery-electric vehicles, which have gained in popularity in recent years. However, IHSBEVs to comply with increasingly tight regulatory targets across regions. S&P, KGP and other industry sourcesPSR expect that theyBEVs will compose only 4%26% of total light and commercial vehicle production globally by 2022 due2026. Consumer adoption hinges on future "cost of range”, tightly linked to their inherent limitationsthe energy capacity of the battery, but also how well that energy is used. Energy efficiency increases (including how to best address thermal management challenges), battery price (and consequently vehicle price), weight reduction through increases in driving rangepower density, and shorter recharging time and their relatively high cost.times are all critical problems to solve. As OEMs strive to solve thethese issues, of full battery electric vehicles, they are increasing investment in hydrogen fuel cell powered electric vehicles.vehicles for demanding applications requiring long range, especially in the commercial vehicle space. These vehicles, like battery electric vehicles, have fully electric motor powertrains, but they rely on the hydrogen fuel cell to generate the required electricity. The hydrogen fuel cell also requires advanced electric-boosting technology to run efficiently and optimize range and cost of ownership. We are investing to address selected challenges raised by the electrification trend, where our differentiated technology can bring benefits related to lighter, more compact and more energy efficient components for optimization of size and efficiency.

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electric vehicles.

Connected vehicles,autonomous vehicles, software and shared vehicles.controls. In addition to powertrain evolution, the market for connected vehicles servicesvehicle industry is growing rapidly. According to Strategy&, a consulting firm, this market is expected to grow 38% per annum from approximately $3 billion in 2017 to approximately $36 billion in 2025. Our IVHM,MPC algorithms, predictive maintenance, diagnostics and cybersecurity tools address this market. Theirindustry. We expect their adoption shouldwill increase as advanced driver assistance features and ultimately autonomous driving increase requirements for vehicle functional safety. Simultaneously, our cybersecurity solutions protect those vehicles against outside interference to ensure correct functionality.

Vehicle ownership in China, India and other high-growth markets. regions. Vehicleownership in China, India and other emergingmarkets regions remainswell below ownership levelsin developedmarkets areas and will be a key driverof future vehicleproduction.At the sametime,thesemarkets regions are followingthe lead of developedcountriesby instituting stricteremissionstandards.Growth in productionvolumeand greaterpenetrationby largeglobalOEMsin these markets,regions, along with evolvingemissionstandardsand increasingfueleconomy and vehicleperformancedemands, is drivingincreasingturbochargerpenetrationin high-growthregions.

Our Competitive Strengths

We believe that we differentiate ourselves through the following competitive strengths:

Global and broad marketindustry leadership

We are a global leader in the $12$10 billion OEM turbocharger industry. We believe we will continue to benefit from the increased adoption of turbochargers, as well as our global technology leadership, comprehensive portfolio, continuous product innovation and our deep-seated relationships with all global OEMs. We maintain a leadership position across all vehicle types, engine types and regions, including:

Light Vehicles.

•Gasoline:The global adoptionof turbochargersby OEMson gasolineengineshas increasedrapidlyfrom approximately14% in 2013 to approximately36% 47% in 20182022 and is forecastedby IHSS&P to increaseto 51% by 2022. We have launched2025. In addition to the volume growth, tightening of CO2 regulations is driving a leadingmodern1.5Ltechnology shift, moving away from standard waste gate technology to variable geometry turbo (“VNT”("VNT")gasolineapplication,which is a premium technology that offers us technological competitive advantages. In 2016, webelieve launched our first high volume VNT gasoline application, and this technology is expected to be among the firstwith a majorOEM,and weexpectto see increasingexperience increased adoptionof thistechnologyin yearsto come. KeyAccording to forecast by S&P, VNT should represent 10% of global turbo gasoline production by 2027, with 25% in Europe and 18% in China. In 2028, forecasted penetration maintains the same at a global level, with 25% in Europe and 19% in China. A key to our strategyfor gasolinegrowth is thus to leverageour technologystrengthsin high-temperaturematerialsand variablegeometryas well as our scale,globalfootprintand in-market capabilitiesto meetthe volume on technology demandsof globalOEMs.

•Diesel:We have a long historyof technologyleadershipin dieselengine turbochargers.Despitediesel marketindustry weakness for some vehiclesegments,the majorityof our dieselturbochargersrevenuecomes fromheavierand biggervehicleslikeSUVs,pickup trucksand lightcommercialvehicles(such (such as deliveryvans), which remaina stablepartof the dieselmarket. industry. Dieselmaintainsa unique advantagein termsof fuelconsumption,hence cost of ownership, and towing capacitymakesit stillthe powertrain of choicefor heaviervehicleapplications.Dieselalso remainsessentialfor OEMsto meettheirCO2fleetaverageregulatorytargetgoing forward,as dieselvehiclesproduce approximately10-15% less CO2 on averagethan gasolinevehicles.

•Electrified vehicles: We provide a comprehensive portfolio of turbocharger and electric-boosting technologies to manufacturers of hybrid-electric and fuel cell vehicles. OEMs have increased their adoption of these
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Electrifiedvehicles. We providea comprehensiveportfolioof turbochargerand electric-boostingelectrified technologiesto manufacturersof hybrid-electricand fuelcellvehicles.OEMshave increasedtheir adoptionof theseelectrifiedtechnologiesgiven regulatorystandardsand consumerdemandsdrivingan expectedgrowth rate CAGR globally of approximately44% 25% from2018 2022 to 2022,2026, accordingto IHS.S&P. Similarto turbochargersfor gasolineand dieselengines,turbochargersfor hybridvehiclesare an essential componentof maximizingfuelefficiencyand overallengine performance.Our productsprovideOEMs with solutionsthatfurtheroptimizeengine performanceand positionus well to serveOEMsas they add moreelectrifiedvehiclesinto theirfleets.

Commercial vehicles. Our Company tracesitsrootsto the 1950s whenwehelped develop a turbocharged commercialvehiclefor Caterpillar.We have maintainedour strategicrelationshipwith key commercialvehicle OEMsfor over 60 yearsas well as market-leadingindustry-leading positionsacrossthe commercialvehiclemarketsfor both on- and off-highwayuse. Our productsimproveengine performanceand lower emissionson trucks,buses, agricultureequipment,constructionequipmentand miningequipmentwith engine sizesranging1.8Lto 105L.

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High-growth regions. We have a strongtrackrecordservingglobaland emerginglocal OEMs,including customersin China and India,with an in-marketfor-marketstrategyand for-market strategy. We operatefull two R&D centers and three manufacturingfacilitiesin thethese high-growth regionsthatservelightand commercialvehicleOEMs.Our localpresencein high-growth regionshas helped us win business with key internationaland domesticChinese and Indian OEMs,and wehave grown grew significantly faster than the vehicle production in these regions between 2013 and 2018 significantlyfasterthan the vehicleproductionin theseregions.

2022.

Strong and collaborative relationships with leading OEMs globally

We supply our products to more than 60 OEMs globally. Our top ten customers accounted for approximately 60%59% of net sales and our largest customer representsrepresented approximately 13%12% of our net sales in 2018.2022. With over 60 years in the turbocharger industry, we have developed strong capabilities working with all major OEMs. We consistently meet their stringent design, performance and quality standards while achieving capacity and delivery timelines that are critical for customer success. Our track record of successful collaborations, as demonstrated by our strong client base and our ability to successfully launch approximately 100multiple product applications annually, is well recognized. For example, we received a 2017 Automotive News PACE™ Innovation Partnership Award in supporting Volkswagen’s first launch of an industry-leading VNT turbocharged gasoline engine, which is just one example of our strong collaborative relationships with OEMs. Our regional research, development and manufacturing capabilities are a key advantage in helping us to supply OEMs as they expand geographically and shift towards standardized engines and vehicle platforms globally.

Global aftermarket platform

Our Garrett aftermarket brand has strong recognition across distributors and garages globally, and is known for boosting performance, quality and reliability. We have an estimatedinstalledbaseoperate through a distribution network ofover100millionvehiclesthatutilizeourproductsthroughourglobalnetwork of more than 190250 distributorscovering160 165 countries.OurGarrettaftermarketbrand business hasstrongrecognitionacrossdistributorsandgaragesglobally,and is knownforboostingperformance,qualityandreliability.Ouraftermarketbusinesshashistoricallyprovided a stablestream of revenuesupported by ourlargeinstalledbase. base, currently estimated at over 120 million vehicles. Asturbo turbocharger penetrationratescontinue to increase, we expectthatourinstalledbaseandaftermarketopportunity opportunities will continue to grow.

Highly-engineered portfolio with continuous product innovation

We have led the revolution in turbocharging technology over the last 60 years and maintain a leading technology portfolio of more than 1,400approximately 1,700 patents and patents pending. We have a globally deployed team of more than 1,2001,220 engineers across five R&D centers and 1311 close-to-customer engineering centers. Our engineers have led the mainstream commercialization of several leading turbocharger innovations, including variable geometry turbines, dual-boost compressors, ball-bearing rotors, electrically actuated controls and air-bearing electric compressors for hydrogen fuel cells. We maintain a culture of continuous product innovation, introducing about ten new technologies per year and upgrading our existing key product lines approximately every 3 years. Outside of our turbocharger product lines, we apply this culture of continuous innovation to meet the needs of our customers in new areas, particularly in connected automotive technologies. We are developing solutions including IVHMand increasing our R&D spend, focusing more than 50% of total R&D expenditure in 2023 on electrification technologies like fuel cell compressors for a broad range of stack power (40kW to 250kW) and high value electric vehicle components. We are also continuing to develop MPC algorithms and cybersecurity software solutions that leverage our knowledge of vehicle powertrains and experience working closely with OEM manufacturers.

Global and low cost manufacturing footprint with operational excellence

Our geographic footprint locates R&D, engineering and manufacturing capabilities close to our customers, enabling us to tailor technologies and products for the specific vehicle types sold in each geographic market.industry. In all regions where we operate, we leverage low-cost sourcing through our robust supplier development program, which continually works to develop new suppliers that are able to meet our specific quality, productivity and cost requirements. We now source more than two-thirds of our materials from low-cost countries and believe our high-quality, low-cost supplier network to be a
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significant competitive advantage. We have invested heavily to bring differentiated local capabilities to our customers in high-growth regions, including China and India.

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In 2022, we manufactured more than 87% of our products in low-cost countries, including seven manufacturing facilities in China, India, Mexico, Romania and Slovakia. Wemanufactureapproximatelythree quarters have a long-standing culture of lean manufacturing excellence and continuous productivity improvement. We believe global uniformity and operational excellence across facilities is a key competitive advantage in ourproductsinlow-costcountries,includingsevenmanufacturingfacilitiesinChina,India,Mexico,RomaniaandSlovakia.Wehavealong-standingcultureofleanmanufacturingexcellenceandcontinuousproductivityimprovement.Webelieveglobaluniformityandoperationalexcellenceacrossfacilitiesisakeycompetitiveadvantageinourindustrygiven that OEMengineplatformsareoftendesignedcentrallybutmanufacturedlocally,requiringsupplierstomeettheexactsamespecificationsacrossalllocations.

Our Growth Strategies

We seek

Garrett invests in innovative technologies that address the needs of our customers in the ongoing auto industry transformation. This continued investment into differentiated technology, coupled with our relentless focus on customer relations and our global capabilities, allows us to continue to expand our business by employingdrive the following business strategies:

Strengthen marketindustry leadership across core powertrain technologies

We are focused on strengthening our marketindustry position in light vehicles:

•Gasolineturbochargers,which historicallylagged adoptionof dieselturbochargers,are expectedto grow at an 11% annual CAGRfrom2018 to 2022, accordingto IHS,exceedingthe growth of diesel turbochargers.turbochargers, are expected to increase at a 2.1% annual CAGR from 2022 to 2025, according to S&P. We expectto benefitfromthishighergrowth given the gasolineplatformswehave been awarded over the past severalyears.We have launchedthe firstmodern1.5LVNTgasolineapplication with a majorOEMand weexpectto see increasingadoptionof thistechnologyin yearsto come. Key to our strategyfor gasolinegrowth is our plan to leverageour technologystrengthsin high temperature materialsand variablegeometrytechnologiesas well as our scale,globalfootprintand in-region capabilitiesto meetthe volumedemandsof globalOEMs.

•We believe growth in our shareof the dieselturbochargersmarket industry will be drivenby newproductintroductions focusedon emissions-enforcementtechnologiesand supportedby our favorablepositioningwith large vehiclesand high-growthregionswithin thismarket. industry. The morestringentemissionsstandardsrequire highergreater turbochargertechnologycontentsuch as variablegeometry,2-stagesystems,advanced bearings and materials whichincreaseour contentper vehicle.We expect

Leverage our differentiated technology to grow our commercialvehiclebusiness through newproductintroductionsand targetedplatformwins withsolve key on-highway customersand underservedOEMs.

challenges in electrification

Strengthen our penetration of electrified vehicle boosting technologies

We stand to benefit from the increased adoption of hybrid-electric and fuel cell vehicles and the increased need for turbochargers associated with increased sales volumes for these engine types. IHSS&P estimates that the global production of electrified vehicles (ranging from mild-hybrids to plugin-hybrids to battery and fuel cell electric vehicles) will increase from approximately six22 million vehicles in 20182022 to approximately 2460 million vehicles by 2022,2027, representing an annualized growth rate of approximately 44%18%. OEMs will need to further improve engine performance for their increasingly hybrid electrified offerings, and our comprehensive portfolio of turbocharger and electric-boosting technologies are designed to help OEMs do so. We expect to continue to invest in product innovations and new technologies and believe that we are well positioned to continue to be a technology-leader in the propulsion of electrified vehicles.

As we keep strengthening our electrical know-how, we believe our capabilities and technological expertise can be pivoted in the electrification arena for selected electric powertrain opportunities.

Increase marketindustry position in high-growth regions

IHS

In 2022, after a steep drop in the first quarter due to strict lockdowns, vehicle production in China continued to experience further challenges through the third quarter from supply chain disruptions caused by shortage of semiconductor components whereas fourth quarter recovery partly compensated for the decline in the first three quarters, with a 4% full year growth, aligned to average growth in the other regions. S&P expects vehicle production in emerging marketsChina to grow at an estimated CAGR of approximately 4% from 2018 to 2022.be stable next year. We plan to continue to strengthen our relationships with OEMs in high-growth, emerging regions by demonstrating our technology leadership through our local research, development and manufacturing capabilities. OurWe expect our local footprint is expected to continue to provide a strong competitive edge in high-growth regions due to our ability to work closely with OEMs throughout all stages of the product lifecycle including aftermarket support. For example, in China, our research center in Shanghai, our manufacturing facilities in Wuhan and Shanghai and our more than 9501,042 employees support our differentiated end-to-end capabilities and we believe will continue to support key platform wins in the Chinese market. Our operations in China are expected to continue to benefit us as OEMs build global platforms in low cost regions. Our
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commitment to providing high-touch technology support to OEMs has allowed us to be recognized as a local player in other key high-growth regions, such as India.

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Growour aftermarketbusiness

We have an opportunity to strengthenourglobalnetwork of more than 190250 distributors in 160165 countries by deepeningourchannelpenetration,leveragingourwell-recognizedGarrettbrand,utilizingnewonlinetechnologiesforcustomerengagementandsales,andwideningtheproductportfolio.Forexample,wehavelaunched Installer Connect, a global web-basedplatformprovidingself-servicetoolsaimed at connecting20,000garagetechnicians in 2019.

Drive continuous product innovation across connected vehicles

We are actively investing in software generated more than 15 thousand additional technicians certified, and services that leverage our capabilities in powertrains, vehicle performance management, and electrical/mechanical design to capitalize onTurbo Service Replacement website attracted more than 800 thousand visitors. Additionally, the growth relating to connected vehicles. Approximately 35% of passenger vehicles sold globally in 2015 were estimated to be connected in some way to the Internet. By the end of the decade, that number is expected to exceed 90%. Building on the software and connected vehicle capabilitiesGarrett Web Racing & Performance section of our Former Parent, we have assembled a team of engineers, software and technical experts and have opened new design centerswebsite attracted more than 1.4 million visitors in North America, India and Czech Republic. We continue to conduct research to determine key areas of the market where we are best positioned to leverage our existing technology platforms and capabilities to serve our customers. We execute a portion of our connectivity investment in collaboration with OEMs and other Tier 1 suppliers and have multiple early-stage trials with customers underway.

2022.

Research, Development and Intellectual Property

We maintain technical engineering centers in major automotive production regions of the world to develop and provide advanced products, process and manufacturing support to all of our manufacturing sites, and to provide our customers with local engineering capabilities and design developments on a global basis. As of December 31, 2018,2022, we employed approximately 1,2001,260 engineers. Our total R&D expenses were approximately $128$153 million, $119$136 million and $112$111 million for the years ended December 31, 2018, 20172022, 2021 and 2016,2020, respectively, with more than 50% of our total R&D spend in 2022 focused on electrification technologies. Additionally, the Company incurred engineering-related expenses which are also included in Cost of goods sold of $11 million, $22 million, and $13 million for the years ended December 31, 2022, 2021 and 2020, respectively.

We currently hold approximately 1,4001,700 patents and patents pending. Our current patents are expected to expire between 2023 and 2041. While no individual patent or group of patents, taken alone, is considered material to our business, taken in the aggregate, these patents provide meaningful protection for our intellectual property.

Materials

The most significant raw materials we use to manufacture our products are grey iron, aluminum, stainless steel and a nickel-, iron- and chromium-based alloy. As of December 31, 2018,2022, we have not experienced any significant shortage of raw materials and normallywe or our suppliers (on our behalf) do not typically carry inventories of such raw materials in excess of those reasonably required to meet our production and shipping schedules.

Customers

Our global customer base includes nine of the ten largest light vehicle OEMs and nine of the ten largest commercial vehicle engine makers.

Our ten largest applications in 20182022 were with sevensix different OEMs. OEM sales were approximately 86% of our 20182022 revenues while our aftermarket and other products contributed 14%.

Our largest customer is Ford Motor CompanyBayerische Motoren Werke AG (“Ford”BMW”). In 2018, 20172022, 2021 and 2016, Ford2020, BMW accounted for 13%12%, 14%13%, and 15%11%, respectively, of our total sales. In 2018, 20172022, 2021 and 2016,2020, our sales to Volkswagen AGFord Motor Company (“Volkswagen”Ford”) were 8%10%, 8%10%, and 10%, respectively, of our total sales.

Supply Relationships with Our Customers

We typically supply products to our OEM customers through “open” purchase orders, which are generally governed by terms and conditions negotiated with each OEM. Although the terms and conditions vary from customer to customer, they typically contemplate a relationship under which our customers are not required to purchase a minimum amount of product from us. These relationships typically extend over the life of the related engine platform. Prices are negotiated with respect to each business award, which may be subject to adjustments under certain circumstances, such

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as commodityor foreignexchange escalation/de-escalation clausesor for cost reductionsachievedby us. The termsand conditionstypicallyprovidethatweare subjectto a warrantyon the productssupplied.We may also be obligatedto sharein allor a partof recallcostsif the OEM recallsitsvehiclesfor defectsattributableto our products.

Individual purchase orders are terminable for cause or non-performance and, in most cases, upon our insolvency and certain change of control events. In addition, many of our OEM customers have the option to terminate for convenience on certain programs, which permits our customers to impose pressure on pricing during the life of the vehicle program, and issue purchase contracts for less than the duration of the vehicle program, which potentially reduces our profit margins and increases the risk of our losing future sales under those purchase contracts. We manufacture, and ship based on customer
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release schedules, normally provided on a weekly basis, which can vary due to cyclical automobile production or inventory levels throughout the supply chain.

Although customer programs typically extend to future periods, and although there is an expectation that we will supply certain levels of OEM production during such future periods, customer agreements including applicable terms and conditions do not necessarily constitute firm orders. Firm orders are generally limited to specific and authorized customer purchase order releases placed with our manufacturing and distribution centers for actual production and order fulfillment.fulfilment. Firm orders are typically fulfilled as promptly as possible from the conversion of available raw materials, sub-components and work-in-process inventory for OEM orders and from current on-hand finished goods inventory for aftermarket orders. The dollar amount of such purchase order releases on hand and not processed at any point in time is not believed to be significant based upon the time frame involved.

Regulatory and Environmental Compliance

We are subject to the requirements of environmental and health and safety laws and regulations in each country in which we operate. These include, among other things, laws regulating air emissions, water discharge, hazardous materials and waste management. We have an environmental management structure designed to facilitate and support our compliance with these requirements globally. Although it is our intent to comply with all such requirements and regulations, we cannot provide assurance that we are at all times in compliance. Environmental requirements are complex, change frequently and have tended to become more stringent over time. Accordingly, we cannot assure that environmental requirements will not change or become more stringent over time or that our eventual environmental costs and liabilities will not be material.

Certain environmental laws assess liability on current or previous owners or operators of real property for the cost of removal or remediation of hazardous substances. At this time, we are involved in various stages of investigation and cleanup related to environmental remediation matters at certain of our present and former facilities. In addition, there may be soil or groundwater contamination at several of our properties resulting from historical, ongoing or nearby activities.

As of December 31, 2018,2022, the undiscounted reserve for environmental investigation and remediation was approximately $8$17 million. We do not currently possess sufficient information to reasonably estimate the amounts of environmental liabilities to be recorded upon future completion of studies, litigation or settlements, and we cannot determine either the timing or the amount of the ultimate costs associated with environmental matters, which could be material to our consolidated and combined results of operations and operating cash flows in the periods recognized or paid. However, considering our past experience and existing reserves, we do not expect that environmental matters will have a material adverse effect on our consolidated and combined financial position.

Additionally, we

Corporate Responsibility
Our Sustainability Approach
Garrett’s mission to enable cleaner, more efficient and connected vehicles is at the heart of our contribution to society. Our engineering expertise and transformative technologies help optimize fuel efficiency, reduce harmful emissions and manage growing vehicle complexity, all of which are requiredcritical areas on the road to make paymentsa clean transportation future.
Our corporate sustainability framework, called WeCare4, starts from our mission to Honeywellenable cleaner, more efficient vehicles by spearheading technology development and continuing to deliver industry-first innovations. It is built on two main pillars - investing in amounts equala culture of innovation and operating responsibly to 90%ensure long-term impact.
We embed sustainability in our governance structure. Our Sustainability Committee, composed of Honeywell’s asbestos-related liability payments primarily relatedthe CEO and several members of Garrett’s senior leadership team, is sponsored by our Chief Technology Officer and oversees our sustainability strategy development, definition and deployment. Our Board of Directors, including its committees, provide Board oversight of our environment, social and governance ("ESG") activities, corporate responsibility and sustainability strategy. Primary responsibility at Board level for reviewing and reporting to the Bendix business in the United States,full Board on our sustainability programs and policies, as well as certain environmental-related liability paymentsour corporate citizen commitments, resides with the Nominating & Governance Committee.
Garrett articulates its commitments to social and accounts payable and non-United States asbestos-related liability payments,environmental considerations in each case related to legacy elementsthe communities in which it operates in the Company’s Code of Business Conduct, which can be found on our website at www.garrettmotion.com under "About Us – Corporate – Sustainability". The Company published its fiscal year 2021 Sustainability Report in 2022, the Business, including the legal costscontent of defending and resolving such liabilities, less 90% of Honeywell’s net insurance receipts and, as may be applicable, certain other recoveries associated with such liabilities. Pursuant to the terms of our Indemnification and Reimbursement Agreement with Honeywell (the “Indemnification and Reimbursement Agreement”), we are responsible for paying to Honeywell such amounts, up to a cap of an amount equal to the Distribution Date Currency Exchange Rate (1.16977 USD = 1 EUR) equivalent of $175 million (exclusive of any late payment fees) in respect of such liabilities arisingwhich is not incorporated by reference into this Annual Report or in any given calendar year. See “Risk Factors—Risks Relatingother report or document we file with the SEC.
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Human Capital
At Garrett, we place a high value on developing the right working environment and the right skillsets to Our Business—We are subject to risks associated with the

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Indemnificationadvance our performance culture, support our growth strategy and Reimbursement Agreement, pursuant to which we are required to make substantial cash payments to Honeywell, measured in substantial part by reference to estimates by Honeywell of certain of its liabilities”. The Indemnification and Reimbursement Agreement providesensure that the agreement will terminate upon the earlier of (x) December 31, 2048 or (y) December 31st of the third consecutive year during which certain amounts owedworld at large can continue to Honeywell during each such year were less than $25 million as converted into Eurosbenefit from breakthroughs in accordance with the terms of the agreement.

Employees

sustainable mobility. We invest in creating an inclusive, stimulating, and safe work environment where our employees can deliver their workplace best every day. As of December 31, 2018,2022, we employed approximately 6,000 full-time7,300 permanent employees and 1,5002,000 temporary and contract workers globally. Approximately 37%


gtx-20221231_g6.gif

Diversity, equity and inclusion
Diversity and Inclusion is one of Garrett’s four fundamentals. As such, we strive to ensure that our employees are each involved, supported, respected and connected. Embracing diverse thoughts and ideas through inclusion leads to a competitive advantage in the market, increased innovation as we generate new and better ideas, and customer-centric decision making. We pride ourselves that diversity is represented from the top of the organization, for example 25 different nationalities are represented in our senior management team and they bring with them a wide variety of different backgrounds and experiences. Overall, in our global workforce we have representation of approximately 60 different nationalities. As of December 31, 2022, Garrett's Board of Directors had 33% female representation.
In 2022, the Company continued to strengthen and develop its approach to diversity, equity and inclusion. Actions during the year included:
•Regular reporting and review of existing diversity and inclusion metrics and initiatives
•Work by 14 Diversity and Inclusion Champions in key countries to develop local Diversity and Inclusion initiatives suitable for the local context while aligning with the global strategy
•Holding Garrett’s annual Diversity and Inclusion Week in November based on the themes of Beyond Bias.
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The percentage of female employees in Garrett was 21.8% in 2022. The percentage of female employees in Senior Management roles was 19.0% in 2022. Over the past four years, Garrett increased the percentage of female employees in Garrett by 5.8% (from 20.6% to 21.8%) and by 13.8% in Senior Management over the same four year period (from 16.7% to 19.0%).
The table below shows the evolution of our gender diversity representation over the last four years and our 2025 ambition:
 20192020202120222025 Ambition
% Women in total workforce20.6%20.8%22.2%21.8%25.0%
% Women in Senior Management16.7%19.5%20.0%19.0%25.0%
Talent Management
At Garrett, we encourage our employees to develop their skills and capabilities through a comprehensive Performance and Talent Management system. From annual goal-setting and performance reviews to learning opportunities for employees and leaders, the Company helps its people align their professional experience with the Company’s business objectives and encourages them to take ownership of their development and career paths.
Our learning environment offers employees access to more than 1,000 online trainings that address a wide range of functional competencies, technical skills, and human skills. Learning can be self-paced, while the Company’s growing online peer-to-peer learning communities also allow employees to easily access courses specific to their function and to share materials and ideas on topics of interest. A variety of instructor led virtual programs were deployed during 2022 to support employees' development and a number of dedicated programs for emerging and experienced leaders were successfully held. Approximately 80,000 hours of online training was delivered during 2022.
We use regular talent reviews to strengthen the Company’s internal development processes and to calibrate assessment of individual performance. Twice per year we hold succession planning meetings up to and including the executive level, during which the bench-strength of teams are scrutinized and development plans for their talent are reviewed. Ahead of both annual and mid-year performance reviews, leaders hold calibration meetings to ensure that assessment ratings are consistent and fair amongst peer groups.
Be well, work well
Health and Safety
World-class health and safety considerations are integrated into Garrett’s procedures and processes. Our management system aligns with the global standard ISO 45001 (and ISO 14001 and ISO 50 001) and provides protection of human health and safety during normal and emergency situations. Compliance with our standards and local regulatory requirements is monitored through a company-wide self-assessment process assured through annual audits. In 2022 we supplemented this with a rolling 4-year compliance audit against local regulations by a global service provider. The timely development and implementation of process improvement and corrective action plans are closely monitored.
As the Covid-19 pandemic started to recede in the first quarter of 2022, through government and international action, we transitioned to more normal working with continued support for the health and well being of our employees. This transition is now complete with the emergence of China from their zero-Covid policy.
Our safety performance was maintained in our Total Case Incident Rate (“TCIR”). TCIR is measured as the number of recordable injuries and illnesses multiplied by 200,000 and then that number is divided by the total number of hours worked by employees, TCIR was 0.12 in 2022, which is consistent with the TCIR in the previous three years.
Compensation and benefits
Garrett’s rewards programs are rooted in our “Be well, work well” principle, and aim to support employees in achieving the right work-life balance. We invest significant time and resources in establishing compensation programs that are both competitive and equitable. We constantly evaluate our positions for market competitiveness and adjust when necessary with the goal of ensuring the retention of top talent and continuation of equitable pay practices.
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As part of our commitment to the well-being of our employees, the Company offers an Employee Assistance Program. It is an external counselling service designed to assist employees with personal, family, or workplace matters. This service is confidential and is also available to each employee’s dependents.
In late 2020, the Company made a number of well-being resources available to all its connected employees, including useful tools and techniques for managing mental and physical health, in addition to dedicated online events. These remained in place throughout 2021 and 2022.
Employee feedback, representation, and retention
Garrett’s Performance and Talent Management system aims to ensure that two-way dialogue is ongoing between employees and managers, punctuated by both an annual and a mid-year review, which provides employees the opportunity to express their opinions and ideas in terms of their development goals and career aspirations.
Garrett’s strategy is to build positive, direct, business-focused working relationships with all employees in order to drive business results. The Company respects employees’ rights and their wish to be part of employee representative bodies including unions, work councils and employee forums. The Company understands the value of collective bargaining in its labor and employee relations strategy and the importance of trust in its working relationships. Approximately 40% of the Company’s permanent employees (including both full-time employeesand part-time employees) are represented by unions and works councils.

councils under current collective bargaining agreements.

The Company closely monitors employee turnover to measure retention and define improvement actions as and where necessary. As of December 31, 2022, the Company’s annual voluntary turnover for 2022 was 13.6%, which reflects the trends of the current global marketplace for talent. Garrett has developed a full set of actions to maximize retention that are carried out at both a global and local level, with line managers as well as functional leaders held accountable for their employee turnover performance. We intend to continue to work diligently on this area to mitigate against the challenges of a highly competitive global marketplace for talent.
Educating future innovators
Garrett places a high value on STEM research and learning opportunities that provide young people with the skills needed to develop the future of sustainable mobility. The Company sponsors higher education institutes in several countries to further critical research in technical areas and provide students with opportunities to study STEM programs.
Garrett’s Internship Programs enable students to connect theoretical knowledge with practical responsibilities in the spirit of ‘living laboratories’ during which they are encouraged to take ownership of business projects and define tactics to meet the project goals. In 2022, Garrett offered 261 internships in 11 countries, which is twice as many compared to 2021 (approximately 37% in Engineering, 32% in Integrated Supply Chain, 12% in IT and the remainder in Finance, HR, Marketing and Sales, Legal and Internal Audit).
Garrett runs a Graduate Program which in 2022 provided 25 graduates in 2 countries to gain experience and exposure to Garrett’s cutting-edge technologies while at the same time building their leadership skills in a fast-paced and professional work environment.
The Company sponsors Formula SAE and Formula Student teams in several countries providing the students in the racing team with leadership coaching, technical guidance, parts for the vehicle and financial support. Our engineers and leaders take part on Formula Student and Formula SAE races as judges and technical support. In 2022, the Company sponsored the European BEST Engineering Competition, the biggest international technical competition in Central Europe, where Garrett defined an assignment for over 50 students on a case study comparing pros and cons for a cooling unit with conventional pump and radial impeller driven compressor.
Garrett supports the local Universities globally with master thesis projects, class speakers and technical sharing events and is involved in the community supporting STEM activities for high schools worldwide. The Company continues to enhance the engagement with global organizations at the university focused on diversity students increasing intern and full time recruiting. Garrett works closely with leading Universities globally on over 10 collaboration projects that push the envelope of technical innovation.
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Seasonality

Our business is typically moderately seasonal. Our primary North American customers historically reduce production during the month of July and halt operations for approximately one week in December; our European customers generally reduce production during the months of July and August and for one week in December; and our Chinese customers often reduce production during the period surrounding the Chinese New Year. Shut-down periods in the rest of the world generally vary by country. In addition, automotive production is traditionally reduced in the months of July, August and September due to the launch of parts production for new vehicle models. Accordingly, our results reflect this seasonality. Our sales predictability in the short term might also be impacted by sudden changes in customer demand, driven by our OEM customers’ supply chain management.

We also typically experience seasonality in cash flow, as a relatively small portion of our full year cash flow is typically generated in the first quarter of the year and a relatively large portion in the last quarter. This seasonality in cash flow is mostly caused by timing of supplier payments for capital expenditures, changes in working capital balances related to the sales seasonality discussed above, and incentive payments.

Cybersecurity
Cybersecurity and protection of our data is a top priority across the entire organization. To that end, we take a holistic approach to securing our data and business systems from attack, compromise or loss. The Company's cybersecurity objective is to protect Garrett data privacy, information theft, and protection from external and insider cyber threats. This includes the combination of leading technologies, policies, and procedures, and the Company’s Security Operation Center (“SOC”).
The Company's SOC provides visibility across all information technology assets and includes proactive cyber security Threat Detection Technology to facilities the identification of misconfigurations to mitigate threats and prevent data loss. As part of the Company’s holistic approach to cybersecurity, there are incremental programs and technology associated with threat hunting, vulnerability scanning and threat detection and response technology. We continually evaluate risks, threats, intelligence feeds and vulnerabilities to adapt, mitigate or respond as necessary to preserve a secure state. Combining technology, processes, and threat intelligence we deliver specific and timely education and training to the organization, including mandatory training for all employees.
While Garrett focuses heavily on prevention and detection, response and recovery plans, service agreements and partner engagements are in place should there be a need for us to respond to an attack. There have been no material cybersecurity events during the year ended December 31, 2022.
Additional Information

The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, such as us, at http://www.sec.gov. This

Our Annual ReportReports on Form 10-K, including this Annual Report, our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, as well as all amendments and other reports filed with or furnished to the SEC, are also available free of charge on our internet site at https://www.garrettmotion.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

The contents of our internet site are not incorporated by reference into this Annual Report. The SEC maintains a website at SEC.gov that contains reports, proxy and information statements, and other information regarding issuers that file with the SEC, including our Company.


Item 1A. RiskRisk Factors

You should carefully consider all of the information in this Annual Report on Form 10-K and each of the risks described below, which we believe are the principal risks we face. Any of the following risks could materially and adversely affect our business, financial condition and results of operations and the actual outcome of matters as to which forward-looking statements are made in this Annual Report on Form 10-K. Other events that we do not currently anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations.

Risks Relating to Our Business

Industryour Business:

Volatility in the cost and economic conditionsavailability of raw materials, components, energy and transportation, in addition to disruptions in the supply chain, including supplier insolvency, has increased, and may adversely affectcontinue to increase, the markets and operating conditionscost of our customers, which in turn can affect demand for our products and services, and may impact our ability to meet commitments to customers and cause us to incur significant liabilities.
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We have experienced, and may continue to experience, volatility in the cost and availability of raw materials, components, energy and transportation as a result of a broad range of factors beyond our control including, but not limited to, pandemics, general inflation and geopolitical tensions caused by armed conflict. If we are unable to pass through increased costs of raw materials, components, energy and transportation to our customers, or are otherwise unable to mitigate these cost increases, this could have an adverse effect on our results of operations.

We are dependent on the continued growth, viabilityoperations and financial stabilitycondition. Furthermore, if we are unable to overcome significant disruptions in the supply chain, such as those caused by the shortage of semiconductor chips and global logistical constraints currently impacting the automotive industry, it could adversely impact our customers.business.

Short- or long-term capacity constraints, insufficient quality control, financial distress or significant changes in business conditions at any point in our supply chain could disrupt our operations and adversely affect our financial performance, particularly when the affected suppliers and vendors are the sole sources of products that we require or that have unique capabilities, or when our customers have directed us to use those specific suppliers and vendors. A substantialsignificant portion of our supply chain is located in mainland China. Our ability to manage inventory and meet delivery requirements may be constrained by our suppliers’ inability to scale production and adjust delivery of long-lead time products during times of volatile demand. If our third-party manufacturers fail to deliver products, parts and components of sufficient quality on time and at reasonable prices, we could have difficulties fulfilling our orders on similar terms or at all, sales and profits could decline, and our commercial reputation could be damaged. If we fail to adequately assess the creditworthiness and operational reliability of existing or future suppliers, our suppliers become insolvent, if there is any unanticipated deterioration in their creditworthiness and operational reliability, or if they do not perform or adhere to our existing or future contractual arrangements, any resulting increase in non performance by them, our inability to otherwise obtain the supplies or our inability to enforce the terms of the contract or seek other remedies could have a material adverse effect on our financial condition and results of operations. Changes or additions to our supply chain require considerable time and resources and involve significant risks and uncertainties. Our inability to fill our supply needs would jeopardize our ability to fulfil obligations under commercial contracts, and could result in reduced sales and profits, contract penalties or terminations, and damage to customer relationships.

The Company relies on sales to major customers are OEMsas well as a network of independent dealers to manage the distribution of its products, and we could be adversely impacted by the loss of any of our such major customers or dealers, changes in their requirements for our products or changes in their financial condition.
Changes in our business relationships with any of our major customers or in the automotive industry. This industry is subject to rapid technological change often driven by regulatory changes, vigorous competition, short product life cyclestiming, size and cyclical and reduced consumer demand patterns. In addition to general economic conditions, automotive sales and automotive vehicle production also dependcontinuation of their various programs could have a material adverse impact on other factors, such as supplier stability, factory transitions, capacity constraints,us. The loss of any of these customers, the costs and availabilityloss of consumer credit, consumer confidence and consumer preferences. When our customers are adversely affected by these factors, we may be similarly affected to the extent that our customers reduce the volume of orders for our products. Economic declines and corresponding reductions in automotive sales and production by our customers, particularlybusiness with respect to light vehicles,one or more of their vehicle models on which we have high component content, or a significant decline in the past had, and may in the future have, a significant adverse effect onproduction levels of such vehicles would negatively impact our business, results of operations and financial condition.

Pricing pressure from our customers also poses certain risks. Inability on our part to offset pricing concessions with cost reductions would adversely affect our profitability. We are continually bidding on new business with these customers, as well as seeking to diversify our customer base, but there is no assurance that our efforts will be successful. Further, to the extent that the financial condition of our largest customers deteriorates, including possible bankruptcies, mergers or liquidations, or their sales otherwise decline, our financial position and results of operations could be adversely affected.

If our dealers are unsuccessful with their sales and business operations, it could have an adverse effect on overall sales and revenue. We rely on the capability of our independent dealers to develop and implement effective sales plans to create demand among purchasers for the equipment and related products and services that the dealers purchase from us. If our dealers are not successful in these endeavors, then we will be unable to grow our sales and revenue, which would have an adverse effect on our financial condition. In addition, the dealer channel’s ability to support and service precision technology solutions and emerging power solutions may affect customers’ acceptance and adoption rates of these products.
Dealers may have trouble funding their day-to-day cash flow needs and paying their obligations due to adverse business conditions resulting from negative economic effects or other factors. Dealers may exit relationships with us or we may seek to terminate relationships with certain dealers if they are unable to meet customer needs. The unplanned loss of any of our dealers could lead to inadequate market coverage, negative customer impressions of us, and may adversely impact our ability to collect receivables that are associated with that dealer.

We may not be able to successfully negotiate favorable pricing terms with our customers, which may adversely affect our results of operations.
There is substantial and continuing pressure on OEMs to reduce costs, including the costs of the products we supply. We negotiate sales prices annually with our automotive customers. Our customer supply agreements generally require step-
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downs in component pricing over the period of production. In addition, our customers often reserve the right to terminate their supply contracts at any time, which enhances their ability to obtain price reductions. OEMs have also exercised significant influence over their suppliers, including us, because the automotive component supply industry is highly competitive and serves a limited number of customers. Based on these factors, our status as a Tier I supplier (one that supplies vehicle components directly to manufacturers) and the fact that our customers’ product programs typically last a number of years and are anticipated to encompass large volumes, our customers are able to negotiate favorable pricing, and any cost-cutting initiatives that our customers adopt generally will result in increased downward pressure on our pricing. Any resulting impacts to our sales levels and margins, could over time significantly reduce our revenues and adversely affect our competitive standing and prospects. Additionally, large commercial settlements with our customers may adversely affect our results of operations.

The automotive industry is evolving and if we are unable, or perceived as unable, to respond appropriately to such evolution, our financial condition and results of operation could be adversely impacted.
The salesand marginsof our businessare directlyimpactedby governmentregulations,includingsafety, performanceand productcertificationregulations,particularlywith respectto emissions,fueleconomy and energy efficiencystandardsfor motorvehicles.Increasedpublicawarenessand concernregardingglobalclimate change may resultin moreregionaland/orfederalrequirementsto reduceor mitigatethe effectsof greenhouse gas emissions.Whilesuch requirementscan promoteincreaseddemand for our turbochargersand otherproducts, severalmarketsin which weoperateare undertakingeffortsto morestrictlyregulateor ban vehiclespowered by certainolder-generationdieselengines.If such effortsare pursued morebroadlythroughoutthe marketthan we have anticipated,such effortsmay impactdemand for our aftermarketproducts. Changes in demand and emerging needs of customers that are not perceived adequately in advance and/or incorporated in the product development process (e.g., demand for eco-compatible products) may result in lower sales volumes and consequentlyaffectour resultsof operations.
Even if overall automotive sales and production remain stable, changes in regulations and consumer preferences may shift consumer demand away from the types of vehicles we prioritize or towards the types of vehicles where our products generate smaller profit margins. A decrease in consumer demand for the specific types of vehicles that have traditionally included our turbocharger products, such as a decrease in demand for diesel-fueled vehicles in favor of gasoline-fueled vehicles, or lower-than-expected consumer demand for specific types of vehicles where we anticipate providing significant components as part of our strategic growth plan, such as a decrease in demand for vehicles utilizing electric-hybrid and fuel cell powertrains in favor of full battery electric vehicles, could have a significant effect on our business. If we are unable to anticipate significant changes in consumer sentiment, or if consumer demand for certain vehicle types changes more than we expect, our results of operations and financial condition could be adversely affected.

Furthermore, if we are unable to maintain our competitive advantage through innovation, if we do not sustain our ability to meet customer requirements relative to technology, or we fail to be awarded new business, there could be a material adverse effect on our results of operations, financial condition and future business prospects.

Sales in our aftermarket operations are also directly related to consumer demand and spending for automotive aftermarket products, which may be affected by additional factors such as the average useful life of OEM parts and components, severity of regional weather conditions, highway and roadway infrastructure deterioration and the average number of miles vehicles are driven by owners. Improvements in technology and product quality are extending the longevity of vehicle component parts, which may result in delayed or reduced aftermarket sales. Our results of operations and financial condition could be adversely affected if we fail to respond in a timely and appropriate manner to changes in the demand for our aftermarket products.

Changes in legislation or government regulations or policies can have a significant impact on our results of operations.

The sales and margins of our business are directly impacted by government regulations, including safety, performance and product certification regulations, particularly with respect to emissions, fuel economy and energy efficiency standards for motor vehicles. Increased public awareness and concern regarding global climate change may result in more regional and/or federal requirements to reduce or mitigate the effects of greenhouse gas emissions. While such requirements can promote increased demand for our turbochargers and other products, several

Certain markets in which we operate have, and are expected to continue, contemplating or undertaking multi-decade efforts to more strictly regulate or ban vehicles powered by certain older-generation diesel engines. If such efforts are pursued more broadly throughout the market than we have anticipated, such efforts may impact demand for our aftermarket products and consequently affect our results of operations.


In the long-term,severalof the marketsin which weoperateare contemplatingor undertakingmulti-decade effortsto transitionaway frominternalcombustionenginesin favorof hybrid or full-batteryelectricvehicles.

Although we expect a significant number of hybrids will be turbocharged, if we overestimate the turbo penetration rate in hybrids or if If a transition to battery-electric vehicles is pursued more broadly throughout the market, or is implemented more rapidly than we have anticipated, or if we overestimate the turbocharger penetration rate in hybrids, then the demand for our products could be impacted and our results of operations consequently could be affected.

Conversely, in the U.S., the current political administration has signaled that it may support efforts

Changing government regulations related to slow or even reverse the adoption of environmental regulations. If requirements to reduce or mitigate the effects of greenhouse gas emissions are weakened and energy efficiency and growing recognition among consumers of the dangers of climate change may also require changes at the product/production process level. These trends have and may continue to prompt automotive OEMs to make commitments to carbon neutrality, which could in turn prompt us to make changes at the product/production process level. This could require additional cost/investment to make products/production processes compliant and/or rolled back, whether in the U.S. or elsewhere in our markets, customer demand for our turbochargers could fall, negatively affecting ourcarbon neutral.
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The Company’s profitability and results of operations.

Our future growthoperations may be adversely affected by program launch difficulties.

The launch of new business is largely dependent upon our ability to develop new technologies and introduce new products with acceptable margins that achieve market acceptance or correctly anticipate regulatory changes.

The global automotive component supply industry is highly competitive. Our future growth ratea complex process, the success of which depends uponon a numberwide range of factors, including our ability to: (i) identify emerging technological trends in our targetend-markets; (ii)the production readiness of the Company’s manufacturing facilities and manufacturing processes and those of its suppliers, as well as factors related to tooling, equipment, employees, initial product quality and other factors. The Company’s failure to successfully launch new business, or its inability to accurately estimate the cost to design, develop and maintain competitive products; (iii) enhance our products by adding innovative features that differentiate our products from those of our competitors; (iv) develop, manufacture and bring compellinglaunch new products to market quickly and cost effectively; and (v) attract, develop and retain individuals with the requisite technical expertise and understanding of customers’ needs to develop new technologies and introduce new products.

Webusiness, could have identified a trend towards increased development and adoption by OEMs of hybrid-electric powertrains, fuel cell powertrains and associated electric boosting technologies in preference to pure battery electric cars, which continue to face range, charging time and sustainability issues. Our results of operations could be adversely affected if our estimates regarding adoption and penetration rates for hybrid-electric and fuel cell powertrains or for pure battery electric cars are incorrect.

Failure to protect our intellectual property or allegations that we have infringed the intellectual property of others could adversely affect our business, financial conditionan adverse effect on its profitability and results of operations.

We rely on a combination of patents, copyrights, trademarks, tradenames, trade secrets and other proprietary rights, as well as contractual arrangements, including licenses, to establish, maintain and protect our intellectual property rights. Effective intellectual property protection may

To the extent the Company is not be available, or we may not be able to acquiresuccessfully launch new business, vehicle production at its customers could be significantly delayed or maintain appropriate registered or unregistered intellectual property,shut down. Such situations could result in every country in which we do business. Accordingly, our intellectual property rights may not be sufficient to permit us to take advantage of some business opportunities.

The protection of our intellectual property may require us to spend significant amounts of money. Further, the steps we take to protect our intellectual property may not adequately protect our rights or prevent others from infringing, violating or misappropriating our intellectual proprietary rights. Any impairment of our intellectual property rights, including due to changes in U.S. or foreign intellectual property laws or the absence of effective legal protections or enforcement measures, could adversely impact our businesses, financial condition and results of operations.

In addition, as we adopt new technology, we face an inherent risk of exposurepenalties to the claimsCompany or a diversion of others that we have allegedly violated their intellectual property rights. Successful claims that we infringe on the intellectual property rights of otherspersonnel and financial resources to improving launches rather than investment in continuous process improvement or other growth initiatives and could require us to enter into royalty or licensing agreements on unfavorable terms, or cause us to incur substantial monetary liability. We may also be prohibited preliminarily or permanently from further use of the intellectual propertyresult in question or be required to change our business practices to stop the infringing use, which could limit our ability to compete effectively. In addition, our customer agreements may require us to indemnify the customer for infringement. The time and expense of defending against these claims, whether meritorious or not, may have a material and adverse impact on our profitability, can be time-consuming and costly and may divert management’s attention and resourcesits customers shifting work away from our businesses. Furthermore, the publicity we may receive asit to a resultcompetitor, all of infringing intellectual property rights may damage our reputation and adversely impact our existing customer relationships and our ability to develop new business.


We may incur materiallossesandcostsas a resultof warranty claims,including product recalls,andproduct liabilityactionsthat may be brought against us.

Depending on the terms under which we supply products to an auto manufacturer, we may be required to guarantee or offer warranties for our products and to bear the costs of recalls, repair or replacement of such products pursuant to new vehicle warranties. There can be no assurance that we will have adequate reserves to cover such recall, repair and replacement costs. In the event that any of our products fails to perform as expected, we may face direct exposure to warranty and product liability claims or may be required to participate in a government or self-imposed recall involving such products. Our customers that are not end users, such as auto manufacturers, may face similar claims or be obliged to conduct recalls of their own, and in such circumstances, they may seek contribution from us. Our agreements with our customers typically do not contain limitation of liability clauses, so if any such claims or contribution requests exceed our available insurance, or if there is a product recall, there could be a material adverse impact on our results of operations. In addition, a recall claim could require us to review our entire product portfolio to assess whether similar issues are present in other product lines, which could result in significant disruption to our businessloss of revenue or loss of market share and could have a further adverse impact on our results of operations. We cannot assure you that we will not experience any material warranty or product liability claim losses in the future or that we will not incur significant costs to defend such claims.

The operational constraints and financial distress of third parties could adversely impact our business and results of operations.

Our results of operations, financial condition and cash flows could be adversely affected if our third-party suppliers lack sufficient quality control or if there are significant changes in their financial or business condition. If our third-party manufacturers fail to deliver products, parts and components of sufficient quality on time and at reasonable prices, we could have difficulties fulfilling our orders on similar terms or at all, sales and profits could decline, and our commercial reputation could be damaged. See “—Raw material price fluctuations, the ability of key suppliers to meet quality and delivery requirements, or catastrophic events can increase the cost of our products and services, impact our ability to meet commitments to customers and cause us to incur significant liabilities.” If we fail to adequately assess the creditworthiness and operational reliability of existing or future suppliers, if there is any unanticipated deterioration in their creditworthiness and operational reliability, or if our suppliers do not perform or adhere to our existing or future contractual arrangements, any resulting increase in nonperformance by them, our inability to otherwise obtain the supplies or our inability to enforce the terms of the contract or seek other remedies could have a materialan adverse effect on our financial conditionits profitability and results of operations.

Work stoppages, other disruptions, or the need to relocate any of our facilities could significantly disrupt our business.

Our geographic footprint emphasizes locatingresearch and development (“R&D”), engineering and manufacturing capabilities in close physical proximity to our customers, thereby enabling us to adopt technologies and products for the specific vehicle types sold in each geographic market. Because our facilities offer localized services in this manner, a work stoppage or other disruption at one or more of our R&D, engineering or manufacturing and assembly facilities in a given region could have material adverse effects on our business, especially insofar as it impacts our ability to serve customers in that region. Moreover, due to unforeseen circumstances or factors beyond our control, we may be forced to relocate our operations from one or more of our existing facilities to new facilities and may incur substantial costs, experience program delays and sacrifice proximity to customers and geographic markets as a result, potentially for an extended period of time.

The automotive industry relies heavily on “just-in-time” delivery of components during the assembly and manufacture of vehicles, and when we fail to make timely deliveries in accordance with our contractual obligations, we generally have to absorb our own costs for identifying and solving the “root cause” problem as well as expeditiously producing replacement components or products. We typically must also carry the costs associated with “catching up,” such as overtime and premium freight. Additionally, if we are the cause for a customer being forced to halt production, the customer may seek to recoup all of its losses and expenses from us. These losses and expenses could be significant, and may include consequential losses such as lost profits.

cash flows.


In addition, asignificantdisruptionin the supply of a key componentdue to a work stoppageor otherdisruptionat one of our suppliersor any othersuppliercould impactour abilityto make timelydeliveriesto our customersand, accordingly,have a materialadverseeffecton our financialresults.Wherea customerhaltsproductionbecause of anothersupplierfailingto deliveron time,or as a resultof a work stoppageor otherdisruption,it is unlikely wewill be fullycompensated,if at all.

We may not realize sales represented by awarded business or effectively utilize our manufacturing capacity.

When we win a bid to offer products and services to an OEM customer, the customer typically does not commit to award us its business until a separate contract has been negotiated, generally with a term ranging from one year to the life of the model (usually three to seven years). Once business has been awarded, the OEM customer typically retains the ability to terminate the arrangement without penalty and does not commit to purchase a minimum volume of products while the contract is in effect.

In light of the foregoing, while we estimate awarded business using certain assumptions, including projected future sales volumes, the volume and timing of sales to our customers may vary due to: variation in demand for our customers’ products; our customers’ attempts to manage their inventory; design changes; changes in our customers’ manufacturing strategy; the success of customers’ goods and models; and acquisitions of or consolidations among customers. A significant decrease in demand for certain key models or a group of related models sold by any of our major customers, or the ability of a manufacturer to re-source and discontinue purchasing from us its requirements for a particular model or group of models, could have a material adverse effect on us. In particular, we may be unable to forecast the level of customer orders with sufficient certainty to allow us to optimize production schedules and maximize utilization of manufacturing capacity. Any excess capacity would cause us to incur increased fixed costs in our products relative to the net revenue we generate, which could have an adverse effect on our results of operations, particularly during economic downturns. Similarly, a significant failure or inability to adapt to increased production or desired inventory levels (including as a result of accelerated launch schedules for new automobile and truck platforms), comply with customer specifications and manufacturing requirements more generally or respond to other unexpected fluctuations, as well as any delays or other problems with existing or new products (including program launch difficulties) could result in financial penalties, increased costs, loss of sales, loss of customers or potential breaches of customer contracts, which could have an adverse effect on our profitability and results of operations.

If actual production orders from our customers are not consistent with the projections we use in calculating the amount of our awarded business, or if we are unable to improve utilization levels for manufacturing lines that consequently are underutilized and correctly manage capacity, the increased expense levels will have an adverse effect on our business, financial condition and results of operations, and we could realize substantially less revenue over the life of these projects than the currently projected estimate.

We may not be able to successfully negotiate pricing terms with our customers, which may

Industry and economic conditions, including a downturn, could adversely affect our business and results of operations.

We negotiate sales prices annually with our automotive customers. Our customer supply agreements generally require step-downs in component pricing overare dependent on the periodcontinued growth, viability and financial stability of production. In addition, our customers, often reserve the right to terminate their supply contracts at any time, which enhances their ability to obtain price reductions.a substantial portion of whom are OEMs have also exercised significant influence over their suppliers, including us, becausein the automotive component supplyindustry. The automotive industry is highly competitivesensitive to general economic conditions and serves a limited number of customers. Basedother factors, such as consumer confidence and preferences, interest rates, and fuel costs. The automobile industry is also sensitive to industry conditions, particularly as it evolves, such as rapid technological change often driven by regulatory changes, vigorous competition, short product life cycles, supplier stability, factory transitions, and capacity constraints. Economic and industry conditions have had, and will continue to have, an impact on these factors, our status as a Tier I supplier (one that supplies vehicle componentsbusiness, whether directly to manufacturers) and the fact that our customers’ product programs typically last a number of years and are anticipated to encompass large volumes,or indirectly through our customers are able to negotiate favorable pricing, and any cost-cutting initiativessuppliers. Economic declines that our customers adopt generally will result in increased downward pressuresignificant reductions in automotive sales or production, particularly with respect to light vehicles, would have an adverse effect on our pricing. Any resulting impacts to our sales levels and margins, or the failure of our technologies or products to gain market acceptance due to more attractive offerings by our competitors, could over time significantly reduce our revenues and adversely affect our competitive standing and prospects. In particular, large commercial settlements with our customers may adversely affect ourbusiness, results of operations.

operations and financial condition.


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We are subjectto the economic,political,regulatory,foreignexchange andother risksof international operations.

We have created a geographic footprint that emphasizes locating R&D, engineering and manufacturing capabilities in close physical proximity to our customers. Our international geographic footprint subjects us to many risks, including: exchange control regulations; wage and price controls; antitrust and environmental regulations; employment regulations; foreign investment laws; monetary and fiscal policies and protectionist measures that may prohibit acquisitions or joint ventures, establish local content requirements, or impact trade volumes; import, export and other trade restrictions (such as embargoes); violations by our employees of anti-corruption laws; changes in regulations regarding transactions with state-owned enterprises; nationalization of private enterprises; natural and man-made disasters, hazards and losses; global health risks and pandemics; backlash from foreign labor organizations related to our restructuring actions; violence, civil and labor unrest; acts of terrorism; and our ability to hire and maintain qualified staff and maintain the safety of our employees in these regions. Additionally, certain of the markets in which we operate have adopted increasingly strict data privacy and data protection requirements or may require local storage and processing of data or similar requirements. The European Commission has approved a data protection regulation, knownrequirements, such as the General Data Protection Regulation (“GDPR”), that came into force in May 2018. The GDPR includes operational requirements for companies that receive or process personal data of residents of the European Union, and includes significant penalties for non-compliance.Union. The GDPR and similar data protection measures may increase the cost and complexity of our ability to deliver our services.

As negotiations relatingservices to the future terms of the U.K.’s relationship with the European Union proceed, our manufacturing operations in Cheadle and the businesses of our customers and suppliers could be negatively impacted if tariffs or other restrictions are imposed on the free flow of goods to and from the U.K. Similarly, President Donald Trump’s decisions in March 2018 to impose both an ad valorem tariff on steel products imported into the United States and a separate set of tariffs on certain Chinese imports, and the resulting discussions about potential retaliatory tariffs from the E.U., China and other countries, could resultensure compliance.

Trade tensions have in the creation of further barriers to trade. Such barriers could adversely affectpast, and may in the businesses of our customers and suppliers, which could in turnfuture, negatively impact our salesbusiness. We may not be able to mitigate the impacts of any future tariffs, and our business, results of operations.operations and financial position would be materially adversely affected by such tariffs. Further changes in U.S. trade policies, tariffs, taxes, export restrictions or other trade barriers, or restrictions on raw materials or components may limit our ability to produce products, increase our manufacturing costs, decrease our profit margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase raw materials or components, which would have a material adverse effect on our business, results of operations and financial condition. These and other instabilities and uncertainties arising from the global geopolitical environment, along with the cost of compliance with increasingly complex and often conflicting regulations worldwide, can impair our flexibility in modifying product, marketing, pricing or other strategies for growing our businesses, as well as our ability to improve productivity and maintain acceptable operating margins.

As

Because the Company is a resultU.S. holding company, one significant source of our global presence, a significant portionits funds is distributions from its non-U.S. subsidiaries. Certain countries in which the Company operates have adopted or could institute currency exchange controls that limit or prohibit the Company’s local subsidiaries' ability to convert local currency into U.S. Dollars or to make payments outside the country. This could subject the Company to the risks of our revenues are denominated in currencies other than the U.S. dollar whereas a significant amount of our payment obligations are denominated in U.S. dollars, which exposes us to foreign exchange risk.local currency devaluation and business disruption. We monitor and seek to reduce such risk through hedging activities; however, foreign exchange hedging activities bear a financial cost and may not always be available to us or be successful in eliminating such volatility.

Finally, we generate significant amounts of cash that is invested with financial and non-financialcertain counterparties. While we employ comprehensive controls regarding global cash management to guard against cash or investment loss and to ensure our ability to fund our operations and commitments, a material disruption to the counterparties with whom we transact business could expose us to financial loss.


Geopolitical conditions, such as the ongoing conflict between Russia and Ukraine, and catastrophic events, such as the Covid-19 pandemic, may disrupt our business and adversely affect our results of operations and financial condition.
Geopolitical tensions, including but not limited to armed conflict, terrorist activity and instability or general economic disruption regionally or globally, could impact our results of operations and create or exacerbate certain risks we face to our business, financial condition and results of operations. For example, Russia’s invasion of Ukraine and the global response, including the imposition of financial and economic sanctions by the United States and other countries, has led to supply constraints that have impacted, and may continue to impact, our business. It has also led to energy shortages globally, especially in Europe. A prolonged or intensified conflict could result in acute shortages of raw materials and price inflation on transportation costs, materials, and energy which in turn may adversely impact our supply chain. If the conflict expands beyond Ukraine, it could negatively impact our operations in neighboring countries such as Romania and Slovakia. Furthermore, an escalation of geopolitical tensions due to the ongoing conflict, such as increased sanctions or restrictions on global trade, could result in further supply chain disruptions, reduced customer demand, state-sponsored cyberattacks as well as increased volatility in the financial markets, all of which could have a materially adverse impact on our business and operations.
Catastrophic events, such as a pandemic or cyberattack, could lead to disruption or failure of our systems or operations, harming our ability to conduct normal business operations. For example, the Covid-19 pandemic negatively impacted the global economy, disrupted supply chains and created significant volatility and disruption in financial markets, adversely impacting our business and operations including our employees, customers, suppliers, partners and communities.
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While the Covid-19 pandemic appears to be dissipating, there could be a prolonged negative impact of Covid-19 on global supply chains, general macroeconomic conditions and consumer confidence, which could have an adverse effect on our business, results of operations, cash flows and financial condition.

We have invested substantial resources in specific foreign markets where we expect growth and we may be unable to timely alter our strategies should such expectations not be realized.

We have identified certain countries, such as China and India, as key high-growth geographic markets. We believe these markets are likely to experience substantial long-term growth, and accordingly have made and expect to continue to make substantial investments in numerous manufacturing operations worldwide, technical centers, R&D activities and other infrastructure to support anticipated growth in these areas. If market demand for evolving vehicle technologies in these regions does not grow as quickly as we anticipate, or if we are unable to deepen existing and develop additional customer relationships in these regions, we may fail to realize expected rates of return, or even incur losses, on our existing investments and may be unable to timely redeploy the invested capital to take advantage of other markets or product categories, potentially resulting in lost market share to our competitors. In particular, our ability to remain competitive and continue to grow in these regions depends in part on the absence of competing state-sponsored domestic businesses. If a state-sponsored operation entered a local market as a competitor, it might have access to significant social and financial capital that would enable it to overcome the ordinary barriers to entry in the turbocharger industry and acquire potentially significant market share at our expense.



Increased scrutiny from customers, investors, regulators and others regarding sustainability/ESG practices, as well as the climate-related risks we may face, could expose us to liabilities, including reputational harm, affect demand for our products, lead to increased costs and have other adverse effects on our business, supply chain and results of operations
Many customers, regulators, investors, employees, and other stakeholders are increasingly focused on sustainability practices, including ESG considerations, relating to businesses, particularly with regards to climate change and greenhouse gas emissions, human and civil rights, and diversity, equity and inclusion. Responding to these sustainability/ESG considerations and implementing related goals and initiatives involve risks and uncertainties, require investments and depend in part on third-party performance or data that is outside of our control. We cannot guarantee that we will achieve announced sustainability/ESG goals and initiatives or that our stakeholders will agree with them. Additionally, certain organizations have developed rating systems for evaluating companies on their approach to ESG and unfavorable ratings may lead to negative customer and/or investor sentiment. Any failure, or perceived failure, by the Company to achieve its goals, further its initiatives, adhere to its public statements, comply with federal, state or international environmental, social and governance laws and regulations, or meet evolving and varied stakeholder expectations and standards could result in legal and regulatory proceedings against the Company and materially adversely affect the Company’s business, reputation, results of operations and financial condition.
In particular, there is increased public awareness and concern regarding global climate change and climate related risks, which has resulted, and is expected to continue to result, in local, regional and global requirements to reduce and/or mitigate the effects of greenhouse gas emissions. There continues to be a lack of consistent climate legislation, which creates economic and regulatory uncertainty. Any future regulations aimed at mitigating climate change may negatively impact the prices of raw materials and energy as well as the demand for certain of our customers' products which could in turn impact demand for our products and impact our results of operations. The costs of compliance and any changes to our operations mandated by new or amended regulations, or customer requirements, may be significant. Furthermore, any violations of climate change regulations may result in substantial fines and penalties, remediation costs, damages, or other adverse impacts on our business.
Additionally, the physical manifestations of climate change, such as extreme weather conditions or more frequent extreme weather events have in the past and may in the future disrupt our operations, damage our facilities, disrupt our supply chain, including our customers or suppliers, impact the availability and cost of materials needed for manufacturing or increase insurance and other operating costs. As a result, severe weather or a natural disaster that results in a prolonged disruption to our operations, or the operations of our customers or suppliers, could have a material adverse effect on our operating results, cash flows or financial condition.

We face risks in connection with joint venture partnerships, joint development projects and other strategic opportunities.

We evaluate strategic opportunities, including acquisitions of businesses, products and technologies, joint venture partnerships and joint development agreements that we believe will complement our business. We may not be able to successfully identify suitable acquisition and joint venture candidates or complete transactions on acceptable terms,
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integrate acquired operations into our existing operations or expand into new markets. Our failure to identify suitable strategic opportunities may restrict our ability to grow our business. Furthermore, our joint venture, joint development and other business partners may at any time have economic, business or legal interests or goals that are inconsistent with ours, which could negatively impact our reputation and/or financial condition.

We could be adverselyaffectedby our leading marketpositionin certainmarkets.

We believe that we are a market leader in the turbocharger industry in many of the markets in which we operate. Although we believe we have acted properly in the markets in which we have significant market share, we could face allegations of abuse of our market position or of collusion with other market participants, which could result in negative publicity and adverse regulatory action by the relevant authorities, including the imposition of monetary fines, all of which could adversely affect our financial condition and results of operations.

We may not be able

Failure to obtain additional capitalprotect our intellectual property or allegations that we need inhave infringed the future on favorable terms or at all.

We may require additional capital in the future to finance our growth and development, upgrade and improve our manufacturing capabilities, implement further marketing and sales activities, fund ongoing R&D activities, satisfy regulatory and environmental compliance obligations, satisfy indemnity obligations to Honeywell, and meet general working capital needs. Our capital requirements will depend on many factors, including acceptanceintellectual property of and demand for our products, the extent to which we invest in new technology and R&D projects and the status and timing of these developments. If our access to capital were to become constrained significantly, or if costs of capital increased significantly, due to lowered credit ratings, prevailing industry conditions, the solvency of our customers, a material decline in demand for or our products, the volatility of the capital markets or other factors, our financial condition, results of operations and cash flowsothers could be adversely affected. These conditions may adversely affect our ability to obtain targeted credit ratings.

Moreover, we have historically relied on Honeywell for assistance in satisfying our capital requirements. As a result of the Spin-Off, we are no longer able to rely on the earnings, assets or cash flow of Honeywell, and Honeywell will not provide funds to finance our capital requirements. We are also responsible for obtaining and maintaining sufficient working capital and other funds to satisfy our cash requirements independent of Honeywell, and debt or equity financing may not be available to us on terms we find acceptable, if at all. Incurring additional debt may significantly increase our interest expense and financial leverage, and our level of indebtedness could restrict our ability to fund future development and acquisition activities. Also, regardless of the terms of our debt or equity financing, our agreements and obligations under the Tax Matters Agreement that address compliance with Section 355 of the Internal Revenue Code of 1986, as amended (the “Code”) may limit our ability to issue stock. We may need additional capital resources in the future in order to meet our projected operating needs, capital expenditures and other cash requirements, and if we are unable to obtain sufficient resources for our operating needs, capital expenditures and other cash requirements for any reason, our business, financial condition and results of operations could be adversely affected. See “Risks Relating to the Spin-Off — operations.

We may be unable to make,rely on a timely or cost-effective basis, the changes necessary to operate effectively as an independent, publicly traded company,combination of patents, copyrights, trademarks, tradenames, trade secrets and we may experience increased costsdue to our separation from Honeywell.”

We are subject to risks associated with the Indemnification and Reimbursement Agreement, pursuant to which we are required to make substantial cash payments to Honeywell, measured in substantial part by reference to estimates by Honeywell of certain of its liabilities.

In connection with the Spin-Off, we entered into an Indemnification and Reimbursement Agreement, pursuant to which we have an obligation to make cash payments to Honeywell in amounts equal to 90% of Honeywell’s asbestos-related liability payments and accounts payable, primarily related to Honeywell’s legacy Bendix friction materials (“Bendix”) business in the United Statesother proprietary rights, as well as certain environmental-related liability paymentscontractual arrangements, including licenses, to establish, maintain and accounts payable and non-United States asbestos-related liability payments and accounts payable,protect our intellectual property rights. Effective intellectual property protection may not be available, or we may not be able to acquire or maintain appropriate registered or unregistered intellectual property, in each case related to legacy elementsevery country in which we do business. Furthermore, in some areas of our business the established industry maturity of product technology may leave limited opportunity for new intellectual property to differentiate our products. Accordingly, our intellectual property may not be sufficient on its own to provide us a strong product differentiation and competitive advantage, which in turn could weaken our ability to secure business awards from our customers and/or our ability to achieve targeted product profitability.

The protection of our intellectual property may require us to spend significant amounts of money. Further, the steps we take to protect our intellectual property may not adequately protect our rights or prevent others from infringing, violating or misappropriating our intellectual proprietary rights. Any impairment of our intellectual property rights, including due to changes in U.S. or foreign intellectual property laws or the absence of effective legal costsprotections or enforcement measures, could adversely impact our businesses, financial condition and results of defendingoperations.
International technical export control regulations and resolving such liabilities, less 90%trade conflicts may limit our ability to use certain intellectual property in our products in some regions of Honeywell’s net insurance receipts and,the world or customers may require assured access to intellectual property through open source-code, joint ownership of intellectual property, free license, or other measures. These constraints could cause us difficulty in securing business awards from our customers, protecting our competitive technology differentiation, and/or our ability to achieve targeted product profitability.
In addition, as may be applicable, certain other recoveries associated with such liabilities.

The amount payable by the Company in respectwe adopt new technology, we face an inherent risk of such liabilities arising in any given year will be payable in Euros, subject to a cap (denominated in Euros) equal to $175 million, calculated by referenceexposure to the Distribution Date Currency Exchange Rate. The cap is exclusiveclaims of any late payment fees up to 5% per annum.

For example, if in any given year, Honeywell’s annual liabilities including associated legal costs that are within the scope of the Indemnification and Reimbursement Agreement totaled $200 million, and if Honeywell’s associated insurance receipts and other specified recoveries totaled $20 million (resulting in a net amount of $180 million), then our payment obligation in respect of that year would be based upon 90% of the net amount ($162 million), payable in Euros, calculated by reference to the Distribution Date Currency Exchange Rate (1.16977 USD = 1 EUR) (totaling


approximately€138.5 million). However,if in any given year, such liabilitiesincludingassociatedlegalcoststotaled$250 million,and the associated insurancereceiptsand otherspecifiedrecoveriestotaled$30 million,then our paymentobligationin respectof thatyear would be capped at approximately€149.6 million(which equals$175 milliondividedby the DistributionDate Currency Exchange Rate of 1.16977 USD = 1 EUR) even though 90% of the net amountis higherat $198 million (€169.3 millioncalculatedby referenceto the DistributionDate Currency Exchange Rate of 1.16977 USD = 1 EUR).

The Indemnification and Reimbursement Agreement provides that the agreement will terminate upon the earlier of (x) December 31, 2048 or (y) December 31st of the third consecutive year during which certain amounts owed to Honeywell during each such year were less than $25 million as converted into Euros in accordance with the terms of the agreement.

Following the Spin-Off in 2018, the Company paid Honeywell $41 million in connection with the Indemnification and Reimbursement Agreement. Prior to the Spin-Off, Honeywell’s asbestos-related Bendix liability payments for the years 2017 and 2016 including any legal fees, were $223 million and $201 million, respectively, and Honeywell’s associated insurance receipts for 2017 and 2016 were $20 million and $37 million, respectively.

In the event that Honeywell enters into a global settlement of all or substantially all of the asbestos-related Bendix claims in the United States, the Indemnification and Reimbursement Agreement providesothers that we are obligated to pay 90%have allegedly violated their intellectual property rights. Successful claims that we infringe on the intellectual property rights of the amount paid or payable by Honeywell in connection with such global settlement payment, less 90% of insurance receipts relating to such liabilities, and in such event, we are required to pay an amount equal to the Distribution Date Currency Exchange Rate equivalent of $175 million per year until the amount payable by us in respect of such global settlement payment is less than an amount equal to the Distribution Date Currency Exchange Rate equivalent of $175 million. During that time, the annual payment byothers could require us to Honeywell of an amount equal to the Distribution Date Currency Exchange Rate equivalent of $175 million will be first allocated towards asbestos-related liabilities arising outside of the scope of the global settlement and environmental-related liabilities and then towards the global settlement payment. Payment amounts will be deferred to the extent that the payment thereof would cause a specified event of default under certain indebtedness, including our principal credit agreemententer into royalty or licensing agreements on unfavorable terms or cause us to notincur substantial monetary liability. We may also be compliant with certain financial covenantsprohibited preliminarily or permanently from further use of the intellectual property in certain indebtedness, including our principal credit agreement on a pro forma basis, including the maximum total leverage ratio (ratio of debt to consolidated EBITDA as defined by the credit agreement, which excludes any amounts owed to Honeywell under the Indemnification and Reimbursement Agreement), and the minimum interest coverage ratio. In each calendar quarter, our ability to pay dividends and repurchase capital stock in such calendar quarter will be restricted until any amounts payable under the Indemnification and Reimbursement Agreement in such quarter (including any deferred payment amounts) are paid to Honeywell and we willquestion or be required to change our business practices to stop the infringing use, available restricted payment capacity under our debt agreements to make payments in respect of any such deferred amounts. Payment of deferred amounts and certain other amounts (which are not expected to be material)which could cause the amount we are required to pay under the Indemnification and Reimbursement Agreement in any given year to exceed an amount equal to the Distribution Date Currency Exchange Rate equivalent of $175 million per year (exclusive of any late payment fees up to 5% per annum). All amounts payable under the Indemnification and Reimbursement Agreement will be guaranteed by certain of our subsidiaries that act as guarantors under our principal credit agreement, subject to certain exceptions. Under the Indemnification and Reimbursement Agreement, we are also subject to certain of the affirmative and negative covenants to which we are subject under our principal credit agreement. Further, pursuant to the Indemnification and Reimbursement Agreement, our ability to (i) amend or replace our principal credit agreement, (ii) enter into another credit agreement and make amendments or waivers thereto, or (iii) enter into or amend or waive any provisions under other agreements, in each case, in a manner that would adversely affect the rights of Honeywell under the Indemnification and Reimbursement Agreement, will be subject to Honeywell’s prior written consent. This consent right will significantly limit our ability to engage in many typescompete effectively. In addition, our customer agreements may require us to indemnify the customer for infringement. The time and expense of significant transactions on favorable terms (or at all), including, butdefending against these claims, whether meritorious or not, limited to, equity and debt financings, liability management transactions, refinancing transactions, mergers, acquisitions, joint ventures and other strategic transactions.


This agreementmay have a material and adverseeffects impact on our liquidityprofitability, can be time-consuming and cash flowscostly and may divert management’s attention and resources away from our businesses. Furthermore, the publicity we may receive as a result of infringing intellectual property rights may damage our reputation and adversely impact our existing customer relationships and our ability to develop new business.


Work stoppages, other disruptions, or the need to relocate any of our facilities could significantly disrupt our business.
Our geographic footprint emphasizes locating, engineering and manufacturing capabilities in close physical proximity to our customers, thereby enabling us to adopt technologies and products for the specific vehicle types sold in each geographic market. Because our facilities offer localized services in this manner, a work stoppage or other disruption at one or more of our R&D, engineering or manufacturing and assembly facilities in a given region could have material adverse effects on our resultsofbusiness, especially insofar as it impacts our ability to serve customers. Moreover, due to unforeseen circumstances or factors beyond our control, we may be forced to relocate our operationsregardlessof whether weexperiencea declinein net sales.The agreementmay also requireus to accruesignificantlong-termliabilitieson our consolidated and combinedbalancesheet,the amountsof which will be dependent on factorsoutside from one or more of our control,includingHoneywell’sresponsibilityexisting facilities to managenew facilities and determinemay incur substantial costs, experience program delays and sacrifice proximity to customers and geographic markets as a result, potentially for an extended period of time.
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The automotive industry relies heavily on “just-in-time” delivery of components during the outcomesassembly and manufacture of claimsunderlyingvehicles, and when we fail to make timely deliveries in accordance with our contractual obligations, we generally have to absorb our own costs for identifying and solving the liabilities.Asof December31, 2018, wehave accrued$1,244 millionof liabilityin connectionwith Bendix-relatedasbestos“root cause” problem as well as environmental-related liability paymentsexpeditiously producing replacement components or products. We typically must also carry the costs associated with “catching up,” such as overtime and accounts payablepremium freight. Additionally, if we are the cause for a customer being forced to halt production, the customer may seek to recoup all of its losses and non-United States asbestos-related liability paymentsexpenses from us. These losses and accounts payable,representingthe estimatedliabilityfor pending claimsexpenses could be significant and may include consequential losses such as well as future claimsexpectedto be asserted. The liabilitiesrelatedto the Indemnificationand ReimbursementAgreementmayhavelost profits.
In addition, a significantnegativeimpacton disruption in the calculationsupply of a key financialratiosandcomponent due to a work stoppage or othermetricsthatare important to investors,ratingagenciesand securitiesanalystsin evaluatingour creditworthinessand the value disruption at one of our securities.Accordingly,our accessto capitalto fund our operationsmay be materiallyadverselyaffectedand the value of your investmentin our company may decline.Moreover,the paymentsthatweare requiredto make to Honeywell pursuantto the terms of that agreementwill not be deductiblefor U.S.federalincometax purposes.

Although we have access to certain information regarding these liabilities as we may reasonably request for certain purposes, as well as the ability to participate in periodic standing meetings with Honeywell’s special counsel responsible for management of the underlying claims, the payment obligations under this agreement relate to legal proceedings that we will not control, and we accordingly do not expect to be able to make definitive decisions regarding settlementssuppliers or any other outcomes thatsupplier could influence our potential related exposure.

The Indemnification and Reimbursement Agreement also includes other obligations that may impose significant operating and financial restrictions on us and our subsidiaries and limit our ability to engage in actions that may be in our long-term best interests.

Raw material price fluctuations, the ability of key suppliers to meet quality and delivery requirements, or catastrophic events can increase the cost of our products and services, impact our ability to meet commitmentsmake timely deliveries to our customers and, cause usaccordingly, have a material adverse effect on our financial results. Where a customer halts production because of another supplier failing to incur significant liabilities.

The costdeliver on time, or as a result of a work stoppage or other disruption, it is unlikely we will be fully compensated, if at all.

We depend on the recruitment and availabilityretention of raw materials (including, but not limitedqualified personnel, and our failure to grey iron, aluminum, stainless steelattract and a nickel, iron and chromium-based alloy) is a key element in the cost of our products. Our inability to offset material price inflation through increased prices to customers, formula or long-term fixed price contracts with suppliers, productivity actions or through commodity hedgesretain such personnel could adversely affect our business, financial condition and results of operations.

We obtain components

Due to the complex nature of our business, our future performance is highly dependent upon the continued services of our key engineering personnel, scientists and other productsexecutive officers, the development of additional management personnel and services from numerous suppliersthe hiring of new qualified engineering, manufacturing, marketing, sales and other vendors throughout the world. Many major components and product equipment items are procured or subcontracted on a single- or sole-source basis. Although we believe that sources of supplymanagement personnel for raw materials and components are generally adequate, it is difficult to predict what effects shortages or price increases may have in the future. Short- or long-term capacity constraints or financial distress at any pointour operations. Competition for qualified personnel in our supply chain could disrupt our operationsindustry is intense, and adversely affect our financial performance, particularly when the affected suppliers and vendors are the sole sources of products that we requiremay not be successful in attracting or that have unique capabilities, or when our customers have directed us to use those specific suppliers and vendors.retaining qualified personnel. Our ability to manage inventoryattract and meet delivery requirementsretain key personnel may be constrainedadversely affected by our suppliers’emergence from bankruptcy. The loss of key employees, our inability to scale productionattract new qualified employees or adequately train employees, or the delay in hiring key personnel, could negatively affect our business, financial condition and adjust deliveryresults of long-lead time products during times of volatile demand. Our inabilityoperations. If executives, managers or other key personnel resign, retire or are terminated or their service is otherwise interrupted, we may not be able to fill our supply needs would jeopardize our ability to fulfill obligations under commercial contracts,replace them in a timely manner and we could resultexperience significant declines in reduced sales and profits, contract penalties or terminations, and damage to customer relationships.

productivity.


Failure to increase productivity through sustainableefficient operational improvements, as well as an inability to successfully execute repositioning projects or to effectively manage our workforce, may reduce our profitability or adversely impact our business.

Our profitability and margin growth are dependent upon our ability to drive sustainableefficiency improvements. In addition, we seek productivity and cost savings benefits through repositioning actions and projects, such as consolidation of manufacturing facilities, transitions to cost-competitive regions, workforce reductions, asset impairments, product line rationalizations and other cost-saving initiatives. Risks associated with these actions include delays in execution of the planned initiatives, additional unexpected costs, realization of fewer than estimated productivity improvements and adverse effects on employee morale. We may not realize the full operational or financial benefits we expect, the recognition of these benefits may be delayed and these actions may potentially disrupt our operations. In addition, organizational changes, attrition, labor relations difficulties, or workforce stoppage could impact our efforts to improve operational efficiencies, which could have a material adverse effect on our business, reputation, financial position and results of operations.



We may incur material losses and costs as a result of warranty claims, product recalls or field actions, as well as product liability actions that may be brought against us or our customers.
We face a risk of warranty and product liability claims, as well as product recalls and field actions, if our products actually or allegedly fail to perform to specifications or cause property damage, injury or death. Depending on the terms under which we supply products to an auto manufacturer, we may be required to guarantee or offer warranties for our products and to bear the costs of recalls, repair or replacement of such products pursuant to new vehicle warranties. There can be no assurance that we will have adequate reserves to cover such recall, repair and replacement costs. In the event that any of our products fails to perform as expected, we may face direct exposure to warranty and product liability claims or may be required to participate in a government or self-imposed recall involving such products. Our customers that are not end users, such as auto manufacturers, may face similar claims or be obliged to conduct recalls of their own, and in such circumstances, they may seek contribution from us. Our agreements with our customers do not always include limitation of liability clauses or, in certain situations or legal jurisdictions, such limitation of liability clauses may not be fully valid. If any such claims or contribution requests exceed our available insurance, or if there is a product recall, there could be a material adverse impact on our results of operations. In addition, a recall claim could require us to review our entire product portfolio to assess whether similar issues are present in other product lines, which could result in significant disruption to our business and could have a further adverse impact on our results of operations. We cannot assure that we will not experience any material warranty or product liability claim losses in the future or that we will not incur significant costs to defend such claims.
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We cannot predict with certainty the outcome of litigation matters, government proceedings and other contingencies and uncertainties.
We are currently, and we may in the future, be party to a number of lawsuits, investigations and disputes (some of which involve substantial amounts claimed) arising out of our current and historical business, including matters relating to commercial transactions, product liability, prior acquisitions and divestitures, employment, employee benefits plans, intellectual property, antitrust, import and export, and environmental, health and safety matters, as well as securities litigation, tax proceedings and litigation related to our debt. For additional information regarding our pending legal proceedings, see Item 3, “Legal Proceedings”. We cannot predict with certainty the outcome of legal proceedings or contingencies. The costs incurred in litigation can be substantial and result in the diversion of management’s attention and resources.
We may also make certain commitments, including representations, warranties and indemnities relating to current and past operations, including those related to divested businesses, and issue guarantees of third-party obligations. Our potential liabilities are subject to change over time due to new developments, changes in settlement strategy or the impact of evidentiary requirements, and we may become subject to or be required to pay damage awards or settlements that could have a material adverse effect on our results of operations, cash flows and financial condition. If we were required to make payments, such payments could be significant and could exceed the amounts we have accrued with respect thereto, adversely affecting our business, financial condition and results of operations. While we maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover the total amount of all insured claims and liabilities. The incurrence of significant liabilities for which there is no or insufficient insurance coverage could adversely affect our results of operations, cash flows, liquidity and financial condition.
Our operations and the prior operationsof predecessorcompanies may expose us to the risk of material environmentalliabilities.

We are subject to potentially materialextensive environmental regulations and our operations may expose us to risks of environmental liabilities. We cannot assure that we will not incur potential liabilities related to the investigation and cleanup of environmental hazards and to claims of personal injuries or property damages that may arise from hazardous substance releases and exposures.exposures, including those relating to activities of predecessor company. We are also subject to potentially materialpotential liabilities related to the compliance of our operations with the requirements of various federal, state, local and foreign governments that regulate the discharge of materials into the environment and the generation, handling, storage, treatment and disposal of and exposure to hazardous substances. If we are found to be in violation of these laws and regulations, we may be subject to substantial fines and criminal sanctions and be required to install costly equipment or make operational changes to achieve compliance with such laws and regulations. In addition, changes in laws, regulations or government enforcement of policies concerning the environment, the discovery of previously unknown contamination or new information related to individual contaminated sites, the establishment of stricter state or federal toxicity standards with respect to certain contaminants, or the imposition of new clean-up requirements or remedial techniques, could require us to incur additional currently unanticipated costs in the future that would have a negative effect on our financial condition or results of operations.

We cannot predict with certainty the outcome of litigation matters, government proceedings and other contingencies and uncertainties.

In the ordinary course of business, we may make certain commitments, including representations, warranties and indemnities relating to current and past operations, including those related to divested businesses, and issue guarantees of third-party obligations. We are subject to a number of lawsuits, investigations and disputes (some of which involve substantial amounts claimed) arising out of our current and historical business, including matters relating to commercial transactions, product liability (including legacy asbestos claims involving the friction materials legacy business), prior acquisitions and divestitures, employment, employee benefits plans, intellectual property, antitrust, import and export, and environmental, health and safety matters. Our potential liabilities are subject to change over time due to new developments, changes in settlement strategy or the impact of evidentiary requirements, and we may become subject to or be required to pay damage awards or settlements that could have a material adverse effect on our results of operations, cash flows and financial condition. If we were required to make payments, such payments could be significant and could exceed the amounts we have accrued with respect thereto, adversely affecting our business, financial condition and results of operations. While we maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover the total amount of all insured claims and liabilities. The incurrence of significant liabilities for which there is no or insufficient insurance coverage could adversely affect our results of operations, cash flows, liquidity and financial condition.

We depend on the recruitment and retention of qualified personnel, and our failure to attract and retain such personnel could adversely affect our business, financial condition and results of operations.

Due to the complex nature of our business, our future performance is highly dependent upon the continued services of our key engineering personnel, scientists and executive officers, the development of additional management personnel and the hiring of new qualified engineering, manufacturing, marketing, sales and management personnel for our operations. Competition for qualified personnel in our industry is intense, and we may not be successful in attracting or retaining qualified personnel. The loss of key employees, our inability to attract new qualified employees or adequately train employees, or the delay in hiring key personnel, could negatively affect our business, financial condition and results of operations.

System or service failures, including as a result of cyber or other security incidents, could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.

Pursuant to our Transition Services Agreement with Honeywell, we continue to rely on Honeywell’s information technology and engineering systems. In addition, we deploy and maintain our own IT and engineering systems. Our and Honeywell’s systems involve sensitive information and may be conducted in hazardous environments. As a result, we are subject to systems or service failures, not only resulting from our own or Honeywell’s failures or the failures of third-party service providers, natural disasters, power shortages or terrorist attacks, but also from exposure to cyber or other security threats. Global cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to IT systems to sophisticated and targeted measures known as advanced persistent threats,


directedat the Company, Honeywell, our or Honeywell’sproducts,our or Honeywell’scustomersand/orour or Honeywell’sthird-partyserviceproviders,includingcloud providers.There has been an increasein the frequencyand sophisticationof cyber and othersecuritythreatswe face,and our customersare increasinglyrequiringcyber and othersecurityprotectionsand mandatingcyber and othersecuritystandardsin our products.

Cyber and other security incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations. Moreover, employee error or malfeasance, faulty password management or other intentional or inadvertent non-compliance with our security protocols may result in a breach of our information systems. Cyber and other security incidents aimed at the software embedded in our products could lead to third-party claims that our product failures have caused a similar range of damages to our customers, and this risk is enhanced by the increasingly connected nature of our products.

The potential consequences of a material cyber or other security incident include financial loss, reputational damage, litigation with third parties, theft of intellectual property, fines levied by the United States Federal Trade Commission, diminution in the value of our investment in research, development and engineering, and increased cyber and other security protection and remediation costs due to the increasing sophistication and proliferation of threats, which in turn could adversely affect our competitiveness and results of operations. In addition to any costs resulting from contract performance or required corrective action, these incidents could generate increased costs or loss of revenue if our customers choose to postpone or cancel previously scheduled orders or decide not to renew any of our existing contracts.

The costs related to cyber or other security incidents may not be fully insured or indemnified by other means. The successful assertion of a large claim against us with respect to a cyber or other security incident could seriously harm our business. Even if not successful, these claims could result in significant legal and other costs, may be a distraction to our management and harm our customer relationships, as well as our reputation.

Our U.S. and non-U.S. tax liabilities are dependent, in part, upon the distribution of income among various jurisdictions in which we operate.

Our future results of operations could be adversely affected by changes in the effective tax rate as a result of a change in the mix of earnings in countries with differing statutory tax rates, changes in tax laws, regulations and judicial rulings (or changes in the interpretation thereof), changes in generally accepted accounting principles, changes in the valuation of deferred tax assets and liabilities, the results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures and various other governmental enforcement initiatives. Our tax expense includes estimates of tax reserves and reflects other estimates and assumptions, including assessments of our future earnings which could impact the valuation of our deferred tax assets. Changes in tax laws or regulations, including multi-jurisdictional changes enacted in response to the guidelines provided by the Organization for Economic Co-operation and Development to address base erosion and profit shifting, will increase tax uncertainty and may adversely impact our provision for income taxes.

U.S. federal income tax reform


A deterioration in industry, economic or financial conditions may restrict our ability to access the capital markets on favorable terms.
We may require additional capital in the future to finance our growth and development, upgrade and improve our manufacturing capabilities, implement further marketing and sales activities, fund ongoing R&D activities, satisfy
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regulatory and environmental compliance obligations, and meet general working capital needs. Our capital requirements will depend on many factors, including acceptance of and demand for our products, the extent to which we invest in new technology and R&D projects and the status and timing of these developments. If our access to capital were to become constrained significantly, or if costs of capital increased significantly, due to lowered credit ratings, prevailing industry conditions, the solvency of our customers, a material decline in demand for our products, the volatility of the capital markets or other factors, our financial condition, results of operations and cash flows could be adversely affected. These conditions may adversely affect our ability to obtain targeted credit ratings.
We may also need additional capital resources in the future in order to meet our projected operating needs, capital expenditures and other cash requirements. If we are unable to obtain sufficient resources for our operating needs, capital expenditures and other cash requirements for any reason, our business, financial condition and results of operations could be adversely affected.
Changes in interest rates and cessation of the London Inter-bank Offered Rate ("LIBOR") could adversely affect us.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referredour earnings and/or cash flows.

Because a significant number of our loans are made at variable interest rates, our business results are subject to as the Tax Cutsfluctuations in interest rates. If interest rates increase, our borrowing costs may also increase and Jobs Act (the “Tax Act”). The Tax Act instituted fundamental changes to the taxation of multinational corporations. The Tax Act includes changes to the taxation of foreign earnings by implementing a dividend exemption system, expansion of the current anti-deferral rules, a minimum tax on low-taxed foreign earningscould adversely impact our financial condition, operating results and new measures to deter base erosion. The Tax Act also includes a permanent reduction in the corporate tax rate to 21%, repeal of the corporate alternative minimum tax, expensing of capital investment, and limitation of the deduction for interest expense. Furthermore, as part of the transition to the new tax system, a one-time transition tax was imposed on a U.S. shareholder’s historical undistributed earnings of foreign affiliates. Although the Tax Act was generally effective January 1, 2018, GAAP requires recognition of the tax effects of new legislation during the reporting periodcash flows. There can be no assurance that includes the enactment date, which was December 22, 2017.


In addition,pursuantto the terms of the Tax MattersAgreement,weare requiredto make paymentsto a subsidiary of Honeywell in an amountpayablein Euros (calculatedby referenceto the DistributionDate Currency Exchange Rate) representingthe net tax liabilityof Honeywell under the mandatorytransitiontax attributableto us, as determinedby Honeywell. Following the Spin-Off, Honeywell has determinedthe portionof itsnet tax liabilityattributableto us is $240 million.The amountwill be payablein installmentsover 8 yearsand may be adjustedat Honeywell’sdiscretionin the event of an auditadjustmentor otherwise. In connection with the Tax Matters Agreement, we paid Honeywell the Euro-equivalent of $19 million during the fourth quarter of 2018. Furthermore,Honeywell will control any subsequenttax auditsor legalproceedingswith respectto the mandatorytransitiontax, and accordinglywe do not expectto be able to make definitivedecisionsregardingsettlementsor otheroutcomesmitigate any potential material adverse impacts on our earnings and cash flows caused by fluctuations in interest rates.

Certain loans extended to us are made at variable rates that use LIBOR as a benchmark for establishing the interest rate. As the use of LIBOR will be discontinued, we may need to switch to an alternative interest rate, which could influenceresult in increased borrowing costs. If the replacement rate for LIBOR in our potentialrelatedexposure.

Because we have officersinterest rate swaps differs from the replacement rate for LIBOR under our Credit Agreement, our interest rate swaps may be ineffective and directors who live outsiderequire us to mark-to-market the ineffective portion of the United States, youinterest rate swap through our income statement. Accordingly, if any of the derivative instruments we use to hedge our exposure to these various types of risk is ineffective, it may have no effective recourse against theman adverse impact on our earnings and cash flows. These consequences cannot be entirely predicted and could have an adverse impact on the market value for, misconduct and may not be able to receive compensation for damages to theor value of, your investment causedLIBOR-linked securities, loans, and other financial obligations or extensions of credit held by wrongful actions byor due to us. Changes in market interest rates may influence our directorsfinancing costs, returns on financial investments and officers.

the valuation of derivative contracts and could reduce our earnings and cash flows.

Changes in interest rates and asset returns could increase our pension funding obligations and reduce our profitability.
We have officersunfunded obligations under certain of our defined benefit pension and directors who live outsideother postretirement benefit plans. The valuation of our future payment obligations under the United States.plans and the related plan assets are subject to significant adverse changes if the credit and capital markets cause interest rates and projected rates of return to decline. Such declines could also require us to make significant additional contributions to our pension plans in the future. A material increase in the unfunded obligations of these plans could also result in a significant increase in our pension expense in the future.
We are exposed to foreign currency risks and foreign exchange exposure as a result of our global presence.
A significant portion of our revenues and expenses are denominated in currencies other than the U.S. dollar. As a result, itwe are subject to foreign currency risks and foreign exchange exposure arising from our business operations including, but not limited to, international financing activities between subsidiaries, foreign currency denominated monetary assets and liabilities and transactions arising from international trade. Our results of operations and financial condition have in the past been negatively impacted, and may in the future be difficult for investors to enforce within the U.S. any judgments obtained against those officers and directors, or obtain judgments against them outside of the U.S. that are based on the civil liability provisions of the federal or state securities laws of the U.S. Investors may not be able to receive compensation for damagesnegatively impacted, by rapidly fluctuating foreign exchange rates. While we have historically hedged foreign currency exposures with natural offsets to the valuefullest extent possible and, once those opportunities have been exhausted, through foreign currency exchange forward contracts, we cannot predict foreign currency volatility or the extent of their investment caused by wrongful actions byits impact on our directors and officers.

future financial results.

Our emerging opportunities in technology, products and services depend in part on intellectual property and technology licensed from third parties.

A number of our emerging opportunities in technology, products and services rely on key technologies developed or licensed from third parties. While nonethe majority of our current product offerings are not covered by third-party licenses, many of our emerging technology offerings that we are developing use software components or other intellectual property licensed from third parties, including both through proprietary and open source licenses. Should such emerging products become a significant part of our product offerings, our reliance on third-party licenses may present various risks to our business. These third-party software components may become obsolete, defective or incompatible with future versions of
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our emerging technology offerings, our relationship with these third parties may deteriorate, or our agreements with these third parties may expire or be terminated. We may face legal or business disputes with licensors that may threaten or lead to the disruption of inbound licensing relationships. In order to remain in compliance with the terms of our licenses, we must carefully monitor and manage our use of third-party components, including both proprietary and open source license terms that may require the licensing or public disclosure of our intellectual property without compensation or on undesirable terms. Additionally, some of these licenses may not be available for use in the future on terms that may be acceptable or that allow our emerging product offerings to remain competitive. Our inability to obtain licenses or rights on favorable terms could have a material effect on our emerging technology offerings. Moreover, it is possible that as a consequence of a future merger or acquisition we may be involved in, third parties may obtain licenses to some of our intellectual property rights or our business may be subject to certain restrictions that were not in place prior to such transaction. Because the availability and cost from third parties depends upon the willingness of third parties to deal with us on the terms we request, there is a risk that third parties who license our competitors will either refuse to license to us at all, or refuse to license us on terms equally favorable to those granted to our competitors. Consequently, we may lose a competitive advantage with respect to these intellectual property rights or we may be required to enter into costly arrangements in order to obtain these rights.

Risks Relating to the Spin-Off and our Separation from Honeywell

If the Spin-Off were determined not to qualify as tax-free for U.S. federal income tax purposes, we could have an indemnification obligation to Honeywell, which could adversely affect our business, financial condition and results of operations.

If, as a result of any of our representations being untrue or our covenants being breached, the Spin-Off were determined not to qualify for non-recognition of gain or loss under Section 355 and related provisions of the Code, we could be required to indemnify Honeywell for the resulting taxes and related expenses. Further, if any pre-spin restructuring activities that were initiated by Honeywell were determined to be taxable and benefit the Company, we could be required to indemnify Honeywell. Those amounts could be material. Any such indemnification obligation could adversely affect our business, financial condition and results of operations.


In addition,if weor our stockholderswere to engage in transactionsthatresultedin a 50% or greaterchange by vote or value in the ownership of our stock during the four-yearperiodbeginningon the date thatbegins two yearsbeforethe date of the Distribution,the Spin-Offwould generallybe taxableto Honeywell, but not to stockholders,under Section355(e),unlessit were establishedthatsuch transactionsand the Spin-Offwere not partof a plan or seriesof relatedtransactions.If the Spin-Offwere taxableto Honeywell due to such a 50% or greaterchange in ownership of our stock, Honeywell would recognizegain equal to the excessof the fairmarket value on the DistributionDate of our commonstock distributedto Honeywell stockholdersover Honeywell’stax basisin our commonstock, and wegenerallywould be requiredto indemnifyHoneywell for the tax on such gain and relatedexpenses.Those amountswould be material.Anysuch indemnificationobligationcould adversely affectour business,financialconditionand resultsof operations.

We have agreed to numerous restrictions to preserve the non-recognition treatment of the Spin-Off, which may reduce our strategic and operating flexibility.

We have agreed in the Tax Matters Agreement to covenants and indemnification obligations that address compliance with Section 355 of the Code and are intended to preserve the tax-free nature of the Spin-Off. These covenants include certain restrictions on our activity for a period of two years following the Spin-Off, unless Honeywell gives its consent for us to take a restricted action, which Honeywell is permitted to grant or withhold at its sole discretion. These covenants and indemnification obligations may limit our ability to pursue strategic transactions or engage in new businesses or other transactions that may maximize the value of our business, and might discourage or delay a strategic transaction that our stockholders may consider favorable.

We may be unable to achieve some or all of the benefits that we expect to achieve from the Spin-Off.

We believe that, as an independent, publicly traded company, we will be able to, among other things, design and implement corporate strategies and policies that are better targeted to our business’s areas of strength and differentiation, better focus our financial and operational resources on those specific strategies, create effective incentives for our management and employees that are more closely tied to our business performance, provide investors more flexibility and enable us to achieve alignment with a more natural stockholder base and implement and maintain a capital structure designed to meet our specific needs. We may be unable to achieve some or all of the benefits that we expect to achieve as an independent company in the time we expect, if at all, for a variety of reasons, including: (i) operating as a stand-alone public company following the Spin-Off will require significant amounts of our management’s time and effort, which may divert management’s attention from operating and growing our business; (ii) we may be more susceptible to market fluctuations and other adverse events than if we were still a part of Honeywell; and (iii) our businesses will be less diversified than Honeywell’s businesses prior to the separation. If we fail to achieve some or all of the benefits that we expect to achieve as an independent company, or do not achieve them in the time we expect, our business, financial condition and results of operations could be adversely affected.

We may be unable to make, on a timely or cost-effective basis, the changes necessary to operate effectively as an independent, publicly traded company, and we may experience increased costsdue to our separation from Honeywell.

We have historically operated as part of Honeywell’s corporate organization, and Honeywell has provided us with various corporate functions. Due to the separation, Honeywell no longer has an obligation to provide us with assistance other than certain transition and other services. The agreements providing for these services do not include every service that we have received from Honeywell in the past, and Honeywell is only obligated to provide the transition services for limited periods following completion of the Spin-Off. The agreements were entered into on arms-length terms similar to those that would be agreed with an unaffiliated third party such as a buyer in a sale transaction, but because we did not have an independent board of directors or a management team independent of Honeywell representing our interests while the agreements were being negotiated, it is possible that we might have been able to achieve more favorable terms if the circumstances differed. We will rely on Honeywell to satisfy its performance and payment obligations under our transition services agreement and other agreements related to the Spin-Off, and if Honeywell does not satisfy such obligations, we could incur operational difficulties or losses.


Following the cessationof theseagreements,wewill need to provide internallyor obtainfromunaffiliatedthirdpartiesthe serviceswewill no longerreceivefromHoneywell. These servicesincludelegal,accounting,informationtechnology,softwaredevelopment,human resourcesand other infrastructuresupport,the effectiveand appropriateperformanceof which are criticalto our operations.We may be unable to replacetheseservicesin a timelymanneror on termsand conditionsas favorableas those we receivefromHoneywell. Because our businesshistoricallyoperatedas partof the wider Honeywell organization,wemay be unable to successfullyestablishthe infrastructureor implementthe changes necessaryto operateindependently,or may incuradditionalcoststhatcould adverselyaffectour business.In particular,our abilityto positionand marketourselvesas a providerof connectedvehiclesoftwarecould be adverselyaffected by our loss of accessto Honeywell’sdevelopmentplatforms.If wefailto obtainthe qualityof servicesnecessary to operateeffectivelyor incurgreatercostsin obtainingtheseservices,our business,financialconditionand resultsof operationsmay be adverselyaffected.

As we build our information technology infrastructure and transition our data to our own systems, we could incur substantial additional costs and experience temporary business interruptions, and our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we are subject.

We are in the process of installing and implementing informationtechnologyinfrastructuretosupportcertain ofourbusinessfunctions,includingaccountingandreporting,manufacturingprocesscontrol,customerservice, inventorycontrolanddistribution.Wemayincursubstantiallyhighercoststhancurrentlyanticipatedaswe transitionfromtheexistingtransactionalandoperationalsystemsanddatacenterswecurrentlyuseaspartof Honeywell.Ifweareunabletotransitioneffectively,wemayincurtemporaryinterruptionsinbusinessoperations. Anydelayinimplementing,oroperationalinterruptionssufferedwhileimplementing,ournewinformation technologyinfrastructurecoulddisruptourbusinessandhaveamaterialadverseeffectonourresultsofoperations.

In addition, if we are unable to replicate or transition certain systems, our ability to comply with regulatory requirements could be impaired. As a result of the Spin-Off, we are directly subject to reporting and other obligations under the Exchange Act. Beginning with our second required Annual Report on Form 10-K, we intend to comply with Section 404 of the Sarbanes Oxley Act of 2002, as amended (the “Sarbanes Oxley Act”), which will require annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm addressing these assessments. These reporting and other obligations may place significant demands on management, administrative and operational resources, including accounting systems and resources.

The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. Under the Sarbanes Oxley Act, we are required to maintain effective disclosure controls and procedures and internal control over financial reporting. To comply with these requirements, we may need to upgrade our systems, implement additional financial and management controls, reporting systems and procedures and hire additional accounting and finance staff. We expect to incur additional annual expenses for the purpose of addressing these, and other public company reporting, requirements. If we are unable to upgrade our financial and management controls, reporting systems, information technology systems and procedures in a timely and effective fashion, our ability to comply with financial reporting requirements and other rules that apply to reporting companies under the Exchange Act could be impaired. Any failure to achieve and maintain effective internal controls could have a material adverse effect on our business, financial condition, results of operations and cash flow. See “—Risks Relating to Our Common Stock and the Securities Market—If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired and investors’ views of us could be harmed.”


We have a limited operatinghistoryas anindependent, publiclytraded company, andour historical consolidated andcombined financialinformation prior to the Spin-Offis not necessarilyrepresentativeof the resultswewouldhave achievedas an independent, publiclytraded company andmay not be a reliableindicatorof our future results.

We derived much of the financial information included in this Annual Report on Form 10-K from Honeywell’s consolidated financial statements, and this information does not necessarily reflect the results of operations and financial position we would have achieved as an independent, publicly traded company during the periods presented, or those that we will achieve in the future. This is primarily because of the following factors:

•

Prior to the Spin-Off, we operated as part of Honeywell’s broader corporate organization, and Honeywell performed various corporate functions for us. Our historical consolidated and combined financial information prior to the Spin-Off reflects allocations of corporate expenses from Honeywell for these and similar functions. These allocations may not reflect the costs we will incur for similar services in the future as an independent publicly traded company.

•

We have entered into transactions with Honeywell that did not exist prior to the Spin-Off, such as Honeywell’s provision of transition and other services, and undertaken indemnification obligations, which will cause us to incur new costs.

•

Our historical consolidated and combined financial information prior to the Spin-Off does not reflect changes that we expect to experience in the future as a result of our separation from Honeywell, including changes in the financing, cash management, operations, cost structure and personnel needs of our business. As part of Honeywell, we enjoyed certain benefits from Honeywell’s operating diversity, size, purchasing power, borrowing leverage and available capital for investments, and we have lost these benefits due to the Spin-Off. As an independent entity, we may be unable to purchase goods, services and technologies, such as insurance and health care benefits and computer software licenses, or access capital markets, on terms as favorable to us as those we obtained as part of Honeywell prior to the Spin-Off, and our results of operations may be adversely affected. In addition, our historical consolidated and combined financial data prior to the Spin-Off do not include an allocation of interest expense comparable to the interest expense we incurred as a result of the Spin-Off and related reorganization transactions, including interest expense in connection with our incurrence of indebtedness.

Due to our separation from Honeywell,wealso faceadditionalcostsand demandson management’stimeassociated with being an independent,publiclytradedcompany, includingcostsand demandsrelatedto corporate governance,investorand publicrelationsand publicreporting.Whilewehave been profitableas partof Honeywell, wecannot assureyou thatour profitswill continueat a similarlevelnow thatweare an independent, publiclytradedcompany.

Our indebtedness could adversely affect our business, financial condition and results of operations.

In connection with the Spin-Off, we incurred substantial indebtedness in an aggregate principal amount of approximately $1,660 million, of which $1,628 million of the net proceeds were transferred to Honeywell substantially concurrently with the consummation of the Spin-Off.

We historically relied upon Honeywell to fund our working capital requirements and other cash requirements. We are now responsible for servicing our own debt and obtaining and maintaining sufficient working capital and other funds to satisfy our cash requirements. Due to our separation from Honeywell, our access to and cost of debt financing will be different from the historical access to and cost of debt financing under Honeywell. Differences in access to and cost of debt financing may result in differences in the interest rate charged to us on financings, as well as the amount of indebtedness, types of financing structures and debt markets that may be available to us.

Our ability to make payments on and to refinance our indebtedness, including the debt incurred in connection with the Spin-Off, as well as any future debt that we may incur, will depend on our ability to generate cash in the future from operations, financings or asset sales. Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.


Thetermsof the indebtednessweincurredin connection with the Spin-Off restrictsour current andfuture operations,particularlyour abilityto incur debt that wemay need to fund initiativesin response to changes in our business, the industriesin whichweoperate,the economy and governmentalregulations.

The terms of the indebtedness we incurred in connection with the Spin-Off include a number of restrictive covenants that impose significant operating and financial restrictions on us and our subsidiaries and limit our ability to engage in actions that may be in our long-term best interests. These may restrict our and our subsidiaries’ ability to take some or all of the following actions:

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incur or guarantee additional indebtedness or sell disqualified or preferred stock;

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pay dividends on, make distributions in respect of, repurchase or redeem capital stock;

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make investments or acquisitions;

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sell, transfer or otherwise dispose of certain assets;

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create liens;

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enter into sale/leaseback transactions;

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enter into agreements restricting the ability to pay dividends or make other intercompany transfers;

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consolidate, merge, sell or otherwise dispose of all or substantially all of our or our subsidiaries’ assets;

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enter into transactions with affiliates;

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prepay, repurchase or redeem certain kinds of indebtedness;

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issue or sell stock of our subsidiaries; and/or

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significantly change the nature of our business.

Furthermore, the lenders of this indebtedness have required that we pledge our assets as security for our repayment obligations and that we abide by certain financial or operational covenants. Our ability to comply with such covenants and restrictions may be affected by events beyond our control, including prevailing economic, financial and industry conditions. If market or other economic conditions deteriorate, our ability to comply with these covenants may be impaired. A breach of any of these covenants, if applicable, could result in an event of default under the terms of this indebtedness. If an event of default occurred, the lenders would have the right to accelerate the repayment of such debt, and the event of default or acceleration could result in the acceleration of the repayment of any other debt to which a cross-default or cross-acceleration provision applies. We might not have, or be able to obtain, sufficient funds to make these accelerated payments, and lenders could then proceed against any collateral. Any subsequent replacement of the agreements governing such indebtedness or any new indebtedness could have similar or greater restrictions. The occurrence and ramifications of an event of default could adversely affect our business, financial condition and results of operations. Moreover, as a result of all of these restrictions, we may be limited in how we conduct our business and pursue our strategy, unable to raise additional debt financing to operate during general economic or business downturns or unable to compete effectively or to take advantage of new business opportunities.

Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021 may adversely affect the market value of our current or future debt obligations.

The London Inter-bank Offered Rate (“LIBOR”) and certain other interest “benchmarks” may be subject to regulatory guidance and/or reform that could cause interest rates under our current or future debt agreements to perform differently than in the past or cause other unanticipated consequences. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has announced that it intends to stop encouraging or requiring banks to submit LIBOR rates after 2021, and it is unclear if LIBOR will cease to exist or if new methods of calculating LIBOR will evolve. If LIBOR ceases to exist or if the methods of calculating LIBOR change from their current form, interest rates on our debt obligations under the term loan B facility of our principal credit agreement may be adversely affected.


Ourcustomers,prospectivecustomers,suppliersor other companieswith whomweconduct business may need assurances that our financialstabilityona stand-alonebasis is sufficientto satisfytheirrequirementsfor doing or continuing to do business with them.

Some of our customers, prospective customers, suppliers or other companies with whom we conduct business may need assurances that our financial stability on a stand-alone basis is sufficient to satisfy their requirements for doing or continuing to do business with them. Any failure of parties to be satisfied with our financial stability could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We may have potential business conflicts of interest with Honeywell with respect to our past and ongoing relationships.

Conflicts of interest may arise between Honeywell and us in a number of areas relating to our past and ongoing relationships, including:

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labor, tax, employee benefit, indemnification and other matters arising from our separation from Honeywell;

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intellectual property matters;

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employee recruiting and retention; and

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business combinations involving our company.

We may not be able to resolve any potential conflicts, and, even if we do so, the resolution may be less favorable to us than if we were dealing with a party with whom we were not previously affiliated.

Certain of our directors and employees may have actual or potential conflicts of interest because of their financial interests in Honeywell.

Because of their current or former positions with Honeywell, certain of our executive officers and directors own equity interests in Honeywell. Continuing ownership of Honeywell shares could create, or appear to create, potential conflicts of interest if we and Honeywell face decisions that could have implications for both us and Honeywell.

The allocation of intellectual property rights between Honeywell and us as part of the Spin-Off, and our shared use of certain intellectual property rights, could adversely impact our reputation, our ability to enforce certain intellectual property rights that are important to us and our competitive position.

In connection with the Spin-Off, we entered into

We have certain agreements with Honeywell governing the allocation of intellectual property rights related to our business. These agreements could adversely affect our position and options relating to intellectual property enforcement, licensing negotiations and monetization. We also may not have sufficient rights to grant sublicenses of intellectual property used in our business. These circumstances could adversely affect our ability to protect our competitive position in the industry.

Risks Relating


Failure to our Common Stock and the Securities Market

An active trading market for our common stock may not be sustained, and our stock price may fluctuate significantly.

Our stock has only been trading since the Spin-Off, andmaintain an active trading market for our common stock may not be sustained in the future. The lackeffective system of an active market may make it more difficult for stockholders to sell our shares and could lead to our share price being depressed or volatile.


We cannot predictthe pricesat which our commonstock may tradeor whether the combinedmarketvalue of a shareof our commonstock and a shareof Honeywell’scommonstock will be less than, equal to or greaterthan the marketvalue of a shareof Honeywell commonstock priorto the Spin-Off.The marketpriceof our commonstock may fluctuatewidely, depending on many factors,some of which may be beyond our control,including:

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actual or anticipated fluctuations in our results of operations due to factors related to our business;

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success or failure of our business strategies;

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competition and industry capacity;

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changes in interest rates and other factors that affect earnings and cash flow;

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our level of indebtedness, our ability to make payments on or service our indebtedness and our ability to obtain financing as needed;

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our ability to retain and recruit qualified personnel;

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our quarterly or annual earnings, or those of other companies in our industry;

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announcements by us or our competitors of significant acquisitions or dispositions;

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changes in accounting standards, policies, guidance, interpretations or principles;

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the failure of securities analysts to cover, or positively cover, our common stock after the Spin-Off;

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changes in earnings estimates by securities analysts or our ability to meet those estimates;

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the operating and stock price performance of other comparable companies;

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investor perception of our company and our industry;

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overall market fluctuations unrelated to our operating performance;

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results from any material litigation or government investigation;

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changes in laws and regulations (including tax laws and regulations) affecting our business;

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changes in capital gains taxes and taxes on dividends affecting stockholders; and

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general economic conditions and other external factors.

Low trading volume for our stock, which may occur if an active trading market is not sustained, among other reasons, would amplify the effect of the above factors on our stock price volatility.

Should the market price of our stock drop significantly, stockholders may institute securities class action lawsuits against us. A lawsuit against us could cause us to incur substantial costs and could divert the time and attention of our management and other resources.

There is a material weakness in internal control over financial reporting relatedcould adversely impact our business, financial condition and results of operations.

Failure to the supporting evidence for our liability to Honeywell under the Indemnification and Reimbursement Agreement.

In accordance with the terms of the Indemnification and Reimbursement Agreement, our Consolidated and Combined Balance Sheets reflect a liability of $1,244 millionmaintain adequate, effective internal controls could result in Obligations payable to Honeywell as of December 31, 2018 (the “Indemnification Liability”). The amount of the Indemnification Liability is based on information provided to us by Honeywell with respect to Honeywell’s assessment of its own asbestos-related liability payments and accounts payable as of such date and is calculated in accordance with the terms of the Indemnification and Reimbursement Agreement. Honeywell estimates its future liability for asbestos-related claims based on a number of factors.


In the course of preparing this Annual Report on Form 10-K and our Consolidated and Combined Financial Statements for the year ended December 31, 2018, our management determined that there is a material weakness in our internal control overpotential financial reporting relating to the supporting evidence for our liability to Honeywell under the Indemnification and Reimbursement Agreement. Specifically, we were unable to independently verify the accuracy of the certain information Honeywell provided to us that we used to calculate the amount of our Indemnification Liability, including information provided in Honeywell's actuary report and the amounts of settlement values and insurance receivables. For example, Honeywell did not provide us with sufficient information to make an independent assessment of the probable outcome of the underlying asbestos proceedings and whether certain insurance receivables are recoverable.

It is possible that, in future periods, new information may become available relating to the amount of Honeywell’s underlying asbestos-related liability payments and accounts payable as of December 31, 2018 that could cause the amount of the Indemnification Liability reported on our Consolidated and Combined Balance Sheets in this Annual Report on Form 10-K to change, possibly materially, which could lead to a restatement of our Consolidated and Combined Financial Statements.

If we are unable to remediate this material weakness or if we or our independent registered public accounting firm identify future deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, or in the event of any restatement of our Consolidated and Combined Financial Statements, the market price of shares of common stock could decline and we could be subject to sanctions or investigations by the SEC misstatements and/or other regulatory authorities, whichforms of noncompliance that could have a material adverse effectimpact on our results of operations, financial condition and financial condition.

We plan to evaluate whether to pay cash dividends on our common stock in the future, and the terms of our indebtedness will limit our ability to pay dividends on our common stock.

We plan to evaluate whether to pay cash dividendsto our stockholders.The timing,declaration,amountand paymentof futuredividendsto stockholders,if any, will fallwithin the discretionof our board of directors.The Board’s decisionsregardingthe paymentof dividendswill depend on considerationof many factors,such as our financialcondition,earnings,sufficiencyof distributablereserves, opportunitiesto retainfutureearningsfor use in the operationof our businessand to fund futuregrowth, capital requirements,debt serviceobligations,obligationsunder the Indemnificationand ReimbursementAgreement, legalrequirements,regulatoryconstraintsand otherfactorsthatthe Board deemsrelevant.Additionally,the termsof the indebtednessweintendto incurin connectionwith the Spin-Offand obligationsunder the Indemnificationand ReimbursementAgreementeach will limitour abilityto pay cash dividends.There can be no assurancethatwewill pay a dividendin the futureor continueto pay any dividendif wedo commencepaying dividends.

Your percentage ownership in us may be diluted in the future.

Your percentage ownership in us may be diluted in the future because of equity issuances for acquisitions, capital market transactions or otherwise, including equity awards that we will be granting to our directors, officers and other employees. We expect that shares of our common stock will be issuable upon the future vesting of certain Honeywell equity awards held by our employees that converted into Garrett equity awards in connection with the Spin-Off. Our Board has adopted and Honeywell, as our sole shareholder, approved, the 2018 Stock Incentive Plan of Garrett and its Affiliates (the “Equity Plan”) for the benefit of certain of our current and future employees and other service providers. Our non-employee directors will be eligible to participate in the 2018 Stock Incentive Plan for Non-Employee Directors. Awards made under such plans will have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock.

In addition, our Amended and Restated Certificate of Incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock with respect to dividends and distributions, as our board of directors may generally determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant the holders of preferred stock the right to elect some number of the members of our board of directors in all events or upon the happening of specified events, or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences that we could assign to holders of preferred stock could affect the residual value of our common stock.


From time-to-time,wemay opportunisticallyevaluateand pursue acquisitionopportunities,including acquisitionsfor which the considerationthereofmay consistpartiallyor entirelyof newly-issuedsharesof ourcommonstock and, therefore,such transactions, if consummated,would dilutethe voting power and/orreducethe value of our commonstock.

Certain provisions in our Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws and Delaware law may discourage takeovers.

Several provisions of our Amended and Restated Certificate of Incorporation, Amended and Restated By-Laws and Delaware law may discourage, delay or prevent a merger or acquisition. These include, among others, provisions that:

•

provide for staggered terms for directors on our Board for a period following the Spin-Off;

•

do not permit our stockholders to act by written consent and require that stockholder action must take place at an annual or special meeting of our stockholders, in each case except as such rights may otherwise be provided to holders of preferred stock;

•

establish advance notice requirements for stockholder nominations and proposals;

•

limit the persons who may call special meetings of stockholders; and

•

limit our ability to enter into business combination transactions.

These and other provisions of our Amended and Restated Certificate of Incorporation, Amended and Restated By-Laws and Delaware law may discourage, delay or prevent certain types of transactions involving an actual or a threatened acquisition or change in control of Garrett, including unsolicited takeover attempts, even though the transaction may offer our stockholders the opportunity to sell their shares of our common stock at a price above the prevailing market price.

Our Amended and Restated Certificate of Incorporation designates the courts of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.

Our Amended and Restated Certificate of Incorporation provides, in all cases to the fullest extent permitted by law, unless we consent in writing to the selection ofan alternative forum, the Court of Chancery located within the State of Delaware will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of Garrett, any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees or stockholders to us or our stockholders, any action asserting a claim arising pursuant to the Delaware General Corporate Law (“DGCL”)orasto which the DGCL confers jurisdiction on the Court of Chancery located in the State of Delaware or any action asserting a claim governed by the internal affairs doctrine or any other action asserting an “internal corporate claim” as that term is defined in Section 115 of the DGCL. However, if the Court of Chancery within the State of Delaware does not have jurisdiction, the action may be brought in any other state or federal court located within the State of Delaware. Any person or entity purchasing or otherwise acquiring or holding any interest in shares of our capital stock will be deemed to have notice of and to have consented to these provisions. This provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with usor our directors, officers or other employees, which may discourage such lawsuits. Alternatively, if a court were to find this provision of our Amended and Restated Certificate of Incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions.

organizational reputation. If we fail todo not maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired and investors’ views of us could be harmed.

Beginning with our second required annual report on form 10-K, we will need to perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as


requiredby Section404 of the Sarbanes-OxleyAct of 2002. If weare not able to complywith the requirementsof Section404 in a timelymanner,the marketpriceof sharesof commonstock could declineand wecould be subjectto sanctionsor investigations by the SEC or otherregulatoryauthorities,which wouldrequireadditionalfinancialand managementresources.

Our ability to successfully comply with Section 404 requires us to be able to prepare timely and accurate financial statements. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer, and we may be unable to conclude that our internal control over financial reporting is effective, and our independent registered public accounting firm may provide an adverse opinion on our internal control over financial reporting. Furthermore, if we do not maintain effective internal controls, the market price of our common stock and/or Series A Preferred Stock could decline and we could be subject to sanctions or investigations by regulatory authorities, which would require additional financial and management resources, adversely impacting our operations and potentially harming our reputation with our key stakeholders, including investors, employees, customers and suppliers.


System or service failures, including as a result of cyber or other security incidents, could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.
We deploy and maintain IT and engineering systems which involve sensitive information. As a result, we are subject to systems or service failures, not only resulting from our failures or the failures of third-party service providers, natural disasters, power shortages or terrorist attacks, but also from exposure to cyber or other security threats. Global cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to IT systems to sophisticated and targeted measures known as advanced persistent threats, directed at the Company, our products, our customers and/or our third-party service providers, including cloud providers. There has been an increase in the frequency and sophistication of cyber and other security threats we face, and our customers are increasingly requiring cyber and other security protections and mandating cyber and other security standards in our products.
Cyber and other security incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations. Moreover, employee error or malfeasance, faulty password management or other intentional or inadvertent non-compliance with our security protocols may result in a breach of our information systems. Cyber and other security incidents aimed at the software embedded in our products could lead to third-party claims that our product failures have caused a similar range of damages to our customers, and this risk is enhanced by the increasingly connected nature of our products.
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The potential consequences of a material cyber or other security incident include financial loss, reputational damage, litigation with third parties, theft of intellectual property, fines levied by the United States Federal Trade Commission, diminution in the value of our investment in research, development and engineering, and increased cyber and other security protection and remediation costs due to the increasing sophistication and proliferation of threats, which in turn could adversely affect our competitiveness and results of operations. In addition to any costs resulting from contract performance or required corrective action, these incidents could generate increased costs or loss of revenue if our customers choose to postpone or cancel previously scheduled orders or decide not to renew any of our existing contracts.
The costs related to cyber or other security incidents may not be fully insured or indemnified by other means. The successful assertion of a large claim against us with respect to a cyber or other security incident could seriously harm our business. Even if we werenot successful, these claims could result in significant legal and other costs, may be a distraction to conclude,our management and harm our customer relationships, as well as our reputation.

Risks Related to Our Capital Structure

Our substantial indebtedness and other obligations could adversely affect our financial health and our auditors wereability to concur,execute our business strategy.
We have substantial consolidated indebtedness. As of December 31, 2022, we had outstanding debt of $1,186 million. Our ability to generate sufficient cash flows from operations depends on a range of economic, competitive and business factors, many of which are outside of our control. If we are unable to generate sufficient cash flow, we may be required to seek one or more alternatives, such as reducing or delaying investments or capital expenditures, selling assets, refinancing or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our internal control overoutstanding indebtedness or future indebtedness will depend on the capital markets and our financial reporting provided reasonable assurance regarding the reliability of financial reportingcondition at such time. It will also depend on our credit facilities and the preparationterms of the Series A Preferred Stock, which contain certain operating and financial statementsrestrictions that that may restrict our business and financing activities. We may not be able to engage in any of these activities or engage in these activities on desirable terms when needed, which could result in a default on our indebtedness. Our inability to generate sufficient cash flows to satisfy our outstanding debt and other obligations, or to refinance our obligations on commercially reasonable terms, would have a material adverse effect on our results of operations, financial condition and business.
Furthermore, we receive debt ratings from major credit rating agencies. Any downgrade in our credit rating or the ratings of our indebtedness, or adverse conditions in the debt capital markets, could restrict our access to, and negatively impact the terms of, current or future financings and trade credit extended by certain suppliers or other vendors.
Our ability to raise capital in the future may be limited, which could make us unable to fund our capital requirements.
Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds through the issuance of new equity securities, debt or a combination of both. Additional financing may not be available on favorable terms or at all. If adequate funds are not available on acceptable terms, we may not be able to fund our capital requirements. If we issue new debt securities, the debt holders would have rights senior to holders of common stock or Series A Preferred Stock to make claims on our assets, and the terms of any additional debt could restrict our operations, including our ability to pay dividends on our common stock or Series A Preferred Stock. If we issue additional equity securities, existing holders of our securities may experience dilution.
Ownership positions of certain of our stockholders may lead to conflicts of interest and could negatively impact the price of our securities.
The ownership positions of certain affiliated funds of Centerbridge Partners, L.P. (the "Centerbridge Investors") and certain affiliated funds of Oaktree Capital Management, L.P. (the "Oaktree Investors”) represent a significant portion of the total voting power of our outstanding shares. As a result, these two stockholders in and of themselves can influence significantly all matters requiring approval by our stockholders. These two stockholders may, from time to time, have interests that differ from other stockholders, and they may each vote in a way with which other stockholders disagree and either or both may be adverse in the future to the interests of other stockholders. Furthermore, Centerbridge Investors and Oaktree Investors each have the right to designate three directors for external purposeselection to the Board at each meeting of stockholders of the Company, and certain additional holders of our Series A Preferred Stock are entitled to designate one director for election to the Board at each meeting of stockholders of the Company, pursuant to the terms of the Investor Rights Agreement for the Series A Preferred Stock. The concentration of ownership of our shares may have the effect of delaying, preventing or deterring a change of control of our Company, could deprive our stockholders of an opportunity to receive a
30
premium for their shares as part of a sale of our Company, and consequently may affect the market price of our shares. This concentration of ownership of our shares may also have the effect of influencing the completion of a change in control that may not necessarily be in the best interests of all of our stockholders.
Our securities are subordinated to our indebtedness upon liquidation.
In the event of our liquidation, dissolution or winding up, our common stock and Series A Preferred Stock would rank below all debt and other general unsecured claims against us. As a result, holders of our Series A Preferred Stock would not be entitled to receive any payment or other distribution of assets upon our liquidation, dissolution or winding up until after all of our obligations to debt holders have been satisfied.
Furthermore, our common stock would rank below the Series A Preferred Stock. Holders of our common stock would not be entitled to receive any payment or other distribution of assets upon our liquidation, dissolution or winding up until after all of our obligations to debt holders and also holders of our Series A Preferred Stock had been satisfied.
There can be no assurance that we will pay dividends.
The declaration and payment of any dividend is subject to the approval of our Board of Directors in accordance with GAAP, becauseits bylaws. There can be no assurance that we will declare and pay dividends in the future in any particular amounts, or at all. Our ability to pay dividends may limited by restrictions or limitations on our cash flows, including our ability to obtain sufficient funds through dividends from subsidiaries, many of which are located outside of the United States. Furthermore, any payment of dividends on our common stock is subject to and conditioned upon payment of dividends on our Series A Preferred Stock. Holders of Series A Preferred Stock are entitled to receive cumulative dividends at an annual rate of 11% on the stated amount per share, plus the amount of any accrued and unpaid dividends on such share accumulating daily and payable quarterly, when, as and if declared by the Disinterested Directors' Committee of the Board of Directors out of funds legally available. Any declaration and payment of dividends on the Series A Preferred Stock or common stock will depend on our earnings and financial condition, including our consolidated EBITDA, our liquidity and capital requirements, the general economic climate, the terms of our equity securities, contractual restrictions, our ability to service any debt obligations senior to our Series A Preferred Stock and other factors deemed relevant by the Board of Directors in accordance with its inherent limitations, internal controlbylaws.
The Series A Preferred Stock could be converted into common stock in certain circumstances.
Series A Preferred Stock, as well as accrued and unpaid dividends for Series A Preferred Stock, can be converted into common stock in certain circumstances. The issuance of common stock upon conversion of the Series A Preferred Stock, and any accrued and unpaid dividends on the Series A Preferred Stock, could result in significant, material dilution to current holders of common stock. There can be no assurance as to the timing of a conversion of Series A Preferred Stock. Furthermore, holders whose shares of Series A Preferred Stock are converted into common stock will no longer enjoy priority over financial reporting mightother holders of common stock in the event of the liquidation, dissolution or winding up of the Company.
Series A Preferred Stock votes with common stock on an as-converted basis.
Holders of the Series A Preferred Stock have the right to vote together as a single class with holders of the common stock on an as-converted basis on all matters presented for a vote of the holders of common stock. As of December 31, 2022, holders of the Series A Preferred Stock held approximately 79.1% of the total voting power of the Company. The holders of the Series A Preferred Stock may have interests in matters brought before the stockholders that are different than the interests of holders of our common stock. While the holders of the Series A Preferred Stock may not preventact as a group, in the instances where their interests are aligned, their ability to cast votes on an as-converted basis may affect the outcome of any stockholder votes on such matters and may adversely affect the market price of the common stock.
We have made in the past, and may in the future make, significant grants under our equity incentive program.
We have made, and expect to continue to make, grants of common stock or detect fraud or misstatements. This, in turn, could have an adverse impact on trading prices for ouroptions to purchase shares of common stock and could adversely affect our ability to access the capital markets. See “—Risks Relating to the Spin-Off—As we build our information technology infrastructure and transition our data to our own systems, we could incur substantial additional costsemployees, officers or directors under the Long-Term Incentive Plan. To the extent that shares of common stock are granted, or options to purchase common stock are granted, exercised and converted, existing holders of our equity securities may experience temporary business interruptions, and our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we are subject.”

dilution.

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Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We have created a geographic footprint that emphasizes locating R&D, engineering and manufacturing capabilities in close physical proximity to our customers, thereby enabling us to manage our environmental footprint and to adopt technologies and products for the specific vehicle types sold in each geographic market. Over the past several years, we have invested heavily to be close to our Chinese, Indian and other high-growth region OEM customers to be able to offer world-leading technologies, localized engineering support and unparalleled manufacturing productivity.

As of December 31, 2018,2022, we owned or leased 13 manufacturing sites, five R&D centers and 13 close-to- customer11 close-to-customer engineering sites. We also have many smaller sales offices, warehouses, cybersecurity and IVHMintegrated vehicle health management sites and other investments strategically located throughout the world. The following table shows the ownership and regional distribution of our manufacturing sites, R&D centers and customer engineering sites:

 

 

 

Europe,

 

 

 

 

 

 

 

 

 

Middle East &

 

South Asia &

 

 

 

 

Ownership Regional distribution

 

North America

 

Africa

 

Asia Pacific

 

South America

 

Total

OwnedLeasedNorth AmericaEurope,
Middle East &
Africa		South Asia &
Asia Pacific		South AmericaTotal

Manufacturing Sites

 

2

 

5

 

5

 

1

 

13

Manufacturing Sites94255113

R&D Centers

 

1

 

2

 

2

 

0

 

5

R&D Centers14122—5

Close-to-Customer Engineering Sites

 

3

 

6

 

3

 

1

 

13

Close-to-Customer Engineering Sites—11253111

We frequentlycontinually and proactively review our real estate portfolio and develop footprint strategies to support our customers’ global plans, while at the same time supporting our technical needs and optimizing operating cost base. We believeexpect our evolving portfolio will meet current and anticipated future needs.

Item 3. Legal Proceedings

We are involved in various lawsuits, claims and proceedings incident to the operation of our businesses, including those pertaining to product liability, product safety, environmental, safety and health, intellectual property, employment, commercial and contractual matters and various other matters. Although the outcome of any such lawsuit, claim or proceeding cannot be predicted with certainty and some may be disposed of unfavorably to us, we do not currently believe that such lawsuits, claims or proceedings will have, individually or in the aggregate, a material adverse effect on our financial position, results of operations or cash flows. We accrue for potential liabilities in a manner consistent with accounting principles generally accepted in the United States.US GAAP. Accordingly, we accrue for a liability when it is probable that a liability has been incurred and the amount of the liability is reasonably estimable.


Additionally,in connectionwithFor additional information regarding our entryintolegal proceedings, see Note 25, Commitments and Contingenciesof the Indemnificationand ReimbursementAgreement,weare requiredto make paymentsto Honeywell for a certainamountof Honeywell’sasbestos-relatedliability paymentsand accountspayable,primarilyrelatedNotes to the Bendix businessin the United States, as well as certainenvironmental-relatedliabilitypaymentsand accountspayableand non-UnitedStatesasbestos-relatedliability paymentsand accountspayable, in each case relatedto legacyelementsof the Business, includingthe legalcosts of defendingand resolvingsuch liabilities,less90% of Honeywell’snet insurancereceiptsand, as may be applicable,certainotherrecoveriesassociatedwith such liabilities.

Consolidated Financial Statements.

Item 4. Mine Safety Disclosures

Not Applicable.


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Part

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

On October 1, 2018, we became an independent publicly-traded company through a pro rata distribution by Honeywell of 100% of the outstanding shares of us to Honeywell's stockholders (the “Spin-Off”). Each Honeywell stockholder of record received one share of our common stock for every 10 shares of Honeywell common stock held

The Common Stock trades on the record date. Approximately 74 million shares of our common stock were distributed on October 1, 2018 to Honeywell stockholders. In connection with the separation, our common stock began trading "regular-way"Nasdaq Global Select Market under the ticker symbol "GTX" on the New York Stock Exchange on October 1, 2018.

.

Holders of Record

As of February 26, 2019,8, 2023, there were 39,31929,178 stockholders of record of our common stock.

Common Stock.

Dividend Policy

We currently intend to retain all available funds and any future earnings to fund the development and growth of our business and to repay indebtedness, and therefore we do not anticipate declaring or paying any cash dividends on our common stockCommon Stock in the foreseeable future. The timing, declaration, amount and payment of future dividends to stockholders on shares of our Common Stock, if any, will fall within the discretion of our Board. Among the items we will consider when establishing a dividend policy with respect to the payment of dividends on our Common Stock will be the capital needs of our business and opportunities to retain future earnings for use in the operation of our business and to fund future growth. Additionally, the terms of our Senior Credit Facilities and obligations under the Indemnification and Reimbursement Agreementcertificate of designations governing our Series A Preferred Stock each will limit our ability to pay cash dividends.dividends on our Common Stock.
During the year ended December 31, 2022, we declared two cash dividends of $0.17 per share each, in September 2022 and December 2022, on our Series A Preferred Stock, for a total aggregate dividend of $83 million. There can however be no assurance that we will declare and pay a dividenddividends on our Series A Preferred Stock, or Common Stock, in the future in any particular amounts or continue to pay any dividend if we do commence the payment of dividends.

at all.

Stock Performance Graph

The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act except to the extent we specifically incorporate it by reference into such filing. Our stock price performance shown in the graph below is not indicative of future stock price performance.
The following graph and table illustrate the total return from October 1, 2018April 30, 2021 (the date of Emergence) through December 31, 2018,2022, for (i) our common stock,Common Stock, (ii) the Standard and Poor’s (“S&P”) Small Cap 600 Index, and (iii) the average stock performance of a group consisting of ourthe peer companies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Peer Group”), consisting for the three months ended December 31, 2018 of BorgWarner Inc.,Adient plc, Allison Transmission Holdings, Inc., American Axle & Manufacturing Holdings, Inc., Aptiv PLC, Autoliv Inc., BorgWarner Inc., Dana Incorporated, Gentex Corporation, Lear Corporation, Magna International Inc., Tenneco Inc., Veoneer, Inc. and Delphi Technologies Plc. Visteon Corporation. (iii) the average stock performance of a group consisting of the peer companies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Peer Group”), consisting of Adient plc, Allison Transmission Holdings, Inc., American Axle & Manufacturing Holdings, Inc., Aptiv PLC, Autoliv Inc., BorgWarner Inc., Dana Incorporated, Gentex Corporation, Lear Corporation, Magna International Inc. and Visteon Corporation.
The 2022 Peer Group is used routinely by management for benchmarking purposes. The graph and the table assume that $100 was invested on October 1, 2018April 30, 2021 in shares of each of our common stock,Common Stock, the S&P Small Cap 600 Index, and the common stockCommon Stock of ourthe 2022 Peer Group, and that any dividends were reinvested. The comparisons reflected in the graph and table are not intended to forecast the future performance of our common stockCommon Stock and may not be indicative of our future performance.

33

Indexed Price Performance

gtx-20221231_g7.jpg

gtx-20221231_g8.gif

Global Markets Intelligence Group

Recent Sales of Unregistered Securities

None

During the year ended December 31, 2022, the holders of our Series A Preferred Stock converted 130 shares of Series A Preferred Stock into 130 shares of Common Stock pursuant to the terms of the Certificate of Designations of the Series A Preferred Stock. These transactions did not involve any underwriters, underwriting discounts or commissions, or any public offering.
Issuer Purchases of Equity Securities

There

On November 16, 2021, the Board of Directors authorized a $100 million share repurchase program valid until November 15, 2022, providing for the purchase of shares of Series A Preferred Stock and Common Stock (the "share repurchase program"). On November 2, 2022, the Board of Directors authorized the extension of the share repurchase program until November 15, 2023.
The following table summarizes our share repurchase activity for the three months ended December 31, 2022, and additional information regarding our share repurchase program.
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PeriodTotal Number of Common Shares PurchasedAverage Price Paid per ShareTotal Number of Preferred Shares PurchasedAverage Price Paid Per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plan or ProgramApproximate Dollar Value of Shares that May Yet Be Purchased Under the Plan or Program
October 1, 2022 - October 31, 2022—$— 67,341 $7.66 67,341 75,874,663 
November 1, 2022 - November 30, 2022—$— 130,055 $8.46 130,055 74,773,976 
December 1, 2022 - December 31, 2022—$— 106,419 $8.57 106,419 73,862,228 
Total—$— 303,815 $8.32 303,815 73,862,228 
Other than the amounts repurchased as part of our share repurchase program, there were no purchases of equity securities by the issuer or affiliated purchasers during the quarter ended December 31, 2018.

2022.

Item 6. Selected Reserved
Not applicable.

35
Item 7. Management’s Discussion and Analysis of Financial Data

Selected Historical ConsolidatedCondition and Combined Financial Data

Results of Operations

The following tables present certain selected historical consolidateddiscussion and combinedanalysis of our financial condition and results of operations, which we refer to as our “MD&A,” should be read in conjunction with our Consolidated Financial Statements and related notes thereto and other financial information as of and for eachappearing elsewhere in this Annual Report. Some of the yearsinformation contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many important factors, including those set forth in the five-year period ended"Risk Factors" section of this Annual Report, our actual results could differ materially from the results described in, or implied, by these forward-looking statements.
Overview and Business Trends
Garrett designs, manufactures and sells highly engineered turbocharger and electric-boosting technologies for light and commercial vehicle 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) powertrains. Additionally, we are currently in the development stage of turbochargers for internal combustion engines using hydrogen as fuel and other highly engineered components for zero emission vehicles. These products are key enablers for fuel economy and emissions standards compliance.
The turbocharger industry is expected to increase from approximately 46 million units in 2022 to approximately 48 million units by 2024, then gradually plateau and drop to approximately 41 million units by 2028, according to S&P for light vehicles and KGP and PSR for on-highway and off-highway commercial vehicles. The turbocharger industry growth in the short and medium term is mainly driven by an expected increase in the penetration of hybrid vehicles, from approximately 13 million hybrid cars globally in 2022 to an anticipated 29 million hybrid cars globally in 2026.
In 2022, a significant increase in BEV production has been observed in Europe and China, with BEV representing, respectively 8% and 18% of light vehicles produced. In China, renewed sales incentives, especially in Tier 2 and Tier 3 cities, as well as non-financial incentives such as more generous license-plate quotas for major metropolitan areas, have bolstered Chinese BEV penetration. In the long-term, the proposal in the European Union ("E.U.") for all new cars to be zero-emission at tail pipe by 2035, as well as local regulations, could drive a further increase of BEV penetration in Europe beyond currently forecasted levels. In the United States, the tightening of CO2/mileage targets is expected to drive higher turbo penetration in the short to medium term. The President of the United States signed an executive order with the goal of making half of all new vehicles sold in 2030 zero-emissions vehicles, including battery electric, plug-in hybrid electric, or fuel cell electric vehicles, which is expected to accelerate the electrification trend in the mid-to-long term. Garrett's portfolio for hybrid powertrains includes new electric boosting solutions that leverage our unique technologies for electrical high speed boosting machinery. Garrett's product portfolio also includes fuel cell compressors for which we are developing the third generation. We are well positioned to take advantage of growing opportunities especially in the application of commercial vehicles. In China, the roadmap released by the China Society of Automotive Engineers, Energy-saving and New Energy Vehicle Technology Roadmap 2.0, outlines a technology path for the next ten years that aims to find a balance between fuel consumption improvement for hybrids and the introduction of electric vehicles. In that context, the turbocharger industry is expected to keep contributing to fuel economy optimization of gasoline, diesel and hybrid vehicles.
In the short to medium term, we continue to believe that turbocharger demand will grow as turbochargers remain one of the most cost-efficient levers to improve the fuel efficiency of gasoline, diesel and hybrid vehicles. In 2021, Garrett won the prestigious Automotive News PACE™ award for the industry's first E-turbo that successfully launched in 2022. The unique high speed electric motor technology developed for this product came from Garrett's fuel cell compressors that are required by fuel cell vehicles. Additionally, this technology offers opportunities for new products to support all types of electrified drivetrains. In the commercial vehicle industry, we expect a slower transition to BEVs due to the requirements of specific applications and associated range and charging time constraints, which translates into more resilient turbocharger demand, as most commercial vehicles are turbocharged. In addition, low or zero emission alternative fuels for ICE, like natural gas or hydrogen, are expected to gain momentum in coming years, supporting continued turbocharger demand. Growth in the turbocharger industry is expected globally, with special mention for high-growth regions in Asia, where rising income levels continue to drive long-term automotive demand. While these positive factors do not isolate the turbocharger industry from fluctuations in global vehicle production volumes, such factors may assist in mitigating the negative impact of macroeconomic cycles. In addition, approximately 30% of our revenue comes from commercial vehicle and aftermarket sales that are less sensitive to the trend of electrification.
36
The global turbocharger industry is traditionally subject to inflationary pressures with respect to raw materials which place operational and profitability burdens on the entire supply chain. Given the recent macroeconomic disruptions including geopolitical tensions, we expect to see continued commodity cost volatility which could have an impact on future earnings. Accordingly, we continue to seek to mitigate both inflationary pressures and our material-related cost exposures by negotiating commodity cost contract escalation or pass-through agreements with customers and cost reductions with suppliers. Our sales predictability in the short term might also be impacted by sudden changes in customer demand, driven by their supply-chain management challenges.
Emergence from Chapter 11
On September 20, 2020, the Company filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code, which was administered under the caption “In re: Garrett Motion Inc., 20-12212.” On April 20, 2021, a Revised Amended Plan of Reorganization (the "Plan") was filed and 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.

Results of Operations for the Years Ended December 31, 2018. Prior2022, 2021 and 2020
Net Sales
202220212020
(Dollars in millions)
Net sales$3,603 $3,633 $3,034 
% change compared with prior period(0.8)%19.7 %(6.6 %)
The change in net sales compared to the Spin-Off on October 1, 2018, our historical financial statements were prepared on a stand-alone combined basis and were derived fromprior year is attributable to the consolidated financial statements and accounting records of Honeywell. Accordingly, for periods prior to October 1, 2018, our financial statements are presented on a combined basis and for the periods subsequent to October 1, 2018 are presented on a consolidated basis (collectively, the historical financial statements for all periods presented are referred to as “Consolidated and Combined Financial Statements”). The selected historical consolidated and combined financial data as of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017, and 2016 are derived from the historical audited Consolidated and Combined Financial Statements as included in this Form 10-K. The selected historical consolidated and combined financial data as of December 31, 2016 and forfollowing:
gtx-20221231_g9.gif
For the year ended December 31, 2015 are derived2022, sales decreased compared to prior year by $30 million or 1%. This decrease was primarily due to an unfavorable impact of $304 million or 8% due to foreign currency translation driven by a lower Euro-to-US dollar exchange rate. This decrease was partially offset by $149 million of improved mix and $125 million of inflation recoveries net of pricing across all product lines.
Gasoline product sales increased by $64 million or 5% (including an unfavorable impact of $119 million or 8% due to foreign currency translation), primarily driven by new product launches in North America which delivered incremental sales year over year. This increase was partially offset by lower Euro-to-dollar exchange rates and lower sales in China due to the increased Covid-related lockdown measures implemented by the Chinese government throughout 2022.
Diesel product sales decreased by $91 million or 9% (including an unfavorable impact of $103 million or 10% due to foreign currency translation). While we saw lower volumes in 2022 due to the global semiconductor shortage and supply chain challenges at customers, this was offset by inflation pass-through and a favorable mix.
Commercial vehicle sales decreased by $32 million or 5% (including an unfavorable impact of $51 million or 8% due to foreign currency translation), primarily driven by lower volumes in China during the year after a strong pre-buy effect in the first half of 2021, more than offset by a favorable mix in the rest of the world.
Aftermarket sales improved by $36 million or 9% (including an unfavorable impact of $25 million or 6% due to foreign currency translation), primarily due to strong demand in North America and Europe related to favorable aftermarket conditions such as increased off-highway demand for new and service parts, increased revenues from historical audited combined financial statements not included in this Annual Report on Form 10-K. The selected historical consolidatedour
37
Performance & Motorsport Turbo business, new distributor openings, as well as growth through new product introductions and combined financial data as of December 31, 2015 and 2014 and forfavorable pricing impacts.
gtx-20221231_g10.gif
For the year ended December 31, 20142021, net sales were $3,633 million, an increase compared to prior year of $599 million or 20% (including a positive impact of $132 million or 5% due to foreign currency translation driven by higher Euro-to-US dollar exchange rates).
Gasoline product sales increased by $245 million or 21% (including a favorable impact of $64 million or 6% due to foreign currency translation), primarily driven by program launches and ramp-ups in China and North America.
Diesel product sales increased by $124 million or 14% (including a favorable impact of $42 million or 5% due to foreign currency translation), primarily driven by the strong recovery in customer demand beginning of the year 2021 following the pandemic-related disruptions experienced in 2020, which was partially offset by the semiconductor shortage at customers particularly in the second half of 2021.
Commercial Vehicle sales increased by $154 million or 28% (including a favorable impact of $17 million or 3% due to foreign currency translation), primarily driven by the continuing recovery in customer demand following the pandemic related disruptions experienced in 2020 and with both ramp-up and new launches of certain products in Europe and China.
Aftermarket sales increased by $76 million or 23% (including a favorable impact of $7 million or 2% due to foreign currency translation), primarily due to continuing recovery in customer demand following the pandemic-related disruptions experienced in 2020, driven by service replacements and the development actions undertaken such as new distributor openings, new product introductions and targeted distribution channel strategy.
Cost of Goods Sold and Gross Profit
202220212020
(Dollars in millions)
Cost of goods sold$2,920 $2,926 $2,495 
% change compared with prior period(0.2)%17.3 %(2.3 %)
Gross profit percentage19.0 %19.5 %17.8 %
Cost of Goods SoldGross Profit
(Dollars in millions)
Cost of Goods Sold / Gross Profit for year ended December 31, 2021$2,926 $707 
Volume(19)(8)
Product mix124 25 
Price, net of inflation pass-through— 125 
Commodity, transportation and energy inflation154 (154)
Productivity, net(58)84 
Research & development17 (17)
Foreign exchange rate impacts(224)(79)
Cost of Goods Sold / Gross Profit for year ended December 31, 2022$2,920 $2,920 $683 
38
For the year ended December 31, 2022, cost of goods sold decreased by $6 million compared to prior year, primarily driven by our lower sales volumes and foreign currency impacts which contributed to decreases of $19 million and $224 million, respectively. Our continued focus on productivity also contributed to a decrease in cost of goods sold of $58 million, net of $10 million of higher premium freight costs driven by supply chain disruptions, transportation constraints and volume volatility. These decreases were partially offset by $154 million of inflation on commodities, transportation and energy costs, as well as $124 million due to an unfavorable product mix. R&D expenses also increased by $17 million which reflects our shift in investment in electrification technologies.
Gross profit decreased by $24 million, mainly driven by the lower sales volumes, inflation on commodities, transportation and energy costs, as well as higher premium freight costs as discussed above. Higher R&D costs and $79 million of unfavorable foreign currency translational, transactional and hedging effects also reduced our gross profit. These decreases were partially offset by $84 million of higher productivity which includes the benefits from value engineering that are derivedpartially passed through to customers, $125 million of inflation recoveries from customer pass-through agreements net of pricing reductions, and $25 million of favorable product mix.
Cost of Goods SoldGross Profit
(Dollars in millions)
Cost of Goods Sold / Gross Profit for year ended December 31, 2020$2,495 $539 
Volume278 135 
Product mix74 (8)
Price, net of inflation pass-through— (24)
Commodity & transportation inflation71 (71)
Productivity, net(108)120 
Research & development17 (17)
Foreign exchange rate impacts99 33 
Cost of Goods Sold / Gross Profit for year ended December 31, 2021$2,926 $707 
For the year ended December 31, 2021, cost of goods sold increased by $431 million or 17.3% (including an unfavorable impact of $99 million due to foreign exchange rates) compared to the prior year. The increase in cost of goods sold was primarily driven by our higher sales volumes and foreign currency impacts which contributed to increases of $278 million and $99 million, respectively, in cost of goods sold. Cost of goods sold further increased by $74 million due to an unfavorable product mix and $71 million due to inflation on commodities and transportation costs, partially offset by benefits from our unaudited combined financial information.

The selected historical consolidated and combined financial data presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” andcontinued focus on productivity. R&D expenses increased by $17 million which reflects our historical Consolidated and Combined Financial Statementsshift in investment in electrification technologies and the accompanying Notes thereto included elsewhere temporary cost control actions taken in this Annual Report on Form 10-K. 2020 to mitigate the Covid-19 impact.

The increase in gross profit was mainly driven by the higher sales volumes and increased productivity. These increases were partially offset by the unfavorable product mix and inflation as discussed above, as well as $24 million of pricing reductions net of inflation recoveries from customer pass-through agreements during the year and $17 million of higher R&D costs. The impact of foreign currency translational, transactional and hedging effects further increased gross profit by $33 million.
Selling, General and Administrative Expenses
202220212020
(Dollars in millions)
Selling, general and administrative expense$216 $216 $260 
% of sales6.0 %5.9 %8.6 %
For each ofthe periods presentedyear ended December 31, 2022, selling, general and administrative (“SG&A”) expenses remained flat compared to prior year. We saw a $17 million benefit during the year from favorable foreign exchange rates compared to the Spin-Off,prior year and $2 million of lower employee-related costs which mainly reflect lower expected employee incentive payouts partially offset by the impact of labor inflation. These decreases were offset by $5 million of higher IT expenses in 2022, $4 million from increased travel expenses as Covid restrictions eased, $10 million of higher bad debt expenses due primarily to a non-recurring bad debt recovery recognized in 2021.
39
For the year ended December 31, 2021, SG&A expenses decreased for compared to prior year by $44 million, mainly driven by $52 million of strategic planning costs incurred in 2020, $11 million of bad debt recovery, $5 million of lower stock based compensation costs and a $2 million capital tax expense recorded in 2020. These decreases were partially offset by $4 million in labor inflation, a $13 million increase in accruals for employees incentives which reflect the expected payouts in 2022, a $6 million increase in foreign exchange impacts and $3 million of cost savings initiatives undertaken in the prior year to mitigate the impact of Covid-19. As a percentage of net sales, SG&A for 2021 was 5.9% versus 8.6% in the prior year.
Other Expense, Net
202220212020
(Dollars in millions)
Other expense, net$2 $1 $46 
% of sales0.1 %— %1.5 %
Other expense, net increased for 2022 compared to the prior year by $1 million and is attributable to an increase of expenses associated with the factoring of receivables.
Other expense, net decreased for 2021 compared to the prior year by $45 million. The decrease is attributable to the cancellation of liabilities related to the Honeywell Indemnity Agreement and associated litigation, following our businessemergence from Chapter 11.
Interest Expense
202220212020
(Dollars in millions)
Interest Expense$82 $93 $79 
For the year ended December 31, 2022, interest expense decreased by $11 million compared to prior year, primarily due to $19 million less of interest accretion on our Series B Preferred Stock that was wholly owned issued at Emergence and fully redeemed by Honeywell. June 2022, and $9 million of interest expense incurred on our pre-Emergence credit facilities. These decreases in interest expense were partially offset by $14 million of additional interest expense in 2022 on our current Credit Facilities entered into at Emergence.
For the year ended December 31, 2021, interest expense increased by $14 million compared to prior year, primarily due to $29 million of interest accretion on the Series B Preferred Stock, partially offset by $16 million lower interest expense on our current Credit Facilities compared to our credit facility in the prior year before Emergence and prior year period fees related to amendments to our previous credit facilities.
Non-operating income
202220212020
(Dollars in millions)
Non-operating income$(121)$(16)$(38)
For the year ended December 31, 2022, non-operating income increased by $105 million compared to prior year. This increase was driven by $66 million of interest income primarily from unrealized marked-to-market gains on our interest rate swaps and $24 million related to non-service components of net periodic pension benefits, partially offset by $11 million of foreign exchange remeasurement losses.
For the year ended December 31, 2021, non-operating income decreased by $22 million compared to prior year and comprised $47 million in foreign exchange impact on debt, which was unhedged as a consequence of restrictions placed on the Company during the pendency of Chapter 11, partially offset by $18 million higher non-service pension benefit in the current year and $8 million driven by interest income associated with unrealized marked-to-market gains on interest rate swaps.
Reorganization items, net
40
202220212020
(Dollars in millions)
Reorganization items, net$3 $(125)$73 
For the year ended December 31, 2022, reorganization items, net was an expense of $3 million related to professional service fees incurred for the remaining securities litigation from Chapter 11. During the prior year, reorganization items, net amounted to a $125 million gain, representing a $502 million gain on the settlement of Honeywell claims, partially offset by $119 million higher professional service fees related to the Chapter 11 Cases compared to the prior-year period, $79 million related to the termination and an expense reimbursement under a share and asset purchase agreement entered into on the Petition Date by the Debtors, AMP Intermediate B.V. and AMP U.S. Holdings, LLC (the “Stalking Horse Purchase Agreement”), $39 million in Directors and Officers insurance related to Chapter 11 Cases, a $19 million write off on debt issuance costs of the debt associated with our pre-petition credit agreement, $13 million in employee stock awards cancellation and $35 million in other costs mainly related to unsecured notes settlement.
For the year ended December 31, 2021, reorganization items, net was a gain of $125 million, as explained above. This is in comparison to the year ended December 31, 2020, where reorganization items, net were $73 million, representing professional fees related to Chapter 11 of $55 million, DIP Credit Agreement financing fees of $13 million and the unamortized deferred high yield debt issuance cost of $6 million.
Tax Expense
202220212020
(Dollars in millions)
Tax expense$106 $43 $39 
Effective tax rate21.4 %7.9 %32.8 %
The effective tax rate increased by 13.5 percentage points in 2022 compared to 2021. The increase was primarily attributable to the nontaxable gain on the settlement of the Honeywell claims (partially offset by non-deductible transaction costs) and increased tax benefits from an internal restructuring, both of which occurred in 2021 and are non-recurring. This increase was partially offset by tax benefits in the current year due to release of reserves for statute of limitation expirations.
The effective tax rate decreased by 24.9 percentage points in 2021 compared to 2020. The decrease was primarily attributable to the nontaxable gain on the settlement of the Honeywell claims during the year, increased tax benefits from an internal restructuring and fewer losses in jurisdictions that we do not expect to benefit from such losses; partially offset by increases in withholding taxes on unrepatriated earnings. The internal restructuring occurred predominantly in the fourth quarter of 2021, which involved transfers of certain rights to intellectual property and various intercompany financing arrangements resulting in an approximate 11 percentage point decrease to the effective tax rate during 2021. The overall increase in earnings from 2020 was also a contributing factor to a lower effective tax rate because the tax impacts as a percentage to earnings is less sensitive.
Net Income
202220212020
(Dollars in millions)
Net Income$390 $495 $80 
For the year ended December 31, 2022, net income decreased $105 million compared to prior year primarily as result of lower gross profit of $24 million, a net benefit in 2021 of $125 million in Reorganization items, and higher tax expenses of $63 million, partially offset by higher non-operating income of $105 million, as described above.
For the year ended December 31, 2021, net income increased $415 million compared to prior year primarily as result of higher gross profit of $168 million, lower SG&A expenses of $44 million, lower Other expenses of $45 million, and favorable Reorganization items, net, of $198 million, as described above.
Non-GAAP Measures
41
Management provides non-GAAP financial information, included for these periods may not necessarily reflect our financial position, results of operationsincluding EBITDA and cash flows in the future or what our financial position, results of operations and cash flows would have been had we been an independent, publicly traded company during such periods. In addition, our historical consolidated and combined financial information does not reflect changes that we have experienced or expect to continue to experience in the future as a result of our separation from Honeywell, including changes in the financing, operations, cost structure and personnel needs of our business.

Further, the historical consolidated and combined financial information includes allocations of certain Honeywell corporate expenses, as described in Note 3 Related Party Transactions with Honeywell in our Consolidated and Combined Financial Statements.We believe the assumptions and methodologies underlying the allocation of these expenses are reasonable. However, such expenses may not be indicative of the actual level of expense that we would have incurred if we had operated asan independent, publicly traded company orof the costs expected tobe incurred in the future.

 

 

Year Ended December 31,

 

 

 

2018

 

 

 

2017

 

 

 

2016

 

 

 

2015

 

 

 

2014

 

 

 

(Dollars in millions except per share amounts)

 

Selected Statement of

   Operations Information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

3,375

 

 

 

$

3,096

 

 

 

$

2,997

 

 

 

$

2,908

 

(1)

 

$

3,345

 

Net income (loss)

 

$

1,180

 

(2)

 

$

(983

)

(3)

 

$

199

 

 

 

$

254

 

 

 

$

235

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

$

15.93

 

 

 

$

(13.27

)

 

 

$

2.69

 

 

 

$

3.43

 

 

 

$

3.17

 

Diluted:

 

$

15.86

 

 

 

$

(13.27

)

 

 

$

2.69

 

 

 

$

3.43

 

 

 

$

3.17

 

Weighted average common shares (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

74,059,240

 

 

 

 

74,070,852

 

 

 

 

74,070,852

 

 

 

 

74,070,852

 

 

 

 

74,070,852

 

Diluted:

 

 

74,402,148

 

 

 

 

74,070,852

 

 

 

 

74,070,852

 

 

 

 

74,070,852

 

 

 

 

74,070,852

 


 

 

As of December 31,

 

 

 

2018

 

 

 

2017

 

 

 

2016

 

 

 

2015

 

 

 

2014

 

 

(Dollars in millions)

 

Selected Balance Sheet Information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

2,104

 

 

 

$

2,997

 

 

 

$

2,661

 

 

 

$

2,444

 

 

 

$

3,428

 

Long-term debt

 

$

1,569

 

 

 

$

—

 

 

 

$

—

 

 

 

$

116

 

 

 

$

129

 

Total liabilities

 

$

4,697

 

 

 

$

5,192

 

 

 

$

3,882

 

 

 

$

3,803

 

 

 

$

4,432

 

Total deficit

 

$

(2,593

)

 

 

$

(2,195

)

 

 

$

(1,221

)

 

 

$

(1,359

)

 

 

$

(1,004

)

(1)

The decline in Net sales from the year ended December 31, 2014 to the year ended December 31, 2015 is largely attributable to a decrease in the EUR/USD exchange rate from 1.31 to 1.11.

(2)

2018 Net income was impacted by an internal restructuring of Garrett’s business resulting in a tax benefit of $907 million.

(3)

2017 Net income was impacted by the Tax Act resulting in a tax expense of $1,335 million; see Note 7 Income Taxes of the Notes to Consolidated and Combined Financial Statements for further details.

(4)

On October 1, 2018, the date of consummation of the Spin-Off, 74,070,852 shares of the Company’s common stock were distributed to Honeywell stockholders of record as of September 18, 2018. Basic and Diluted EPS for all periods prior to the Spin-Off reflect the number of distributed shares, or 74,070,852 shares. These shares were treated as issued and outstanding from January 1, 2014 for purposes of calculating historical earnings per share.

Non-GAAP Measures

It is management’s intent to provide non-GAAP financial informationAdjusted EBITDA, to supplement the understanding of our business operationoperations and performance, and it should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Each non-GAAP financial measure is presented along with the most directly comparable GAAP measure so as not to imply that more emphasis should be placed on the non-GAAP measure. The non-GAAP financial information presented may be determined or calculated differently by other companies and may not be comparable to other similarly titled measures used by other companies. Additionally, the non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the Company’s operating results as reported under GAAP.

EBITDA and Adjusted EBITDA(1)

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Net income (loss)  — GAAP

 

$

1,180

 

 

$

(983

)

 

$

199

 

Net interest (income) expense

 

 

12

 

 

 

(6

)

 

 

(9

)

Tax (benefit) expense

 

 

(784

)

 

 

1,349

 

 

 

51

 

Depreciation

 

 

72

 

 

 

64

 

 

 

59

 

EBITDA (Non-GAAP)

 

$

480

 

 

$

424

 

 

$

300

 

Other operating expenses, net (which

   consists of indemnification, asbestos and

   environmental expenses)(2)

 

 

120

 

 

 

130

 

 

 

183

 

Non-operating (income) expense(3)

 

 

(4

)

 

 

1

 

 

 

3

 

Stock compensation expense(4)

 

 

21

 

 

 

15

 

 

 

12

 

Repositioning charges(5)

 

 

2

 

 

 

20

 

 

 

46

 

Foreign exchange (gain) loss on debt, net

   of related hedging (gain) loss

 

 

(7

)

 

 

—

 

 

 

—

 

Non-recurring Spin-Off costs(6)

 

 

6

 

 

 

—

 

 

 

—

 

Adjusted EBITDA (Non-GAAP)(7)

 

$

618

 

 

$

590

 

 

$

544

 

(1)

We evaluate performance on the basis of EBITDA and Adjusted EBITDA. We define “EBITDA” as our net income (loss) calculated in accordance with U.S. GAAP, plus the sum of net interest (income) expense, tax (benefit) expense and depreciation. We define “Adjusted EBITDA” as EBITDA, plus the sum of non-operating


(income) expense, net, other expenses, net (which primarily consists of indemnification, asbestos and environmental expenses), stock compensation expense, repositioning charges, foreign exchange gain (loss) on debt, net of related hedging (gain) loss and non-recurring Spin-Off costs. We believe that EBITDA and Adjusted EBITDA are important indicators of operating performance and provide useful information for investors because:

EBITDA and Adjusted EBITDA excludeare important indicators of operating performance and provide useful information for investors because:

1.We define “EBITDA” as our net income calculated in accordance with U.S. GAAP, plus the effectssum of net interest expense, tax expense and depreciation. We define “Adjusted EBITDA” as EBITDA, plus the sum of net reorganization items, stock compensation expense, repositioning costs, net foreign exchange loss on debt, loss on extinguishment on debt, discounting costs on factoring, other non-operating income taxes, as well as the effects of financing and investing activities by eliminating the effects of interestprofessional service costs and depreciation expensescapital tax expense incurred in conjunction with our reorganization; and therefore more closely measure our operational performance; and

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

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

(2)

For periods prior to the Spin-Off, we reflect an estimated liability for resolution of pending and future asbestos-related and environmental liabilities primarily related to the Bendix legacy Honeywell business, calculated as if we were responsible for 100% of the Bendix asbestos-liability payments. We recognized a liability for any asbestos-related contingency that was probable of occurrence and reasonably estimable. In connection with the recognition of liabilities for asbestos-related matters, we recorded asbestos-related insurance recoveries that are deemed probable. In periods subsequent to the Spin-Off, the accounting for the majority of our asbestos-related liability payments and accounts payable reflect the terms of the Indemnification and Reimbursement Agreement with Honeywell entered into on September 12, 2018, under which we are required to make payments to Honeywell in amounts equal to 90% of Honeywell’s asbestos-related liability payments and accounts payable, primarily related to the Bendix business in the United States, as well as certain environmental-related liability payments and accounts payable and non-United States asbestos-related liability payments and accounts payable, in each case related to legacy elements of the Business, including the legal costs of defending and resolving such liabilities, less 90% of Honeywell’s net insurance receipts and, as may be applicable, certain other recoveries associated with such liabilities. See Note 21, Commitments and Contingencies of Notes to the Consolidated and Combined Financial Statements.

(3)

Non-operating (income) expense adjustment excludes interest income, the non-service component of pension expense, equity income of affiliates, and the impact of foreign exchange.

EBITDA and Adjusted EBITDA (non-GAAP)

(4)

Stock compensation expense adjustment includes only non-cash expenses.

Year Ended December 31,
202220212020
(Dollars in millions)
Net income — GAAP$390 $495 $80 
Net interest expense6 82 76 
Tax expense106 43 39 
Depreciation84 92 86 
EBITDA (Non-GAAP)$586 $712 $281 
Other expense, net(1)
2 — 45 
Non-operating (income) expense(2)
(41)(12)5 
Reorganization items, net(3)
3 (125)73 
Stock compensation expense(4)
11 7 10 
Repositioning charges(5)
4 16 10 
Foreign exchange loss (gain) on debt, net of related hedging loss (gain)— 9 (38)
Professional service costs(6)
— — 52 
Capital tax expense (7)
— — 2 
Loss on extinguishment of debt5 — — 
Adjusted EBITDA (Non-GAAP)$570 $607 $607 $440 

(5)

Repositioning charges adjustment primarily includes severance costs related to restructuring projects to improve future productivity.

(6)

Non-recurring Spin-Off costs primarily include one-time costs incurred for the set-up of the IT, Legal, Finance, Communications and Human Resources functions after the Spin-Off from Honeywell on October 1, 2018.

(7)

The remaining fluctuations are largely attributable to fluctuations in the EUR/USD exchange rate resulting in hedging (gains) losses of $49 million, $(14) million, and $18 million for the years ended December 31, 2018, 2017 and 2016.


Adjusted earnings per common share — diluted(1)

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

(Dollars in millions except per share amounts)

 

Net income (loss) — GAAP

 

$

1,180

 

 

$

(983

)

 

$

199

 

Tax special items(2)

 

 

(879

)

 

 

1,271

 

 

 

(36

)

Adjusted net income (Non-GAAP)

 

$

301

 

 

$

288

 

 

$

163

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

74,059,240

 

 

 

74,070,852

 

 

 

74,070,852

 

Diluted

 

 

74,402,148

 

 

 

74,070,852

 

 

 

74,070,852

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (losses) per common share — diluted (GAAP)

 

$

15.86

 

 

$

(13.27

)

 

$

2.69

 

Net impact of adjustments per common share — diluted

 

 

(11.81

)

 

 

17.16

 

 

 

(0.49

)

Adjusted earnings per common share — diluted (Non-GAAP)

 

$

4.05

 

 

$

3.89

 

 

$

2.20

 

(1)

Adjusted earnings per common share — diluted is a non-GAAP financial measure of the Company’s diluted Earnings (losses) per common share adjusted for the impact of tax special items as described below. The measure provides investors with useful information to evaluate performance of our business excluding tax items not indicative of the underlying performance of the business.

(2)

For 2018, consists of (i) a tax benefit of $907 million resulting from internal restructuring and transaction taxes in connection with the Spin-Off, (ii) a tax expense of $21 million from the recognition of a valuation allowance, and (iii) a tax expense of $7 million related to local taxes on a cash distribution. For 2017, consists of (i) a tax expense of $1,335 million resulting from the recognition of the Tax Act, (ii) a tax benefit of $62 million recognized in connection with our 2010-2012 IRS audit settlement, and (iii) a tax benefit of $2 million resulting from a valuation allowance release. For 2016, consists of a tax benefit of $36 million from a valuation allowance release.

Cash flow from operations less ExpendituresOther expense, net includes factoring and notes receivable discount fees. It also reflects, specifically for property, plant and equipment(1)

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

(Dollars in millions)

 

Net cash provided by (used for) operating

   activities — GAAP

 

 

373

 

 

 

71

 

 

 

305

 

Expenditures for property, plant and equipment

 

 

(95

)

 

 

(103

)

 

 

(84

)

Cash flow from operations less Expenditures for

   property, plant and equipment (Non-GAAP)

 

$

278

 

 

$

(32

)

 

$

221

 

(1)

Cash flow from operations less Expenditures for property, plant and equipment is a non-GAAP financial measure that reflects an additional way of viewing2020, our liquidity that, when viewed with our GAAP results, provides a supplemental understanding of factors and trends affecting our cash flows. Cash flow from operations less Expenditures for property, plant and equipment is calculated by subtracting Expenditures for property, plant and equipment from Net cash provided by (used for) operating activities. We believe it is a more conservative measure of cash flow because purchases of fixed assets are necessary for ongoing operations. We believe it is important to view Cash flow from operations less Expenditures for property, plant and equipment as a supplement to our Consolidated and Combined Statements of Cash Flows.


Item 7. Management’sDiscussion andAnalysis of FinancialConditionand Resultsof Operations

The following discussion and analysis of our financial condition and results of operations, which we refer to as our “MD&A,” should be read in conjunction with our Consolidated and Combined Financial Statements and related notes thereto and other financial information appearing elsewhere in this Information Statement. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many important factors, including those set forth in the "Risk Factors" section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in, or implied, by these forward-looking statements.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help you understand the results of operations and financial condition of Garrett Motion Inc. for the years ended December 31, 2018, 2017 and 2016. Unless the context otherwise requires, references to “Garrett,” “we,” “us,” “our,” and “the Company” refer to (i) Honeywell’s Transportation Systems Business (the “Transportation Systems Business” or the “Business”) prior to our spin-off from Honeywell International Inc. (the “Spin-Off”) and (ii) Garrett Motion Inc. and its subsidiaries following the Spin-Off, as applicable.

Overview and Business Trends

Garrett designs, manufactures and sells highly engineered turbocharger and electric-boosting technologies for light and commercial vehicle OEMs and the global vehicle and independent aftermarket. These OEMs in turn ship to consumers globally. We are a global technology leader with significant expertise in delivering products across gasoline, diesel and electric (hybrid and fuel cell) powertrains. These products are key enablers for fuel economy and emission standards compliance.

Market penetration of vehicles with a turbocharger is expected to increase from approximately 49% in 2018 to approximately 57% by 2022, according to IHS and other industry sources, which we believe will allow our business to grow at a faster rate than overall automobile production. The turbocharger market volume growth was particularly strong in China and other high-growth regions.

The growth trajectory for turbochargers is expected to continue, as the technology is one of the most cost- effective solutions for OEMs to address strict constraints for vehicle fuel efficiency and emissions standards. As a result, OEMs are increasing their adoption of turbocharger technologies across gasoline and diesel engines as well as hybrid-electric and fuel cell vehicles. In recent years, we have also seen a shift in demand from diesel engines to gasoline engines.

In particular, the commercial vehicle OEM market and light vehicle gasoline markets in China and other high-growth regions have increased due to favorable economic conditions and rising income levels which have led to an increase in automotive and vehicle content demand. While the respective growth rates may potentially decline as the local markets mature, we continue to expect an increase in future vehicle production utilizing turbocharger technologies as vehicle ownership remains well below ownership levels in developed markets.

Separation from Honeywell

On October 1, 2018, the Company became an independent publicly-traded company through a pro rata distribution by Honeywell of 100% of the then-outstanding shares of Garrett to Honeywell’s stockholders. Each Honeywell stockholder of record received one share of Garrett common stock for every 10 shares of Honeywell common stock held on the record date. Approximately 74 million shares of Garrett common stock were distributed on October 1, 2018 to Honeywell stockholders. In connection with the separation, Garrett´s common stock began trading “regular-way” under the ticker symbol “GTX” on the New York Stock Exchange on October 1, 2018.


In connection with the separation, we entered into severalagreements with Honeywell that govern the future relationship between us and Honeywell and impose certain obligations on us following the Spin-Off and which may cause us to incur new costs, including the following:

•

a Separation and Distribution Agreement;

•

a Transition Services Agreement;

•

an Employee Matters Agreement;

•

an Intellectual Property Agreement; and

•

a Trademark License Agreement.

A description of each of these agreements is included in a Current Report on Form 8-K filed with the SEC on October 1, 2018.

In addition, we entered into an Indemnification and Reimbursement Agreement (the “Indemnification and Reimbursement Agreement”) and a Tax Matters Agreement (the “Tax Matters Agreement”) with Honeywell on September 12, 2018, each of which is described in this MD&A.

Basis of Presentation

Prior to the Spin-Off on October 1, 2018, our historical financial statements were prepared on a stand–alone basis and derived from the consolidated financial statements and accounting records of Honeywell. Accordingly, for periods prior to October 1, 2018, our financial statements are presented on a combined basis and for the periods subsequent to October 1, 2018 are presented on a consolidated basis (collectively, the historical financial statements for all periods presented are referred to as “Consolidated and Combined Financial Statements”). The Consolidated and Combined Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The historical consolidated and combined financial information may not be indicative of our future performance and does not necessarily reflect what our consolidated and combined results of operations, financial condition and cash flows would have been had the Business operated as a separate, publicly traded company during the periods presented, particularly because of changes that we have experienced and expect to continue to experience in the future as a result of our separation from Honeywell, including changes in the financing, cash management, operations, cost structure and personnel needs of our business.

For periods prior to the Spin-Off, the Consolidated and Combined Financial Statements include certain assets and liabilities that were held at the Honeywell corporate level prior to the Spin-Off but are specifically identifiable or otherwise allocable to the Business. Additionally, Honeywell provided certain services, such as legal, accounting, information technology, human resources and other infrastructure support, on behalf of the Business. The cost of these services has been allocated to the Business on the basis of the proportion of revenues. We consider these allocations to be a reasonable reflection of the benefits received by the Business. Actual costs that would have been incurred if the Business had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. We consider the basis on which the expenses have been allocated to be a reasonable reflection of the utilization of services provided to or the benefits received by the Business during the periods presented.


Subsequent to the completionof the Spin-Off,we have incurred and continue to expectto incurexpendituresconsistingof employee-relatedcosts,coststo startup certainstand-alonefunctionsand informationtechnologysystems,and otherone-timetransactionrelatedcosts.Recurringstand-alonecostsincludeestablishingthe internalaudit,treasury, investorrelations,tax and corporatesecretaryfunctionsas well as the annual expensesassociatedwith running an independentpubliclytradedcompany includinglistingfees,compensationof non-employeedirectors,related board of directorfeesand otherfeesand expensesrelatedto insurance,legaland externalaudit.Recurringstand- alone coststhatdifferfromhistoricalallocationsmay have an impacton profitabilityand operatingcash flows but webelievethe impactwill not be significant.Asa stand-alonepubliccompany, wedo not expectour recurringstand-alonecorporatecoststo be materiallyhigherthan the expenseshistoricallyallocatedto us from Honeywell.

Asbestos-Related and Environmental Liabilities

For the periods prior to the Spin-Off, our Consolidated and Combined Financial Statements reflect an estimated liability for resolution of pending and future asbestos-related and environmental liabilities primarily related to the Bendix legacy Honeywell business, calculated as if we were responsible for 100% of the Bendix asbestos-liability payments. However, this recognition model differs from the recognition model applied subsequent to the Spin-Off. In periods subsequent to the Spin-Off, the accounting for the majority of our asbestos-related liability payments and accounts payable reflectto Honeywell under the terms of the Indemnification and Reimbursement Agreement (the “Indemnification and Reimbursement Agreement”)Honeywell Indemnity Agreement. The Plan as confirmed by the Bankruptcy Court included a global settlement with Honeywell entered into on September 12, 2018,providing for, among other things, the full and final satisfaction, settlement, release, and discharge of all liabilities under which weor related to legacy agreements between the Company or its subsidiaries and Honeywell.

(2)The adjustment for non-operating (income) expense reflects the non-service component of net periodic pension costs and other income that are required to make payments to Honeywell in amounts equal to 90% of Honeywell’s asbestos-related liability payments and accounts payable, primarilynon-recurring or not considered directly related to the Bendix business inCompany's operations.
(3)The Company applied ASC 852 for periods subsequent to the United States, as well as certain environmental-related liability paymentsPetition Date to distinguish transactions and accounts payable and non-United States asbestos-related liability payments and accounts payable, in each case related to legacy elements of the Business, including the legal costs of defending and resolving such liabilities, less 90% of Honeywell’s net insurance receipts and, as may be applicable, certain other recoveries associated with such liabilities. The Indemnification and Reimbursement Agreement providesevents that the agreement will terminate upon the earlier of (x) December 31, 2048 or (y) December 31st of the third consecutive year during which certain amounts owed to Honeywell during each such year were less than $25 million as converted into Euros in accordance with the terms of the agreement. During the fourth quarter of 2018, we paid Honeywell the Euro-equivalent of $41 million in connection with the Indemnification and Reimbursement Agreement.

On October 19, 2018, Honeywell disclosed in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 (the “Honeywell Form 10-Q”) that the Division of Enforcement of the Securities and Exchange Commission (the “SEC”) has opened an investigation into Honeywell’s prior accounting for liability for unasserted Bendix-related asbestos claims. In addition, Honeywell noted that it revised certain previously-issued financial statements to correct the time perioddirectly associated with the determinationCompany’s reorganization from the ongoing operations of appropriate accruals for legacy Bendix asbestos-related liability for unasserted claims.

Our restated carve-out financial statements includedthe business. Accordingly, certain expenses and gains incurred during the Chapter 11 Cases are recorded within Reorganization

42
items, net in our Form 10 already contemplate these revisions, consistent with Honeywell’s previous disclosure in its Form 8-K filed with the SEC on August 23, 2018. These revisions are also contemplated in our Combined InterimConsolidated Statements of Operations. See Note 2, Plan of Reorganization of the Notes to the Consolidated Financial StatementsStatements.
(4)Stock compensation expense includes only non-cash expenses.
(5)Repositioning costs include severance costs related to restructuring projects to improve future productivity.
(6)Professional service costs consist of professional service fees related to strategic planning for the three and nine months ended September 30, 2018. The Indemnification and Reimbursement Agreement has not been amended and otherwise remains unchanged.

PriorCompany in the period prior to the filing for relief under Chapter 11 of the Honeywell Form 10-QBankruptcy Code in September 2020. We consider these costs to be unrelated to our ongoing core business operations.

(7)The canton of Vaud, Switzerland generally provides for crediting the cantonal corporate income tax against capital tax. There was no income tax payable for the year ended December 31, 2020 and therefore the 2020 capital tax due of $2 million was recorded in SG&A expenses.
Adjusted EBITDA for the year ended December 31, 2022 compared with year ended December 31, 2021
gtx-20221231_g11.gif
For the SEC, our management was not aware ofyear ended December 31, 2022, net income decreased $105 million versus the SEC’s investigation into Honeywell’s prior accounting.

year as discussed above within the Results of Operations section. Our volumes for 2022 totaled 13.6 million units, representing a decrease of approximately 1% from the Years Ended December 31, 2018, 2017 and 2016

Net Sales

prior year.

 

 

2018

 

 

2017

 

 

2016

 

 

 

(Dollars in millions)

 

Net sales

 

$

3,375

 

 

$

3,096

 

 

$

2,997

 

% change compared with prior period

 

 

9.0

%

 

 

3.3

%

 

 

 

 


The change in net salesAdjusted EBITDA decreased by $37 million compared to the prior year period is attributablemainly due to unfavorable foreign exchange impacts. While we saw increased inflation on commodities, transportation and energy, and we also increased our R&D spending on electrification technologies, this was more than offset by an improved product mix net of lower volumes, productivity, and inflation pass-through net of pricing. Our Adjusted EBITDA margin decreased by 90 basis points, of which 80 basis points was driven by the unfavorable foreign exchange impacts and inflation pass-through to customers.

During 2022, we faced demand volatility driven mainly by the global semiconductor shortage, geopolitical tensions and ongoing impacts from Covid restrictions primarily in China, all of which resulted in supply chain disruptions. We maintained our focus on productivity in 2022 as rising commodity prices led to higher raw material costs, particularly for nickel, aluminum and steel alloys. We recovered the cost increases from our customer pass-through agreements, and continue to negotiate with our customers for further escalators while actively managing our supply base and cost recovery mechanisms to mitigate the impact of materials, transportation and energy cost inflation. The increased productivity was partially offset by year-over-year labor inflation, increased travel expenses, higher bad debt expenses and increased premium freight costs driven by supply chain disruptions, transportation constraints and volume volatility.
R&D expenses increased $17 million which primarily reflects our increased investment in electrification technologies.
43
Adjusted EBITDA for the year ended December 31, 2021 compared with year ended December 31, 2020
gtx-20221231_g12.gif
As discussed above, Net income increased $415 million for 2021 as compared to 2020. For 2021, Garrett’s Adjusted EBITDA of $607 million increased by $167 million compared to the following:

prior year, mainly due to benefits from volume and productivity, partially offset by mix and commodities and transportation inflation.

 

 

2018

 

 

2017

 

Volume

 

 

7.0

%

 

 

3.7

%

Price

 

 

(1.4

)%

 

 

(1.3

)%

Foreign Currency Translation

 

 

3.4

%

 

 

0.9

%

 

 

 

9.0

%

 

 

3.3

%

2018 compared with 2017

Our net sales for 2018 were $3,375In 2021, our volumes totaled 13.7 million units, an increase of $279 million, or 9.0% (5.6% excluding foreign currency translation),approximately 14% from $3,096 million2020.

Our Adjusted EBITDA margin of 16.7% represented a year-over-year improvement of 220 basis points. We started the year with high volume demand representing a short-term increase in 2017, primarilydemand in connection with the macroeconomic recovery from the initial impacts of the Covid-19 pandemic, but have been facing demand volatility driven by increasesthe global semiconductor shortage, primarily for the last three quarters.
We also maintained our focus on productivity in sales volume2021 as rising commodity prices led to higher raw material costs, particularly for nickel, aluminum and steel alloys. We recovered a majority of the increase from our customer pass-through agreements, especially for nickel, and continue to actively manage our supply base and cost recovery mechanisms to minimize the impact of materials cost inflation. The increased productivity was partially offset by price reductions. Thea $12 million increase in sales volume, net of price reductions,SG&A related to year-over-year labor inflation and increased accruals for employee incentives, reflecting expected payouts on employee incentive compensation schemes and was primarily driven by light vehicles OEM products growth of approximately $220 million, commercial vehicles OEM products growth of approximately $59 million and aftermarket products growth of approximately $8 million.

Our light vehicles OEM product growth was primarily driven by increased gasoline volumes in Europe, China, North America, and South Korea, as a result of increased turbocharger penetration in gasoline engines and new product launches. Additionally, there were increased diesel volumes in China and Japan partially offset by lower diesel volumesbad debt recovery. We also took a number of temporary cost control and cash management actions in the second and third quarters of 2020 to combat the Covid-19 crisis.

R&D expenses increased by $17 million which reflects our OEM customersshift in Europeinvestment in electrification technologies and South Korea. the temporary cost control actions taken in 2020 to mitigate the Covid-19 impact.
The commercial vehicles OEM product growth was primarily driven by volume increases in North America and Europe. Our slight aftermarket sales increase was primarily driven by higher volumes in Europe partially offset by lower volumes in Japan.

2017 compared with 2016

Our net sales for 2017 were $3,096 million, an increase of $99 million, or 3.3% (2.4% excludingbenefit from foreign currency translation), from $2,997 million in 2016, primarily driven by increases in sales volume partially offset by price reductions. The increase in sales volume, net of price reductions, was primarily driven by commercial vehicles OEM products growth of approximately $124 million(1), partially offset by declines in our light vehicles OEM products of approximately $51 million.

The commercial vehicles OEM product growth was primarily driven by volume increases in China, North America and Europe. Our light vehicles OEM product decline was primarily driven by lower diesel volumes to our OEM customers in Europe, North America and South Korea, partially offset by increased gasoline volumes in China and South Korea, as a result of increased turbocharger penetration in gasoline engines. Our aftermarket product sales were approximately flat, with volume increases in North America offset by a decrease in Europe.

(1)

The prior year amounts have been reclassified to conform to the current year presentation.

Cost of Goods Sold

 

 

2018

 

 

2017

 

 

2016

 

 

 

(Dollars in millions)

 

Cost of goods sold

 

$

2,599

 

 

$

2,361

 

 

$

2,365

 

% change compared with prior period

 

 

10.1

%

 

 

(0.2

)%

 

 

8.5

%

Gross Profit percentage

 

 

23.0

%

 

 

23.7

%

 

 

21.1

%

2018 compared with 2017

Cost of goods sold for 2018 was $2,599 million, an increase of $238 million, or 10.1%, from $2,361 million in 2017. This increase was primarily driven by an increase in direct material costs and labor of approximately $215 million, or 12%, (principally due to an increase in volume).


Gross profit percentage decreased primarily due to unfavorable impacts from mixtranslational, transactional and price (approximately 3.1 percentage point impact)hedging effects in 2021 was $28 million and inflation (approximately 1 percentage point impact), partially offset by higher productivity (approximately 3.0 percentage point impact) and net reductions in repositioning and other costs (approximately 0.6 percentage point impact).

2017 compared with 2016

Cost of goods sold for 2017 was $2,361 million, a decrease of $4 million, or 0.2%, from $2,365 million in 2016.

This decrease was primarily driven by a reduction in repositioning costs of approximately $26 million. Direct materialhigher Euro-to-US dollar exchange rate versus the prior-year period.

Liquidity and labor costs were approximately flat in 2017 compared to 2016 (principally due toCapital Resources
Overview
Historically, we have financed our operations with funds generated from operating activities, available cash and cash equivalents, as well as borrowings under a favorable impact of productivity, net of inflation, partially offset by increased volume and foreign currency translation). R&D costs increased by $11 million.

Gross profit percentage increased primarily due to higher productivity net of inflation (approximately 4.5 percentage point impact) and net reductions in repositioning and other costs (approximately 0.6 percentage point impact), partially offset by impacts from mix and price (approximately 2.1 percentage point impact) and unfavorable foreign currency translation (approximately 0.1 percentage point impact).

Selling, General and Administrative Expenses

 

 

2018

 

 

2017

 

 

2016

 

 

 

(Dollars in millions)

 

Selling, general and administrative expense

 

$

249

 

 

$

249

 

 

$

197

 

% of sales

 

 

7.4

%

 

 

8.0

%

 

 

6.6

%

2018 compared with 2017

Selling, general and administrative expenses were flat for 2018 compared with 2017 leading to a decline in expenses as a percentage of sales.

2017 compared with 2016

Selling, general and administrative expense for 2017 was $249 million, an increase of $52 million, or 26.4%, from $197 million in 2016. This increase was primarily driven by a net increase in information technology (IT) costs of approximately $35 million, primarily due to higher corporate allocations from Honeywell. Allocations of corporate expenses from Honeywell are not necessarily indicative of future expenses and do not necessarily reflect the results that the Business would have experienced as an independent company for the periods presented. Additionally, selling costs increased by approximately $6 million related to investments for our software offerings.

Other Expense, Net

 

 

2018

 

 

2017

 

 

2016

 

 

 

(Dollars in millions)

 

Other expense, net

 

$

120

 

 

$

130

 

 

$

183

 

% of sales

 

 

3.6

%

 

 

4.2

%

 

 

6.1

%

2018 compared with 2017

For the periods prior to the Spin-Off, our Consolidated and Combined Financial Statements reflect an estimated liability for resolution of pending and future asbestos-related and environmental liabilities primarily related to the Bendix legacy Honeywell business, calculated as if we were responsible for 100% of the Bendix asbestos-liability payments. For the nine months ended September 30, 2018 prior to the Spin-Off over the same period in 2017, Other expense, net increased by $3 million due to a $6 million increase in environmental charges, partially offset by a $3 million decrease in asbestos charges.


Following the Spin-Off in 2018, the accounting for the majority of our asbestos-related liability payments and accounts payable reflect the terms of the Indemnification and Reimbursement Agreement as described above in the Asbestos-Related and Environmental Liabilities section. During the fourth quarter of 2018, we recognized a $16 million benefit related to a reduction in Honeywell´s long-term estimate of asbestos claims experience, net of legal fees for the quarter, in connection to the Indemnification and Reimbursement Agreement, in comparison to a $1 million environmental charge in the same period of 2017.

2017 compared with 2016

Other expense, net for 2017, was $130 million, a decrease of $53 million, or 29.0%, from $183 million in 2016. This decrease was primarily driven by lower asbestos charges, net of insurance recoveries, in the year.

Interest Expense

 

 

2018

 

 

2017

 

 

2016

 

 

 

(Dollars in millions)

 

Interest Expense

 

$

19

 

 

$

8

 

 

$

7

 

Following the Spin-Off, interest expense primarily relates to interest on our long-term debt. In connection with our long-term debt andsenior secured revolving credit facility we estimate that annual interest expense will be approximately $74 million for 2019. Prior toand the Spin-Off, interest expense primarily related to related partyissuance of senior notes, cash pool arrangements with our Former Parentcommitments under both of which were settled in cash prior to the Spin-Off. Interest expense for 2018, was $19 million, an increase of $11 million from $8 million in 2017. This increase was primarily driven by interest expense related to our long-term debt of $17 million partially offset by a decrease in related party notes interest expense of $5 million. Interest expense for 2017 increased by $1 million compared to 2016. See Note 3 Related Party Transactions with Honeywell and Note 14 Long-term Debt and Credit Agreements of Notes to Consolidated and Combined Financial Statements.

Non-operating (income) expense

 

 

2018

 

 

2017

 

 

2016

 

 

 

(Dollars in millions)

 

Non-operating (income) expense

 

$

(8

)

 

$

(18

)

 

$

(5

)

2018 compared with 2017

Non-operating (income) expense for 2018 decreased to income of ($8) million from income of ($18) million in 2017. This decrease was primarily driven by a decrease in interest income from bank accounts and marketable securities of $7 million and an increase in non-service related pension ongoing (income) expense of $3 million.

2017 compared with 2016

Non-operating (income) expense for 2017 increased to income of ($18) million from income of ($5) million in 2016 primarily driven by lower foreign exchange losses of $9 million.

Tax (Benefit) Expense

 

 

2018

 

 

2017

 

 

2016

 

 

 

(Dollars in millions)

 

Tax (benefit) expense

 

$

(784

)

 

$

1,349

 

 

$

51

 

Effective tax rate

 

 

(198.0

)%

 

 

368.6

%

 

 

20.4

%


2018 comparedwith 2017

The effective tax rate decreased by 566.6 percentage points in 2018 compared to 2017. The decrease was primarily attributable to the non-recurring impacts of U.S. tax reform from 2017 (see "The Tax Act" further below) and due to tax benefits from internal restructuring of Garrett’s business in advance of its Spin-Off which resulted in a decrease to the withholding tax deferred tax liability. The Company's non-U.S. effective tax rate was (197.6)% a decrease of approximately 417 percentage points compared to 2017. The year-over-year decrease in the non-U.S. effective tax rate was primarily driven by the Company's change in assertion regarding foreign unremitted earningscancelled in connection with the Tax Act, decreased expense for tax reserves in various jurisdictions, and higher earnings taxed at lower rates.

2017 compared with 2016

The effective tax rate increased by 348.2 percentage points in 2017 compared to 2016. The increase was primarily attributable toChapter 11 Cases. During the provisional impact of U.S. tax reform. On December 22, 2017, the U.S. enacted H.R.1, commonly known as the Tax Cuts and Jobs Act (“Tax Act”) that instituted fundamental changes to the U.S. tax system. The Tax Act included changes to the taxation of foreign earnings by implementing a dividend exemption system, expansion of the current anti-deferral rules, a minimum tax on low-taxed foreign earnings and new measures to deter base erosion. The Tax Act also permanently reduced the corporate tax rate from 35% to 21%, imposed a one-time mandatory transition tax on the historical earnings of foreign affiliates and implemented a territorial-style tax system. The impacts of these changes are reflected in the 2017 tax expense, which resulted in provisional charges of approximately $980 million due to the Company’s change in assertion regarding foreign unremitted earnings and $354 million due to the mandatory transition tax. These charges were subject to adjustment given the provisional nature of the charges. The Tax Act provisional charges were the primary driver of the increase in the effective tax rate in 2017, partially offset by increased tax benefits from the resolution of tax audits.

The majority of the $980 million provisional charge described above relates to non-U.S. withholding taxes that would have been payable at the time of the actual cash transfer and is based on the legal entity structure that existed at December 31, 2017. However, as discussed above, this deferred tax liability was significantly reduced in 2018 as a result of internal restructuring in advance of the Spin-Off.

Net Income (loss)

 

 

2018

 

 

2017

 

 

2016

 

 

 

(Dollars in millions)

 

Net Income (loss)

 

$

1,180

 

 

$

(983

)

 

$

199

 

2018 compared with 2017

As a result of the factors described above, net income was $1,180 million in 2018 as compared to net loss of $983 million in 2017.

2017 compared with 2016

As a result of the factors described above, net loss was $983 million in 2017 as compared to net income of $199 million in 2016.

Liquidity and Capital Resources

Historical Liquidity

Prior to the Spin-Off, we generated positive cash flows from operations.


Honeywell Central Treasury Function prior to the Spin-Off

As part of the Former Parent for the periods prior to the Spin-Off, we were dependent upon Honeywell for allpendency of our working capitalbankruptcy proceedings, we financed our operations with funds generated from operating activities and financing requirements. Honeywell uses a centralized approach to cash management and financing of its operations. The majority of the Business’s cash was transferred to Honeywell daily and Honeywell funded its operating and investing activities as needed. This arrangement is not reflective of the manner in which the Business would have been able to finance its operations had it been a stand-alone business separate from Honeywell during the entirety of the periods presented. Cash transfers to and from Honeywell’s cash management accounts are reflected within Invested deficit.

For the periods prior to the Spin-Off, we operated a centralized non-interest-bearing cash pool in U.S. and regional interest-bearing cash pools outside of the U.S. As of December 31, 2017, we had non-interest-bearing cash pooling balances of $51 million, which are presented in Invested deficit within the Consolidated and Combined Balance Sheets. As part of the preparation for the Spin-Off, we delinked from U.S. and regional cash pools operated by Honeywell.

All intracompany transactions have been eliminated. As described in Note 3 Related Party Transactions with Honeywell, all significant transactions between the Business and Honeywell prior to the Spin-Off have been included in the Consolidated and Combined Financial Statements and settled for cash prior to the Spin-Off with the exception of certain related party notes which were forgiven. These transactions are reflected in the Consolidated and Combined Balance Sheets as Due from related parties or Due to related parties for the periods prior to the Spin-Off. In the Consolidated and Combined Statements of Cash Flows, the cash flows related to related party notes receivables presented in the Consolidated and Combined Balance Sheets in Due from related parties are reflected as investing activities since these balances represent amounts loaned to Former Parent. The cash flows related to related party notes payables presented in the Consolidated and Combined Balance Sheets in Due to related parties are reflected as financing activities since these balances represent amounts financed by Former Parent. Following the Spin-Off, Honeywell is no longer considered a related party.

For the periods prior to the Spin-Off, theavailable cash and cash equivalents, held by Honeywell atand also had in place debtor-in-possession financing arrangements.

Following our emergence from bankruptcy and during the corporate level were not specifically identifiable to the Business and therefore were not allocated for such periods. Honeywell third-party debt and the related interest expense have not been allocated for such periods, as Honeywell’s borrowings were not directly attributable to the Business.

For the periods prior to the Spin-Off, we received interest income for related party notes receivables of $1 million, $1 million and $ 4 million, for the yearsyear ended December 31, 2018, 20172022, we funded our operations primarily through the cash flows from operating activities, borrowings from our credit facilities and 2016, respectively. Additionally, we incurred interest expense for related party notes payable of $1 million, $6 millioncash and $6 million, forcash equivalents. On the years ended December 31, 2018, 2017 and 2016, respectively.

Senior Credit Facilities

On September 27, 2018, weEffective Date, in accordance with the Plan, the Company entered into a Credit Agreement, by and among us, Garrett LX I S.à r.l., Garrett LX II S.à r.l. (“Lux Guarantor”), Garrett LX III S.à r.l. (“Lux Borrower”), Garrett Borrowing LLC (in such capacity,credit agreement (as amended from time to time, the “US Co-Borrower”"Credit Agreement"), and Honeywell Technologies Sàrl (“Swiss Borrower” and, together with Lux Borrower and US Co-Borrower, the “Borrowers”), the lenders and issuing banks party thereto and JPMorgan Chase Bank, N.A., as administrative agent (the “Credit Agreement”).

The Credit Agreement provides providing for senior secured financing, of approximately the Euro equivalent of $1,254 million, consisting of (i) a seven-year senior secured first-lien U.S. Dollar term B loan facility which consistsinitially in the amount of a tranche denominated in Euro of €375 million and a tranche denominated in U.S. Dollars of $425$715 million (the “Term B“Dollar Term Facility”), (ii) five-year seniora seven-year secured first-lien Euro term A loan facility initially in an aggregate principalthe amount of €330€450 million (the “Term A Facility”“Euro Term Facility,” and together with the Term BDollar Facility, the “Term Loan Facilities”); and (iii) a five-year senior secured first-lien revolving credit facility initially in an aggregate principalthe amount of €430$300 million with providing for multi-currency revolving loans, to Swiss Borrower, to be made available in a number of currencies including Australian Dollars, Euros, Pounds Sterling, Swiss Francs, U.S. Dollars and Yen (the “Revolving Facility”Facility,” and together with the

44
Term Loan Facilities, the “Senior“Credit Facilities”). On January 11, 2022 and March 22, 2022, the Company amended the Credit Facilities”). EachAgreement, 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 and the Term A Facility matures five years after the effective date of the Credit Agreement, in each caseremains unchanged at April 30, 2026, with certain extension rights inat the discretion of each lender. The Term B Facility matures seven years afterOn December 31, 2022, the effective date of the Credit Agreement, with certain extension rightsCompany reported cash and cash equivalents position $246 million (not including $2 million in the discretion of each lender.


The Senior Credit Facilities are subject to an interest rate, at our option, of either (a) base rate determined by reference to the highest of (1) the rate of interest last quoted by The Wall Street Journal as the “prime rate” in the United States, (2) the greater of the federal funds effective rate and the overnight bank funding rate, plus 0.5% and (3) the one month adjusted LIBOR rate, plus 1% per annum (“ABR”), (b) an adjusted LIBOR rate (“LIBOR”) (which shall not be less than zero), or (c) an adjusted EURIBOR rate (“EURIBOR”) (which shall not be less than zero), in each case, plus an applicable margin. The applicable margin for the U.S. Dollar tranche of the Term B Facility is currently 2.50% per annum (for LIBOR loans) and 1.50% per annum (for ABR loans) while that for the euro tranche of the Term B Facility is currently 2.75% per annum (for EURIBOR loans). The applicable margin for each of the Term A Facility and the Revolving Credit Facility varies based on our leverage ratio. Accordingly, the interest rates for the Senior Credit Facilities will fluctuate during the term of the Credit Agreement based on changes in the ABR, LIBOR, EURIBOR or future changes in our leverage ratio. Interest payments with respect to the Term Loan 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.

We are obligated to make quarterly principal payments throughout the term of the Term Loan Facilities according to the amortization provisions in the Credit Agreement. Borrowings under the Credit Agreement are prepayable at our option without premium or penalty, subject to a 1.00% prepayment premium in connection with any repricing transaction with respect to the Term B Facility in the first six months after the effective date of the Credit Agreement. We may request to extend the maturity date of all or a portion of the Senior Credit Facilities subject to certain conditions customary for financings of this type. The Credit Agreement also contains certain mandatory prepayment provisions in the event that we incur certain types of indebtedness or receive netrestricted cash proceeds from certain non-ordinary course asset sales or other dispositions of property, in each case subject to terms and conditions customary for financings of this type.

The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type that, among other things, limit our and our subsidiaries’ ability to incur additional indebtedness or liens, to dispose of assets, to make certain fundamental changes, to enter into restrictive agreements, to make certain investments, loans, advances, guarantees and acquisitions, to prepay certain indebtedness and to pay dividends, to make other distributions or redemptions/ repurchases, in respect of the our and our subsidiaries’ equity interests, to engage in transactions with affiliates, amend certain material documents or to permit the International Financial Reporting Standards equity amount of Lux Borrower to decrease below a certain amount. The Credit Agreement also contains financial covenants requiring the maintenance of a consolidated total leverage ratio of not greater than 4.25 to 1.00 (with step-downs to (i) 4.00 to 1.00 in approximately 2019, (ii) 3.75 to 1.00 in approximately 2020 and (iii) 3.50 to 1.00 in approximately 2021), and a consolidated interest coverage ratio of not less than 2.75 to 1.00. We were in compliance with our financial covenants as of December 31, 2018.

Senior Notes

On September 27, 2018, we completed2022) as compared to $423 million on December 31, 2021 (not including $41 million in restricted cash as of December 31, 2021). As of December 31, 2022, the offeringCompany had no borrowings or letters of €350 million (approximately $400 million) in aggregate principal amountcredit outstanding under the Revolving Facility, and available capacity of 5.125% senior notes due 2026 (the “Senior Notes”). The Senior Notes bear interest at a fixed annual interest rate of 5.125% and mature on October 15, 2026.

The Senior Notes were issued pursuant to an Indenture, dated September 27, 2018 (the “Indenture”), which, among other things and subject to certain limitations and exceptions, limits our ability and the ability of our restricted subsidiaries to: (i) incur, assume or guarantee additional indebtedness or issue certain disqualified equity interests and preferred shares, (ii) pay dividends or distributions on, or redeem or repurchase, capital stock and make other restricted payments, (iii) make investments, (iv) consummate certain asset sales or transfers, (v) engage in certain transactions with affiliates, (vi) grant or assume certain liens on assets to secure debt unless the notes are secured equally and ratably (vii) restrict dividends and other payments by certain of their subsidiaries and (vii) consolidate, merge, sell or otherwise dispose of all or substantially all of our or our restricted subsidiaries’ assets.

Use of Proceeds from Senior Credit Facilities and Senior Notes

In connection with the consummation of the Spin-Off, Lux Borrower used all of the net proceeds of the Term B Facility to make three unsecured intercompany loans to Swiss Borrower.$475 million. In addition, as of December 31, 2022, the subsidiary that issued the Senior Notes used allCompany had $1,186 million of the net proceeds of the Senior Notes to make a secured intercompany loan to Swiss Borrower. Swiss Borrower used the proceeds of the intercompany loans, as well as the net proceeds of the Term A Facility, which equal, in the aggregate, the Euro-equivalent of approximately $1.621 billion, to repay certain Euro-denominated intercompany notes to Honeywell or a subsidiary of Honeywell. We used a portion of the gross proceeds from theprincipal outstanding on its Term Loan Facilities and had utilized $14 million of the Senior Notes offeringbilateral letter of credit facilities with $1 million remaining available capacity.

During the year ended December 31, 2022, we repaid $7 million of our Dollar Term Facility and $381 million related to our Series B Preferred Stock which included the final early redemption payment, following which no shares of our Series B Preferred Stock remain outstanding. Additionally, holders of our Series A Preferred Stock are entitled to receive, when, as and if declared by a committee of disinterested directors of the Board out of funds legally available for such dividend, cumulative cash dividends at an annual rate of 11% on the stated amount per share plus the amount of any accrued and unpaid dividends on such share. These dividends accumulate whether or not declared. During the year ended December 31, 2022, we declared two cash dividends of $0.17 per share, each (September 2022 and December 2022), on our Series Preferred A Stock, for a total aggregate dividend of $83 million. As of December 31, 2022, the aggregate accumulated undeclared and unpaid dividend was approximately $171 million.
For 2023, we expect to maintain a similar level of capital spending as compared to 2022. We expect to repay $7 million on our Dollar Term Facility. We also expect to pay fees, costsapproximately $5 million related to purchase obligations which were entered into with various vendors in the normal course of business and expenses in connectionare consistent with the entry into the Senior Credit Facilities and the consummationour expected requirements. Finally, we expect to make contributions of the Senior Notes offering.


Liquidity following the Spin-Off

Following the Spin-Off, a treasury team was appointed and cash management structures were implemented, in orderapproximately $7 million to manage the Company’s liquidity centrally and concentrate excess cash.

Our capital structure and sources of liquidity have changed from our historical capital structure because we no longer participate in our Former Parent’s centralized cash management program. We expect that our primary cash requirements in 2019 will primarily be to fund operating activities, working capital, and capital expenditures, and to meet our obligations under the debt instruments and the Indemnification and Reimbursement Agreement described below, as well as the Tax Matters Agreement. In addition, we engage in repurchases of our debt and equity securities from time to time. non-U.S. pension plans.

We believe we will meet our known or reasonably likely future cash requirements through the combination of expected cash flows, the funding received from operating activities, available cash balancesSeries A Preferred Stock issuance, the term loan borrowings and available borrowings through our debt agreements. If these sourcesthe revolving credit facilities being committed until 2026, will provide us with adequate liquidity to support the Company's operations.

Share Repurchase Program
On November 16, 2021, the Company announced that it had authorized a $100 million share repurchase program valid until November 15, 2022, providing for the purchase of liquidity need to be augmented, additional cash requirements would likely be financed throughshares of Series A Preferred Stock and Common Stock. On November 2, 2022, the issuanceBoard of debt or equity securities; however, there can be no assurances that we will be able to obtain additional debt or equity financing on acceptable terms inDirectors authorized the future. Based upon our history of generating strong cash flows, we believe we will be able to meet our short-term liquidity needs for at least the next twelve months.

Indemnification and Reimbursement Agreement

On September 12, 2018, we entered into the Indemnification and Reimbursement Agreement, under which we are required to make certain payments to Honeywell in amounts equal to 90% of Honeywell’s asbestos-related liability payments and accounts payable, primarily related to the Bendix business in the United States, as well as certain environmental-related liability payments and accounts payable and non-United States asbestos-related liability payments and accounts payable, in each case related to legacy elementsextension of the Business, includingshare repurchase program by one year, to November 15, 2023. As of December 31, 2022, the legal costs of defending and resolving such liabilities, less 90% of Honeywell’s net insurance receipts and, as may be applicable, certain other recoveries associated with such liabilities. Pursuant to the terms of the Indemnification and Reimbursement Agreement, we are responsible for paying to Honeywell such amounts, up to a cap of an amount equal to the Distribution Date Currency Exchange Rate (1.16977 USD = 1 EUR) equivalent of $175Company had repurchased $26 million (exclusive of any late payment fees) in respect of such liabilities arising in any given calendar year. This Indemnification and Reimbursement Agreement may have material adverse effects on our liquidity and cash flows and on our results of operations, regardless of whether we experience a decline in net sales. See “We are subject to risks associated with the Indemnification and Reimbursement Agreement, pursuant to which we are required to make substantial cash payments to Honeywell, measured in substantial part by reference to estimates by Honeywell of certain of its liabilities.” Series A Preferred Stock and Common Stock, with $74 million remaining under the share repurchase program. For more information, see Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Issuer Purchases of Equity Securities.

Off-Balance Sheet Arrangement
The payments that we are required to make to Honeywell pursuant to the termsCompany did not have any off-balance sheet arrangements as of the Indemnification and Reimbursement Agreement will not be deductible for U.S. federal income tax purposes. The Indemnification and Reimbursement Agreement provides that the agreement will terminate upon the earlier of (x) December 31, 2048 or (y) December 31st of the third consecutive year during which certain amounts owed to Honeywell during each such year were less than $25 million as converted into Euros in accordance with the terms of the agreement.

During the fourth quarter of 2018, we paid Honeywell the Euro-equivalent of $41 million in connection with the Indemnification2022 and Reimbursement Agreement.

Tax Matters Agreement

On September 12, 2018, we entered into a Tax Matters Agreement with Honeywell. The Tax Matters Agreement governs the respective rights, responsibilities and obligations of Honeywell and us after the Spin-Off with respect to all tax matters (including tax liabilities, tax attributes, tax returns and tax contests).

The Tax Matters Agreement generally provides that we are responsible and will indemnify Honeywell for all taxes, including income taxes, sales taxes, VAT and payroll taxes, relating to Garrett for all periods, including periods prior to the completion date of the Spin-Off. Among other items, as a result of the mandatory transition tax imposed by the Tax Cuts and Jobs Act, one of our subsidiaries is required to make payments to a subsidiary of Honeywell in the amount representing the net tax liability of Honeywell under the mandatory transition tax attributable to us, as determined by Honeywell. We currently estimate that our aggregate payments to Honeywell with respect to the mandatory transition tax will be $240 million. Under the terms of the Tax Matters Agreement, we are required to pay this amount in Euros, without interest, in five annual installments, each equal to 8% of the aggregate amount, followed by three additional annual installments equal to 15%, 20% and 25% of the aggregate amount, respectively. In connection with this agreement, we paid Honeywell the Euro-equivalent of $19 million during the fourth quarter of 2018.

2021.

In addition, the Tax Matters Agreement addresses the allocation of liability for taxes incurred as a result of restructuring activities undertaken to effectuate the Spin-Off. The Tax Matters Agreement also provides that we are required to indemnify Honeywell for certain taxes (and reasonable expenses) resulting from the failure of the Spin-Off and related internal transactions to qualify for their intended tax treatment under U.S. federal, state and local income tax law, as well as foreign tax law.

The Tax Matters Agreement also imposes certain restrictions on us and our subsidiaries (including restrictions on share issuances, redemptions or repurchases, business combinations, sales of assets and similar transactions) that are designed to address compliance with Section 355 of the Internal Revenue Code of 1986, as amended, and are intended to preserve the tax-free nature of the Spin-Off.

Cash Flow Summary for the Years Ended December 31, 2018, 20172022, 2021 and 2016

2020

Our cash flows from operating, investing and financing activities for the years ended December 31, 2018, 20172022, 2021 and 2016,2020, as reflected in the auditedConsolidated and Combined Financial Statements included elsewhere in this Form 10-K,Annual Report, are summarized as follows:

 

Year Ended December 31,

 

Year Ended December 31,

 

2018

 

 

2017

 

 

2016

 

202220212020

 

(Dollars in millions)

 

(Dollars in millions)

Cash provided by (used for):

 

 

 

 

 

 

 

 

 

 

 

 

Cash provided by (used for):

Operating activities

 

$

373

 

 

$

71

 

 

$

305

 

Operating activities$375 $(310)$25 

Investing activities

 

 

192

 

 

 

30

 

 

 

(182

)

Investing activities(91)(71)(80)

Financing activities

 

 

(658

)

 

 

60

 

 

 

(149

)

Financing activities(482)139 530 

Effect of exchange rate changes on cash

 

 

(11

)

 

 

20

 

 

 

(1

)

Effect of exchange rate changes on cash(18)13 31 

Net increase (decrease) in cash and cash equivalents

 

$

(104

)

 

$

181

 

 

$

(27

)

Net (decrease) increase in cash and cash equivalentsNet (decrease) increase in cash and cash equivalents$(216)$(229)$506 

2018 compared with 2017

45
Cash Flow Summary for the year ended December 31, 2022
Cash provided by operating activities increased by $302$685 million for 2018 in comparison to 2017,2022 versus the prior year, primarily due to a $375 million payment made to Honeywell in 2021 pursuant to the Plan, and a decrease in cash taxes paidnet income of $354$105 million, net of a $393 million increase in non-cash adjustments which included a $435 million gain recognized in prior year on reorganization items, a $66 million increase in the fair value of our undesignated derivative instruments and $28 million of the redemption attributable to interest of Series B Preferred Stock. We also saw favorable impacts from working capital of $35 million partially offset by an unfavorable impact from changes in Payables to related parties of $82 million.

Cash provided by investing activities increased by $162 million for 2018 in comparison to 2017, primarily due to favorable net cash impacts from marketable securities investment activities year over year of $230$46 million, partially offset by a $24 million decrease mainly driven by other assets and liabilities.

Cash used for investing activities increased by $20 million for 2022 versus the prior year, primarily due to an increase in proceeds from related party notes receivablesexpenditures for property, plant and equipment of $66$19 million.

Cash used for financing activities increased by $718$621 million for 2018the year ended December 31, 2022 compared with the prior year. The change was primarily driven by $180 million of additional early redemptions in comparison2022 of our Series B Preferred Stock (excluding amounts attributable to 2017interest and included in cash used for operating activities), and $83 million for dividends on Series A Preferred Stock. We also saw, in 2021 upon Emergence, net proceeds of $2,522 million from the issuance of our Series A Preferred Stock and new long-term debt, partially offset by net payments of $2,156 million related to our prior senior secured super-priority debtor-in-possession credit agreement, our pre-petition revolving credit facility, pre-petition long-term debt and payments made to holders of the Company's pre-emergence common stock who made a cash-out election under the Plan. These increases in cash used for financing activities were partially offset by $12 million less of repurchases of Series A Preferred Stock and Common Stock in 2022 versus 2021.
Cash Flow Summary for the year ended December 31, 2021
Cash used for operating activities increased by $335 million for 2021 versus the prior year, primarily due to a $375 million payment to Honeywell pursuant to the Plan in the current year compared to a $6 million payment to Honeywell in the prior year. We also saw an increase in net income, net of deferred taxes and non-cash gains related to the reorganization, of $82 million. These increases in cash used for operating activities were partially offset by a favorable impact from working capital of $47 million and $65 million mainly driven by prepayments made in 2020 for directors' and officers' insurance in relation to our reorganization.
Cash used for investing activities decreased by $9 million for 2021 versus the prior year, primarily due to a decrease in proceeds from related party notes payable year over yearExpenditures for property, plant and equipment of $671$8 million. Additionally, there
Cash provided by financing activities decreased by $391 million for 2021 versus the prior year. The change was $1,631driven by $1,301 million in proceeds from the issuance of Series A Preferred Stock and $1,221 million in proceeds from the issuance of the new long-term debt, in 2018 partially offset by unfavorable impacts from changes$200 million of debt repayments compared to $200 million of proceeds in Invested deficit period over periodthe prior year on the DIP Credit Agreement, $1,515 million payments of $1,474 million.

2017 compared with 2016

Cash provided bythe old long-term debt and $69 million in payments for the Cash-Out election. Additionally, payments of our revolving facilities were $730 million lower than in prior year, we redeemed $201 million of our Series B Preferred Stock (exclusive of $10 million of the redemption attributable to interest and included in cash used for operating activities decreased by $234activities), and repurchased $15 million primarily due to higher income taxes settled with our Former Parent of $357Series A Preferred Stock and $4 million mainly dueof Common Stock pursuant to the provisional mandatory transition tax impact of the Tax Act. This was partially offset by higher Income before taxes of $116 million, favorable impacts from working capital of approximately $6 million and payables to related parties of $37 million.

Cash provided by investing activities increased by $212 million, primarily due to lower issuances of related party notes receivables to the Former Parent of $63 million and favorable net cash impacts from marketable securities investment activities year over year of $145 million.

Cash provided by financing activities increased by $209 million. The change was primarily dueto a $133 million increase in cash received from the Former Parent’s cash pools and lower increase in Invested deficit of$76 million.


Contractual ObligationsandProbable LiabilityPayments

The following is a summary of our significant contractual obligations and probable liability payments at December 31, 2018:

 

 

 

 

 

 

Payments by Period

 

 

 

 

 

 

 

Total(5)

 

 

2019

 

 

2020-2021

 

 

2022-2023

 

 

Thereafter

 

 

 

(Dollars in millions)

 

Obligations to Honeywell – Asbestos and

   environmental(1)

 

 

1,244

 

 

 

108

 

 

 

207

 

 

 

192

 

 

 

737

 

Obligations to Honeywell – Mandatory

   Transition Tax(2)

 

 

217

 

 

 

19

 

 

 

38

 

 

 

54

 

 

 

106

 

Long-term debt(3)

 

 

1,628

 

 

 

23

 

 

 

74

 

 

 

297

 

 

 

1,234

 

Interest payments on long-term debt(4)

 

 

337

 

 

 

51

 

 

 

100

 

 

 

93

 

 

 

93

 

Minimum operating lease payments

 

 

48

 

 

 

12

 

 

 

13

 

 

 

8

 

 

 

15

 

Purchase obligations(5)

 

 

91

 

 

 

91

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

$

3,565

 

 

$

304

 

 

$

432

 

 

$

644

 

 

$

2,185

 

_______________________

(1)

Excludes legal fees which are expensed as incurred. For additional information, refer to “—Liquidity and Capital Resources—Indemnification and Reimbursement Agreement” section.

share repurchase program.

(2)

Excludes the indemnification obligation for uncertain tax positions for which timing of payment is uncertain. For additional information, refer to “—Liquidity and Capital Resources—Tax Matters Agreement” section.

(3)

Assumes all long-term debt is outstanding until scheduled maturity. Does not include expected utilization of our revolving credit facility.


(4)

Interest payments are estimated based on the interest rates applicable as of December 31, 2018. This does not include the impact of the cross currency interest rate swap nor the expected utilization of our revolving credit facility.

(5)

Purchase obligations are entered into with various vendors in the normal course of business and are consistent with our expected requirements.

Capital Expenditures

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

Productivity projects have freed up capacity in our manufacturing facilities and are expected to continue to do so. We expect to continue investing to expand and modernize our existing facilities and invest in our facilities to create capacity for new product development.

Off-Balance Sheet Arrangements

We do not engage in any off-balance sheet financial arrangements that have or are reasonably likely to havemaintain a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, resultssimilar level of operations, liquidity, capital expenditures or capital resources.

in 2023 as compared to 2022, increasing investment in electrification technologies while offsetting with investment on core technologies.

Critical Accounting Policies

and Estimates

The preparation of our Consolidated and Combined Financial Statements in accordance with generally accepted accounting principles is based on the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of matters that are inherently uncertain. We consider the accounting policies discussed below to be critical to the understanding of our financial statements. Actual results could differ from our estimates and assumptions, and any such differences could be material to our Consolidated and Combined Financial Statements.


Revenue Recognition — Product sales are recognized when we transfer control of the promised goods to our customer, which is based on shipping terms. Revenue is measured as the amount of consideration we expect to receive in

46
exchange for transferring the promised goods, adjusted for any variable consideration such as price concessions or annual price adjustments as estimated at contract inception. We estimate variable consideration at the most likely amount we will receive from customers and reduce revenues recognized accordingly. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. We adjust our estimate of revenue at the earlier of when the value of consideration we expect to receive changes or when the consideration becomes fixed.
Contingent Liabilities—We are subjectto lawsuits,investigationsand claimsthatariseout of the conductof our globalbusinessoperationsor those of previouslyownedentities,includingmattersrelatingto commercial transactions,governmentcontracts,productliability,(includingasbestos),prioracquisitionsand divestitures, employeebenefitplans, intellectualproperty,legaland environmental,healthand safetymatters.We continually assessthe likelihoodof any adversejudgmentsor outcomesto our contingencies,as well as potentialamountsor rangesof probablelosses,and recognizea liability,if any, for thesecontingenciesbased on a carefulanalysisof each matterwith the assistanceof outsidelegalcounseland, if applicable,otherexperts.Such analysisincludes makingjudgmentsconcerningmatterssuch as the costsassociatedwith environmentalmatters,the outcomeof negotiations,the numberand cost of pending and futureasbestosclaims,and the impactof evidentiary requirements.Because mostcontingenciesare resolvedover long periodsof time,liabilitiesmay change in the futuredue to newdevelopments(including (including newdiscoveryof facts,changes in legislationand outcomesof similarcasesthrough the judicialsystem),changes in assumptionsor changes in our settlementstrategy.See Note 21, 25, Commitmentsand Contingenciesof the Notes to the Consolidated and Combined FinancialStatementsfor a discussionof management’sjudgmentappliedin the recognitionand measurementof our environmentaland asbestos liabilitieswhich representour mostsignificantcontingencies.

Asbestos-Related Contingencies and Insurance Recoveries—Honeywell is subject to certain asbestos-related and environmental-related liabilities, primarily related to its legacy Bendix business. In conjunction with the Spin-Off, certain operations that were part of the Bendix business, along with the ownership of the Bendix trademark, as well as certain operations that were part of other legacy elements of the Business, were transferred to us. For periods prior to the Spin-Off, we reflect an estimated liability for resolution of pending and future asbestos-related and environmental liabilities primarily related to the Bendix legacy Honeywell business, calculated as if we were responsible for 100% of the Bendix asbestos-liability payments. We recognized a liability for any asbestos-related contingency that was probable of occurrence and reasonably estimable. In connection with the recognition of liabilities for asbestos-related matters, we recorded asbestos-related insurance recoveries that are deemed probable. Asbestos-related expenses, net of probable insurance recoveries, are presented within Other expense, net in the Consolidated and Combined Statement of Operations.

In periods subsequent to the Spin-Off, the accounting for the majority of our asbestos-related liability payments and accounts payable reflect the terms of the Indemnification and Reimbursement Agreement with Honeywell entered into on September 12, 2018, under which we are required to make payments to Honeywell in amounts equal to 90% of Honeywell’s asbestos-related liability payments and accounts payable, primarily related to the Bendix business in the United States, as well as certain environmental-related liability payments and accounts payable and non-United States asbestos-related liability payments and accounts payable, in each case related to legacy elements of the Business, including the legal costs of defending and resolving such liabilities, less 90% of Honeywell’s net insurance receipts and, as may be applicable, certain other recoveries associated with such liabilities. The Indemnification and Reimbursement Agreement provides that the agreement will terminate upon the earlier of (x) December 31, 2048 or (y) December 31st of the third consecutive year during which certain amounts owed to Honeywell during each such year were less than $25 million as converted into Euros in accordance with the terms of the agreement.

Warranties and Guarantees—Expected warrantycostsfor productssold are recognizedbased on an estimateof the amountthateventuallywill be requiredto settlesuch obligations.These accrualsare based on factorssuch as past experience,lengthof the warrantyand variousotherconsiderations.Costs of productrecalls, which may includethe cost of the productbeing replacedas well as the customer’scost of the recall,including laborto removeand replacethe recalledpart,are accruedas partof our warrantyaccrualat the timean obligation becomesprobableand can be reasonablyestimated.These estimatesare adjustedfromtimeto timebased on factsand circumstancesthatimpactthe statusof existingclaims.See Note 21, 25, Commitmentsand Contingencies of the Notes to the Consolidated and Combined FinancialStatementsincludedhereinfor additionalinformation.

Pension Benefits—We sponsor defined benefit pension plans covering certain employees, primarily in Switzerland, the USU.S. and Ireland. ForThe pension cost and liabilities for these plans are developed from actuarial valuations. Inherent in these valuations are key assumptions including discount rates, expected return on plan assets, mortality rates, and compensation increases. The Company is required to consider current market conditions, including changes in interest rates, and employee demographics such plans, weas retirement patterns, in making its assumptions. Changes in the related pension benefit costs or liabilities may occur in the future due to changes in the assumptions.
The discount rate reflects the market rate on December 31 (the measurement date) for high-quality fixed-income investments with maturities corresponding to our pension obligations and is subject to change each year. The discount rate can be volatile from year to year as it is determined based upon prevailing interest rates as of the measurement date. The assumptions as to the expected long-term rates of return on plan assets are based upon historical plan asset returns over varying long-term periods combined with our expectations of future market conditions and asset mix considerations.
We recognize net actuarial gains or losses in excess of 10% of the greater of the fair value of plan assets or the plans’ projected benefit obligation (the corridor) annually in the fourth quarter each year (“MTM(the “MTM Adjustment”), and, if applicable, in any quarter in which an interim remeasurement is triggered. The remaining components of pension expense, primarily service and interest costs and assumed return on plan assets, are recognized on a quarterly basis.


On January 1, 2018, we retrospectively adopted the new accounting guidance on presentation of net periodic pension costs. That guidance requires that we disaggregate the service cost component of net benefit costs and report those costs in the same line item or items in the Consolidated Statement of Operations as other compensation costs arising from services rendered by the pertinent employees during the period. The other nonservice components of net benefit costs are required to be presented separately from the service cost component.

Following the adoption of this guidance, we continue to record the service cost component of Pension ongoing (income) expense in Costs of goods sold. The remaining components of net benefit costs within Pension ongoing (income) expense, primarily interest costs and assumed return on plan assets, are now recorded in Non-operating (income) expense. We will continue to recognize net actuarial gains or losses in excess of 10% of the greater of the fair value of plan assets or the plans’ projected benefit obligation (the corridor) annually in the fourth quarter of each year (MTM Adjustment). The MTM Adjustment will also be reported in Non-operating (income) expense.

The key assumptions used in developing our 2018 net periodic pension (income) expense included the following:

 

 

2018

 

 

 

U.S. Plans

 

 

Non-U.S. Plans

 

Discount Rate:

 

 

 

 

 

 

 

 

Projected benefit obligation

 

 

4.33

%

 

 

1.50

%

Service Cost

 

 

4.11

%

 

 

1.50

%

Interest cost

 

 

4.02

%

 

 

1.50

%

Assets:

 

 

 

 

 

 

 

 

Expected rate of return

 

 

6.00

%

 

 

3.77

%

Actual rate of return

 

 

(1.37

)%

 

 

1.78

%

The MTM Adjustment represents the recognition of net actuarial gains or losses in excess of 10% of the greater of the fair value of plan assets or the plans’ projected benefit obligation (the corridor). Net actuarial gains and losses occur when the actual experience differs from any of the various assumptions used to value our pension plans or when assumptions change. The primary factors contributing to actuarial gains and losses are changes in the discount rate used to value pension obligations as of the measurement date each year and the difference between expected and actual returns on plan assets. The mark-to-market accounting method results in the potential for volatile and difficult to forecast MTM Adjustments. MTM charges were $0 for our U.S. Plans and $3 million for our non-U.S. Plans forAdjustments as the year ended December 31, 2018.

We determine the expected long-term rate of return on plan assets utilizing historical plan asset returns over varying long-term periods combined with our expectations of future market conditions and asset mix considerations (see Note 22 Defined Benefit Pension Plan of Notes to Consolidated and Combined Financial Statements for details on the actual various asset classes and targeted asset allocation percentages for our pension plans). We plan to continue to use an expected rate of return on plan assets of 5.8% for our U.S. Plans and 3.34% for our non-U.S. Plans for 2019 as this is a long-term rate based on historical plan asset returns over varying long-term periods combined with our expectations of future market conditions and the asset mix of the plan’s investments.

The discount rate reflects the market rate on December 31 (measurement date) for high-quality fixed-income investments with maturities corresponding to our benefit obligations and is subject to change each year. The discount rate can be volatile from year to year as it is determined based upon prevailing interest rates as of the measurement date. We used a 4.33% discount rate to determine benefit obligations for our U.S. Plans and 1.50% for our non-U.S. Plans as of December 31, 2018.

Pension ongoing expense for all of our pension plans is expected to be approximately $2 million in 2019 compared with pension ongoing expense of $2 million in 2018. Also, if required, an MTM Adjustment will be recorded in the fourth quarter of 2019 in accordance with our pension accounting method as previously described. It is difficult to reliably forecast or predict whether there will be an MTM Adjustment in 2019, and if one is required, what the magnitude of such adjustment will be. MTM Adjustmentsadjustments are primarily driven by events and circumstances beyond the control of the Company such as changes in interest rates and the performance of the financial markets.


For periods prior to the Spin-off, certain Garrett employees participated in defined benefit pension plans (the “Shared Plans”) sponsored by Honeywell which includes participants of other Honeywell subsidiaries and operations. We account for our participation in the Shared Plans as a multiemployer benefit plan. Accordingly, we do not record an asset or liability to recognize the funded status of the Shared Plans. The related pension expense is based on annual service cost of active Garrett participants and reported within Cost of goods sold in the Consolidated and Combined Statements of Operations. The pension expense specifically identified for the active Garrett participants in the Shared Plans for the years ended December 31, 2018, 2017 and 2016 was $5 million, $7 million and $6 million, respectively.

Inventories—Inventoriesare statedat the lower of cost, determinedon a first-in,first-outbasis,includingdirectmaterialcostsand directand indirectmanufacturingcosts,or net realizablevalue. Obsoleteinventoryis identifiedbased on analysisof inventoryfor knownobsolescenceissues.The originalequipmentinventoryon hand in excessof one year’sforecastedusage is fullyreserved.

Goodwill—Goodwill is subject to impairment testing annually as of March 31, and whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. This testing compares carrying value to fair value of our single reporting unit. The Company recognizes an impairment charge for the amount by which the carrying value of the reporting unit exceeds the reporting unit´s fair value. However, any impairment should not exceed the amount of goodwill allocated to the reporting unit. We completed our annual goodwill impairment test as of March 31, 2018, as well as an interim impairment test immediately following the Spin-Off and determined that there was no impairment as of these dates.

Income Taxes—We account for income taxes pursuant to the asset and liability method which requires us to recognize current tax liabilities or receivables for the amount of taxes we estimate are payable or refundable for the current year and deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts and their respective tax bases of assets and liabilities and the expected

47
benefits of net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period enacted. A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible.

Our pre-Spin-Off activity

We file tax returns in multiple jurisdictions and are subject to examination by taxing authorities throughout the world. Tax authorities have the ability to review and challenge matters that could be subject to differing interpretation of applicable tax laws and regulations as they relate to the amount, character, timing or inclusion of revenue and expenses or the sustainability of tax attributes. The ultimate resolution of such uncertainties could last several years. When an uncertain tax position is identified, we consider and interpret complex tax laws and regulations in order to determine the need for recognizing a provision in our financial statements. Significant judgment is required in determining the timing and measurement of uncertain tax positions. We utilize internal and external expertise in interpreting tax laws to support our tax positions. We recognize the financial statement benefit of an uncertain tax position when it is more likely than not that, based on the underlying technical merits, the position will be sustained upon examination.
Although we believe the measurement of our liabilities for uncertain tax positions is reasonable, no assurance can be given that the final outcome of these matters will not be different than what is reflected in the U.S. will be reported in Honeywell’s U.S. consolidatedhistorical income tax returnprovisions and certain foreign activity will be reported in Honeywell tax paying entities in those jurisdictions. For periods prior to the Spin-Off, theaccruals. If additional taxes are assessed as a result of an audit or litigation, they could have a material impact on our income tax provision includedand net income in the Consolidated and Combined Financial Statementsperiod or periods for which such determination is made. A change in judgment related to domestic and certain foreign operations was calculated on a separate return basis, as if Garrett was a separate taxpayer and the resulting current tax receivable or liability, including any liabilities related toexpected ultimate resolution of uncertain tax positions was settled with Honeywell through equity at the time of the Spin-Off. In other foreign taxing jurisdictions, the operations of Garrett were always conducted through discrete legal entities, each of which filed separate tax returns, and all resulting income tax assets and liabilities, including liabilities related to uncertain tax positions, are reflectedwill be recognized in earnings in the Consolidated and Combined Balance Sheets of Garrett.

quarter in which such change occurs.

Other Matters

Litigation and Environmental Matters

See Note 21, 25, Commitments and Contingencies of the Notes to the Consolidated and Combined Financial Statements for a discussion of environmental, asbestos and other litigation matters.

Recent Accounting Pronouncements

See Note 2 3, Summary of Significant Accounting Policies of the Notes to the Consolidated and Combined Financial Statements for a discussion of recent accounting pronouncements.


Item 7A. Quantitative and QualitativeQualitative Disclosures about Market Risks

Foreign Currency Risk

We are exposed to market risks from changes in currency exchange rates. These exposures may impact future earnings and/or operating cash flows. Our exposure to market risk for changes in foreign currency exchange rates arises from international financing activities between subsidiaries, foreign currency denominated monetary assets and liabilities and transactions arising from international trade.

For the periods prior to the Spin-Off,

We historically have hedged balance sheet as part of Honeywell´s centralized treasury function, the primary objective was to preserve the U.S. Dollar value of foreign currency denominated cash flows and earnings. The historical treasury strategies implemented by Honeywell’s centralized treasury function may differ from our future treasury strategieswell as a standalone company.

We hedgeforecasted currency exposures with natural offsets to the fullest extent possible and, once these opportunities have been exhausted, through foreign currency exchange forward contracts (Foreign Currency Exchange Contracts). contracts.

We hedge monetary assets and liabilities denominated in non-functional currencies. Priorforecasted currency exposure to conversion into U.S. dollars, these assets and liabilities are remeasured at spot exchange rates in effect onminimize the balance sheet date. The effects of changes in spot rates are recognized in earnings and included in Non-operating (income) expense. Open Foreign Currency Exchange Contracts (excluding the cross-currency swap described below) mature in the next four months.

We will hedge major exposures to foreign currency denominated cash flows over the next 12 to 18 months, on a rolling and layered basis, to smooth the effects of fluctuations inarising from foreign currency exchange ratesrisk on earnings. Garrett designatesforeign currency purchases and sales. Gains and losses on the relatedunderlying foreign currency exposures are partially offset with gains and losses on the foreign currency forward contracts. Under our cash flow hedging instrumentsprogram, we designate the foreign currency forward contracts as cash flow hedges exceptof underlying foreign currency forecasted purchases and sales, with gains and losses on the qualifying derivatives recorded in cases where the hedged item is recognized on our balance sheet. The gain or loss from a derivative financial instrument designated as a cash flow hedge is classifiedAccumulated other comprehensive income (loss) in the same line ofConsolidated Balance Sheet until the Consolidated and Combined Statements of Operations asunderlying forecasted transactions are recognized in earnings. These contracts have varying terms that extend through 2023.

Effective with our entry into the offsetting loss or gain on the hedged item.

On September 27, 2018,Credit Agreement, the Company entered into a floating-floating cross-currency swap contractcontracts to hedgelimit its exposure to investments in certain foreign subsidiaries exposed to foreign exchange fluctuations. The cross-currency swaps have been designated as net investment hedges of its Euro-denominated operations. Gains and losses

48
on the foreign currency exposure from foreign currency-denominated debt which will mature on September 27, 2025. The gain or loss on this derivative instrument is recognized in earnings and included in Non-operating (income) expense. For the year ended December 31, 2018, gainsderivatives qualifying as net investment hedges are recorded in Non-operating (income) expense, underAccumulated other comprehensive income (loss) within the cross-currency swap contract were $16 million.

At December 31, 2018 and 2017, we had contracts with notional amounts of $838 million and $928 million, respectively, to exchange foreign currencies, principallyConsolidated Balance Sheet until the U.S. Dollar, Euro, Chinese Yuan, Japanese Yen, Mexican Peso, New Romanian Leu, Australian Dollar and Korean Won.

net investment is liquidated or sold.

As of December 31, 2018 and 2017,2022, the net fair value of all financial instruments with exposure to currency risk was approximately a $19$92 million asset and a $37 million liability, respectively.asset. The potential loss or gain in fair value for such financial instruments from a hypothetical 10% adverse or favorable change in quoted currency exchange rates would be approximately $(38)$112 million and $74$(139) million, respectively, at December 31, 2018 and $(121) million and $65 million at December 31, 2017.2022 exchange rates. The model assumes a parallel shift in currency exchange rates; however, currency exchange rates rarely move in the same direction. The assumption that currency exchange rates change in a parallel fashion may overstate the impact of changing currency exchange rates on assets and liabilities denominated in currencies other than the U.S. dollar.


Interest Rate Risk

Our exposure to risk based on changes in interest rates relates primarily to our Credit Agreement. We have not used derivative financial instruments in our investment portfolio. The Credit Agreement bears interest at floating rates. For variable rate debt, interest rate changes generally do not affect the fair market value of such debt assuming all other factors remain constant but do impact future earnings and cash flows. Accordingly, we may be exposed to interest rate risk on borrowings under the Credit Agreement. HadWe manage this risk by entering into interest rate swaps to convert floating rate debt to fixed rate debt to reduce market risk associated with changes in interest rates. As of December 31, 2022, the net fair value of all financial instruments with exposure to interest rate risk was a $76 million asset.
For our outstanding borrowings under the Credit Agreement as of December 31, 2018 been outstanding for the full year ended December 31, 2018,2022, a 2550 basis point increase (decrease) in interest rates would have increased (decreased) our interest expense by $3$6 million and $1($6) million, respectively, compared to the amount of interest that would have been incurred in such period based on the rates of interest in effect at December 31, 2018.2022. For additional information regarding our Credit Agreement, see Note 14 16, Long-term Debt and Credit Agreements of the notesNotes to the Consolidated and Combined Financial Statements.

Commodity Price Risk

While

We are subject to changes in our cost of sales caused by movements in underlying commodity prices. Approximately 73% of our cost of sales consists of purchased components with significant raw material content. A substantial portion of the purchased parts are made of nickel, aluminum and steel alloys. We have index-based escalators in place with most of our suppliers for raw material inflation / deflation. As our costs change, we are exposedcontractually able to commodity price risk, we pass through abnormala portion of the changes in component and raw material costscommodity prices to certain of our customers based onin accordance with long-term agreements. Where Long-term pass-through agreements are not in place with customers, we seek to negotiate additional pricing arrangements with our customers.
Assuming current levels of commodity purchases and contractually agreed customer pass-through arrangements, a 10% variation in the contractual terms ofcommodity prices would correspondingly change our arrangements. In limited situations, we may not be fully compensated for such changes in costs.

earnings by approximately $24 million per year.

49

Item 8. Financial StatementsStatements and Supplementary Data


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Garrett Motion Inc.

Opinion on theInternal Control over Financial Statements

Reporting

We have audited the accompanying consolidated balance sheetinternal control over financial reporting of Garrett Motion Inc. and subsidiaries (the "Company") as of December 31, 2018,2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by the relatedCommittee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated and combined statementfinancial statements as of operations, comprehensive income, equity (deficit), and cash flows, for the year ended December 31, 2018, and the related notes (collectively referred to as the "financial statements").In our opinion, the financial statements present fairly, in all material respects, the financial position2022, of the Company asand our report dated February 14, 2023, expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of December 31, 2018, and the resultseffectiveness of its operations and its cash flows for the year ended December 31, 2018, in conformity with the accounting principles generally acceptedinternal control over financial reporting, included in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management.accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company'sCompany’s internal control over financial statementsreporting based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of itseffective internal control over financial reporting. As part of our audits, we are required to obtainreporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, but not forassessing the purposerisk that a material weakness exists, testing and evaluating the design and operating effectiveness of expressing an opinioninternal control based on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,assessed risk, and performing such other procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosuresas we considered necessary in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.circumstances. We believe that our audit provides a reasonable basis for our opinion.

Emphasis

Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a Matter

As discussedprocess designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in Note 1accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements on October 1, 2018, the Company became an independent publicly-traded company through a pro rata distribution by Honeywell International Inc. of 100%in accordance with generally accepted accounting principles, and that receipts and expenditures of the then-outstanding sharescompany are being made only in accordance with authorizations of management and directors of the Company to Honeywell’s stockholders.  For the period from January 1, 2018 to October 1, 2018, the financial statements include expense allocations for certain corporate functions historically provided by Honeywell International Inc. These allocations may not be reflectivecompany; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the actual expensecompany’s assets that wouldcould have been incurred had the Company operated as a separate entity apart from Honeywell International Inc. A summary of transactions with related parties is included in Note 3 tomaterial effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ DELOITTEDeloitte SA


Geneva, Switzerland

March 1, 2019

We have served as the Company’s auditor since 2018.

February 14, 2023


50

REPORT OF INDEPENDENT REGISTEREDREGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Garrett Motion Inc.

Opinion on the Financial Statements

We have audited the accompanying combinedconsolidated balance sheetsheets of Garrett Motion Inc. (formerly the Transportation Systems Business of Honeywell International, Inc.) and subsidiaries (the “Company”"Company") as of December 31, 2017,2022 and 2021, the related combinedconsolidated statements of operations, comprehensive income (loss), equity (deficit), and cash flows, for each of the twothree years in the period ended December 31, 2017,2022, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”"financial statements").
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017,2022 and 2021, and the results of its operations and its cash flows for each of the twothree years in the period ended December 31, 2017,2022, in conformity with the accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 14, 2023 expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion

These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’sCompany's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures thatto respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Emphasis

Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of a Matter

As discussed in Note 1the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the accompanying financial statements, have been derived fromtaken as a whole, and we are not, by communicating the critical audit matter below, providing a separate records maintained by Honeywell International Inc. Theopinion on the critical audit matter or on the accounts or disclosures to which it relates.

Net Sales and Accrued Liabilities - Variable Consideration– Refer to Notes 3 and 15 to the Financial Statements
Critical Audit Matter Description
As disclosed in Notes 3 and 15 to the consolidated financial statements, also include expense allocationsthe Company records net sales at the amount of consideration the Company expects to receive in exchange for certain corporate functions historicallytransferring the promised goods, which includes estimates of variable consideration to the extent it is probable that a significant reversal of revenue recognized will not occur. Variability in consideration typically results from discounts and rebates provided to customers. The estimated variable consideration is based primarily on management’s best available information regarding customer negotiations, historical
51
experience, and anticipated future customer pricing strategies. Estimating variable consideration to be received requires significant judgments by Honeywell International Inc. These allocations may not be reflectivemanagement that affect the amount of revenue recorded in the financial statements.
Given the significant estimates and assumptions management makes to estimate future discounts and rebates, auditing managements estimate of the actual expense that would have been incurred hadamount related to variable consideration to recognize as net sales required a high degree of auditor judgement.
How the Company operated as a separate entity apart from Honeywell International Inc. A summary of transactions withCritical Audit Matter Was Addressed in the Audit
Our audit procedures related parties is included in Note 3 to the financial statements.

/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey

May 1, 2018 (June 8, 2018 asestimate of revenue variable considerations included the following, among others:

•We tested the effectiveness of relevant controls over the estimation of the variable consideration net sales.
•We selected a sample of revenue contracts with variable consideration and performed the following:
◦Obtained contractual documents, including master agreements and other related documents, and evaluated whether managements calculations for variable consideration were consistent with the terms of the contracts.
◦Compared transaction prices to the effectconsideration expected to be received and determined that variable consideration was completely and accurately recorded.
•We tested the accuracy of adoption of ASU 2017-07; August 7, 2018 as to the effectsmanagements estimate of the restatementvariable consideration by performing the following:
◦Performed an evaluation on historical information to determine management’s ability to accurately estimate sales volumes and future concessions.
◦Performed inquiries with individuals in the 2017 financial statements; March 1, 2019Company’s finance, operations and sales departments regarding the customer negotiations and corroborated the inquiries by examining supporting evidence as toapplicable.
◦Tested the effectsmathematical accuracy of the change in sales concentration presentation in Note 24)

variable consideration calculation.

•Inspected manual revenue journal entries for unusual entries affecting revenue and examined supporting evidence.

/s/Deloitte SA
Geneva, Switzerland
February 14, 2023
We began servinghave served as the Company’s auditor insince 2018. In 2018 we became the predecessor auditor.


52

GARRETT MOTION INC.

CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS

 

Years Ended December 31,

 

Year Ended December 31,

 

2018

 

 

2017

 

 

2016

 

202220212020

 

(Dollars in millions except per share amounts)

 

(Dollars in millions except per share amounts)

Net sales (Note 4)

 

$

3,375

 

 

$

3,096

 

 

$

2,997

 

Net sales (Note 4)$3,603 $3,633 $3,034 

Cost of goods sold

 

 

2,599

 

 

 

2,361

 

 

 

2,365

 

Cost of goods sold2,920 2,926 2,495 

Gross profit

 

 

776

 

 

 

735

 

 

 

632

 

Gross profit683 707 539 

Selling, general and administrative expenses

 

 

249

 

 

 

249

 

 

 

197

 

Selling, general and administrative expenses216 216 260 

Other expense, net (Note 5)

 

 

120

 

 

 

130

 

 

 

183

 

Other expense, net (Note 5)2 1 46 

Interest expense

 

 

19

 

 

 

8

 

 

 

7

 

Interest expense82 93 79 

Non-operating (income) expense (Note 6)

 

 

(8

)

 

 

(18

)

 

 

(5

)

Loss on extinguishment of debt (Note 17)Loss on extinguishment of debt (Note 17)5 — — 
Non-operating income (Note 6)Non-operating income (Note 6)(121)(16)(38)
Reorganization items, net (Note 1)Reorganization items, net (Note 1)3 (125)73 

Income before taxes

 

 

396

 

 

 

366

 

 

 

250

 

Income before taxes496 538 119 

Tax (benefit) expense (Note 7)

 

 

(784

)

 

 

1,349

 

 

 

51

 

Net income (loss)

 

$

1,180

 

 

$

(983

)

 

$

199

 

Tax expense (Note 7)Tax expense (Note 7)106 43 39 
Net incomeNet income390 495 80 
Less: preferred stock dividend (Note 21)Less: preferred stock dividend (Note 21)(157)(97)— 
Net income available for distributionNet income available for distribution$233 $398 $80 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (losses) per common share

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share (Note 24)Earnings per share (Note 24)

Basic

 

$

15.93

 

 

$

(13.27

)

 

$

2.69

 

Basic$0.75 $1.69 $1.06 

Diluted

 

$

15.86

 

 

$

(13.27

)

 

$

2.69

 

Diluted$0.75 $1.56 $1.05 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

Basic

 

 

74,059,240

 

 

 

74,070,852

 

 

 

74,070,852

 

Basic64,708,635 69,706,183 75,543,461 

Diluted

 

 

74,402,148

 

 

 

74,070,852

 

 

 

74,070,852

 

Diluted65,075,992 317,503,300 76,100,509 

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


53

GARRETT MOTIONINC.

CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME

(LOSS)

 

 

Years Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

(Dollars in millions)

 

Net income (loss)

 

$

1,180

 

 

$

(983

)

 

$

199

 

Foreign exchange translation adjustment

 

 

(198

)

 

 

72

 

 

 

29

 

Defined benefit pension plan adjustment, net of tax (Note 22)

 

 

(2

)

 

 

—

 

 

 

(12

)

Changes in fair value of effective cash flow hedges, net of tax

   (Note 16)

 

 

35

 

 

 

(77

)

 

 

33

 

Total other comprehensive (loss) income, net of tax

 

 

(165

)

 

 

(5

)

 

 

50

 

Comprehensive income (loss)

 

$

1,015

 

 

$

(988

)

 

$

249

 

Year Ended December 31,
202220212020
(Dollars in millions)
Net income$390 $495 $80 
Foreign exchange translation adjustment(1)38 (234)
Defined benefit pension plan adjustment, net of tax (Note 26)(9)36 (18)
Changes in fair value of effective cash flow hedges, net of tax (Note 19)6 10 (7)
Changes in fair value of net investment hedges, net of tax (Note 19)44 41 — 
Total other comprehensive income (loss)40 125 (259)
Comprehensive income (loss)$430 $620 $(179)

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


54

GARRETT MOTIONINC.

CONSOLIDATED AND COMBINED BALANCE SHEETS

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(Dollars in millions)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

196

 

 

$

300

 

Accounts, notes and other receivables—net (Note 8)

 

 

750

 

 

 

745

 

Inventories—net (Note 9)

 

 

172

 

 

 

188

 

Due from related parties, current (Note 3)

 

 

—

 

 

 

530

 

Other current assets (Note 10)

 

 

71

 

 

 

321

 

Total current assets

 

 

1,189

 

 

 

2,084

 

Due from related parties, non-current (Note 3)

 

 

—

 

 

 

23

 

Investments and long-term receivables

 

 

39

 

 

 

38

 

Property, plant and equipment—net (Note 11)

 

 

438

 

 

 

442

 

Goodwill (Note 12)

 

 

193

 

 

 

193

 

Insurance recoveries for asbestos-related liabilities (Note 21)

 

 

—

 

 

 

174

 

Deferred income taxes (Note 7)

 

 

165

 

 

 

41

 

Other assets

 

 

80

 

 

 

2

 

Total assets

 

$

2,104

 

 

$

2,997

 

LIABILITIES

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

916

 

 

$

860

 

Due to related parties, current (Note 3)

 

 

—

 

 

 

1,117

 

Current maturities of long-term debt (Note 14)

 

 

23

 

 

 

—

 

Obligations payable to Honeywell, current (Note 21)

 

 

127

 

 

 

—

 

Accrued liabilities (Note 13)

 

 

426

 

 

 

571

 

Total current liabilities

 

 

1,492

 

 

 

2,548

 

Long-term debt (Note 14)

 

 

1,569

 

 

 

—

 

Deferred income taxes (Note 7)

 

 

27

 

 

 

956

 

Obligations payable to Honeywell (Note 21)

 

 

1,399

 

 

 

—

 

Asbestos-related liabilities (Note 21)

 

 

1

 

 

 

1,527

 

Other liabilities (Note 17)

 

 

209

 

 

 

161

 

Total liabilities

 

$

4,697

 

 

$

5,192

 

COMMITMENTS AND CONTINGENCIES (Note 21)

 

 

 

 

 

 

 

 

EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Common stock, par value $0.001; 400,000,000 shares authorized, 74,070,852

   issued and 74,019,825 outstanding

 

 

—

 

 

 

—

 

Additional paid-in capital

 

 

5

 

 

 

—

 

Retained earnings

 

 

(2,671

)

 

 

—

 

Invested equity (deficit)

 

 

—

 

 

 

(2,433

)

Accumulated other comprehensive income (Note 18)

 

 

73

 

 

 

238

 

Total stockholders' deficit

 

 

(2,593

)

 

 

(2,195

)

Total liabilities and stockholders' deficit

 

$

2,104

 

 

$

2,997

 

December 31,
20222021
(Dollars in millions)
ASSETS
Current assets:
Cash and cash equivalents$246 $423 
Restricted cash (Note 3)2 41 
Accounts, notes and other receivables, net (Note 8)803 747 
Inventories, net (Note 10)270 244 
Other current assets (Note 11)110 56 
Total current assets1,431 1,511 
Investments and long-term receivables30 28 
Property, plant and equipment, net (Note 13)470 485 
Goodwill (Note 14)193 193 
Deferred income taxes (Note 7)232 289 
Other assets (Note 12)281 200 
Total assets$2,637 $2,706 
LIABILITIES
Current liabilities:
Accounts payable$1,048 $1,006 
Current maturities of long-term debt (Note 16)7 7 
Mandatorily redeemable Series B Preferred Stock (Note 17)— 200 
Accrued liabilities (Note 15)320 295 
Total current liabilities1,375 1,508 
Long-term debt (Note 16)1,148 1,181 
Mandatorily redeemable Series B Preferred Stock (Note 17)— 195 
Deferred income taxes (Note 7)25 21 
Other liabilities205 269 
Total liabilities$2,753 $3,174 
COMMITMENTS AND CONTINGENCIES (Note 25)
EQUITY (DEFICIT)
Series A Preferred Stock, par value $0.001; 245,089,671 and 245,921,617 shares issued and outstanding as of December 31, 2022 and 2021, respectively (Note 21)— — 
Common Stock, par value $0.001; 1,000,000,000 and 1,000,000,000 shares authorized, 64,943,238 and 64,570,950 issued and 64,832,609 and 64,570,950 outstanding as of December 31, 2022 and 2021, respectively— — 
Additional paid-in capital1,333 1,326 
Retained deficit(1,485)(1,790)
Accumulated other comprehensive income (loss) (Note 22)36 (4)
Total deficit(116)(468)
Total liabilities and deficit$2,637 $2,706 

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


55

GARRETT MOTIONINC.

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

 

 

Years Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

(Dollars in millions)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

 

1,180

 

 

 

(983

)

 

 

199

 

Adjustments to reconcile net (loss) income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

(905

)

 

 

973

 

 

 

(39

)

Depreciation and amortization

 

 

72

 

 

 

64

 

 

 

59

 

Foreign exchange (gain) loss

 

 

15

 

 

 

(24

)

 

 

(15

)

Stock compensation expense

 

 

21

 

 

 

15

 

 

 

12

 

Pension expense

 

 

10

 

 

 

9

 

 

 

13

 

Other

 

 

39

 

 

 

(2

)

 

 

(24

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts, notes and other receivables

 

 

(30

)

 

 

(42

)

 

 

(90

)

Receivables from related parties

 

 

57

 

 

 

—

 

 

 

3

 

Inventories

 

 

2

 

 

 

(46

)

 

 

2

 

Other assets

 

 

(46

)

 

 

1

 

 

 

6

 

Accounts payable

 

 

63

 

 

 

88

 

 

 

82

 

Payables to related parties

 

 

(50

)

 

 

32

 

 

 

(5

)

Accrued liabilities

 

 

49

 

 

 

41

 

 

 

43

 

Obligations payable to Honeywell

 

 

(76

)

 

 

—

 

 

 

—

 

Asbestos-related liabilities

 

 

(1

)

 

 

(69

)

 

 

16

 

Other liabilities

 

 

(27

)

 

 

14

 

 

 

43

 

Net cash provided by operating activities

 

 

373

 

 

 

71

 

 

 

305

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures for property, plant and equipment

 

 

(95

)

 

 

(103

)

 

 

(84

)

Issuance of related party notes receivables

 

 

—

 

 

 

—

 

 

 

(63

)

Proceeds from related party notes receivables

 

 

—

 

 

 

66

 

 

 

72

 

Increase in marketable securities

 

 

(21

)

 

 

(651

)

 

 

(659

)

Decrease in marketable securities

 

 

312

 

 

 

712

 

 

 

575

 

Other

 

 

(4

)

 

 

6

 

 

 

(23

)

Net cash provided by (used for) investing activities

 

 

192

 

 

 

30

 

 

 

(182

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net increase in Invested deficit

 

 

(1,493

)

 

 

(19

)

 

 

(95

)

Proceeds from revolving credit facility

 

 

331

 

 

 

—

 

 

 

—

 

Payments of revolving credit facility

 

 

(331

)

 

 

—

 

 

 

—

 

Proceeds from issuance of long-term debt

 

 

1,631

 

 

 

—

 

 

 

—

 

Payments of long-term debt

 

 

(6

)

 

 

—

 

 

 

—

 

Proceeds for related party notes payable

 

 

—

 

 

 

671

 

 

 

656

 

Payments related to related party notes payable

 

 

(493

)

 

 

(670

)

 

 

(655

)

Net change to cash pooling and short-term notes

 

 

(300

)

 

 

78

 

 

 

(55

)

Other

 

 

3

 

 

 

—

 

 

 

—

 

Net cash provided by (used for) financing activities

 

 

(658

)

 

 

60

 

 

 

(149

)

Effect of foreign exchange rate changes on cash and cash equivalents

 

 

(11

)

 

 

20

 

 

 

(1

)

Net increase (decrease) in cash and cash equivalents

 

 

(104

)

 

 

181

 

 

 

(27

)

Cash and cash equivalents at beginning of period

 

 

300

 

 

 

119

 

 

 

146

 

Cash and cash equivalents at end of period

 

$

196

 

 

$

300

 

 

$

119

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes paid (net of refunds)

 

$

76

 

 

$

430

 

 

$

73

 

Interest expense paid

 

$

12

 

 

$

5

 

 

$

5

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures for property, plant and equipment in accounts payable

 

$

43

 

 

$

42

 

 

$

35

 

Year Ended December 31,
(Dollars in millions)202220212020
Cash flows from operating activities:
Net income$390 $495 $80 
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Reorganization items, net— (435)60 
Deferred income taxes46 (36)(34)
Depreciation84 92 86 
Amortization of deferred issuance costs8 7 7 
Accretion of debt discount, net of interest payments(19)19 — 
Loss on extinguishment of debt5 — — 
Foreign exchange loss (gain)(1)7 (58)
Stock compensation expense11 7 10 
Pension (income) expense(28)(2)15 
Change in fair value of derivatives(65)1 20 
Other1 (11)24 
Changes in assets and liabilities:
Accounts, notes and other receivables(102)18 (162)
Inventories(48)(31)(14)
Other assets34 (32)(45)
Accounts payable108 (75)41 
Accrued liabilities(17)(46)(13)
Obligations payable to Honeywell— (375)6 
Other liabilities(32)87 2 
Net cash provided by (used for) operating activities375 (310)25 
Cash flows from investing activities:
Expenditures for property, plant and equipment(91)(72)(80)
Other— 1 — 
Net cash used for investing activities(91)(71)(80)
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 facilities— — 1,449 
Payments of long-term debt(7)(1,517)(2)
Payments of revolving credit facilities— (370)(1,100)
Payments for dividends(83)— — 
Payments for share repurchases(7)(19)— 
(Repayments) proceeds from debtor-in-possession financing— (200)200 
Redemption of Series B Preferred stock(381)(201)— 
Payments for Cash-Out election— (69)— 
Debt financing costs(4)(7)(13)
Other— — (4)
Net cash (used for) provided by financing activities(482)139 530 
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash(18)13 31 
Net (decrease) increase in cash, cash equivalents and restricted cash(216)(229)506 
Cash, cash equivalents and restricted cash at beginning of period464 693 187 
Cash, cash equivalents and restricted cash at end of period$248 $464 $693 
Supplemental cash flow disclosures:
Income taxes paid (net of refunds)$42 $61 $44 
Interest expense paid65 61 63 
Reorganization items paid5 350 14 
Supplemental schedule of non-cash investing and financing activities:
Issuance of Series B Preferred Stock— 577 — 
Expenditures for property, plant and equipment in accounts payable33 32 47 

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


56

GARRETT MOTIONINC.

CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

Invested

 

 

Comprehensive

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Deficit

 

 

Income/(Loss)

 

 

Deficit

 

 

 

(in millions)

 

Balance at December 31, 2015

 

 

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

(1,552

)

 

$

193

 

 

$

(1,359

)

Net (loss) income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

199

 

 

 

—

 

 

 

199

 

Other comprehensive income, net of tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

50

 

 

 

50

 

Change in Invested deficit

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(111

)

 

 

—

 

 

 

(111

)

Balance at December 31, 2016

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1,464

)

 

 

243

 

 

 

(1,221

)

Net (loss) income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(983

)

 

 

—

 

 

 

(983

)

Other comprehensive income, net of tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(5

)

 

 

(5

)

Change in Invested deficit

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

14

 

 

 

—

 

 

 

14

 

Balance at December 31, 2017

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(2,433

)

 

 

238

 

 

 

(2,195

)

Net (loss) income through September 30,

   2018

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,137

 

 

 

—

 

 

 

1,137

 

Net (loss) income from October 1, 2018

 

 

—

 

 

 

—

 

 

 

—

 

 

 

43

 

 

 

—

 

 

 

—

 

 

 

43

 

Other comprehensive income, net of tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(165

)

 

 

(165

)

Change in Invested deficit

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1,168

)

 

 

—

 

 

 

(1,168

)

Spin-Off related adjustments

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(250

)

 

 

—

 

 

 

(250

)

Issuance of common stock and

   reclassification of invested deficit

 

 

74

 

 

 

—

 

 

 

—

 

 

 

(2,714

)

 

 

2,714

 

 

 

—

 

 

 

—

 

Stock-based compensation

 

 

—

 

 

 

—

 

 

 

5

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

5

 

Balance at December 31, 2018

 

 

74

 

 

$

—

 

 

$

5

 

 

$

(2,671

)

 

$

—

 

 

$

73

 

 

$

(2,593

)

Series A
Preferred Stock		Common StockAdditional
Paid-in
Capital		Retained
Earnings		Other
Comprehensive
Income/(Loss)		Total
Deficit
SharesAmountSharesAmount
(in millions)
Balance at December 31, 2019— $— 75 $— $19 $(2,282)$130 $(2,133)
Net income— — — — — 80 — 80 
Other comprehensive income, net of tax— — — — — — (259)(259)
Stock-based compensation— — 1 — 10 — — 10 
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 December 31, 2020— $— 76 $— $28 $(2,207)$(129)$(2,308)
Net income— — — — — 495 — 495 
Cash-Out election— — (11)— — (69)— (69)
Issuance of Series A Preferred Stock248 — — — 1,301 — — 1,301 
Share repurchases(2)— (1)— (10)(9)— (19)
Other comprehensive income, net of tax— — — — — — 125 125 
Stock-based compensation— — — — 7 — — 7 
Balance at December 31, 2021246 $— 64 $— $1,326 $(1,790)$(4)$(468)
Net income— — — — — 390 — 390 
Share repurchases— — — — (4)(2)— (6)
Other comprehensive loss, net of tax— — — — — — 40 40 
Dividends— — — (83)— (83)
Stock-based compensation— — — — 11 — — 11 
Balance at December 31, 2022246 $— 64 $— $1,333 $(1,485)$36 $(116)

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


57

GARRETT MOTION INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Note 1. Organization, OperationsBackground 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 aftermarket.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 diesel propulsion systems and hybridelectric (hybrid and fuel cell powertrains.

On October 1, 2018, the Company became an independent publicly-traded company through a pro rata distribution by Honeywell International Inc. (“Former Parent” or “Honeywell”) of 100% of the then-outstanding shares of Garrett to Honeywell’s stockholders (the “Spin-Off”). Each Honeywell stockholder of record received one share of Garrett common stockcell) power trains. These products are key enablers for every 10 shares of Honeywell common stock held on the record date. Approximately 74 million shares of Garrett common stock were distributed on October 1, 2018 to Honeywell stockholders. In connection with the Spin-Off, Garrett´s common stock began trading “regular-way” under the ticker symbol “GTX” on the New York Stock Exchange on October 1, 2018.

The Spin-Off was completed pursuant to a Separationfuel economy and Distribution Agreement and other agreements with Honeywell related to the Spin-Off, including but not limited to an indemnification and reimbursement agreement (the “Indemnification and Reimbursement Agreement”) and a tax matters agreement (the “Tax Matters Agreement”). Refer to Note 21 Commitments and Contingencies for additional details related to the Indemnification and Reimbursement Agreement and Tax Matters Agreement.

Unless the context otherwise requires, references to “Garrett,” “we,” “us,” “our,” and “the Company” refer to (i) Honeywell’s Transportation Systems Business (the “Transportation Systems Business” or the “Business”) prior to the Spin-Off and (ii) Garrett Motion Inc. and its subsidiaries following the Spin-Off, as applicable.

emission standards compliance.

Basis of Presentation

Prior to the Spin-Off on October 1, 2018, our historical financial statements were prepared on a stand-alone combined basis and were derived from the consolidated financial statements and accounting records of Honeywell. Accordingly, for periods prior to October 1, 2018, our financial statements are presented on a combined basis and for the periods subsequent to October 1, 2018 are presented on a consolidated basis (collectively, the historical financial statements for all periods presented are referred to as “Consolidated and Combined Financial Statements”).


The accompanying Consolidated and Combined Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Asbestos-related expenses, net of probable insurance recoveries, All amounts presented are presented within Other expense, net in the Consolidated and Combined Statement of Operations. Honeywell is subject to certain asbestos-related and environmental-related liabilities, primarily related to its legacy Bendix business. In conjunction with the Spin-Off, certain operations that were part of the Bendix business, along with the ownership of the Bendix trademark, as well as certain operations that were part of other legacy elements of the Business, were transferred to us. For the periods prior to the Spin-Off, these Consolidated and Combined Financial Statements reflect an estimated liability for resolution of pending and future asbestos-related and environmental liabilities primarily related to the Bendix legacy Honeywell business, calculated as if we were responsible for 100% of the Bendix asbestos-liability payments. However, this recognition model differs from the recognition model applied subsequent to the Spin-Off, with the difference recognized through equity as of the Spin-Off date. In periods subsequent to the Spin-Off, the accounting for the majority of our asbestos-related liability payments and accounts payable reflect the terms of the Indemnification and Reimbursement Agreement with Honeywell entered into on September 12, 2018, under which we are required to make payments to Honeywell in amounts equal to 90% of Honeywell’s asbestos-related liability payments and accounts payable, primarily related to the Bendix business in the United States, as well as certain environmental-related liability payments and accounts payable and non-United States asbestos-related liability payments and accounts payable, in each case related to legacy elements of the Business, including the legal costs of defending and resolving such liabilities, less 90% of Honeywell’s net insurance receipts and, as may be applicable, certain other recoveries associated with such

millions, except per share amounts.


liabilities. The Indemnification and Reimbursement Agreement provides that the agreement will terminate upon the earlier of (x) December 31, 2048 or (y) December 31st of the third consecutive year during which certain amounts owed to Honeywell during each such year were less than $25 million as converted into Euros in accordance with the terms of the agreement.

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

Company’s products across channels and geographies.


Note 2. Plan of Reorganization
On September 20, 2020 (the "Petition Date"), the Company and certain of its subsidiaries each filed a voluntary petition for relief under Chapter 11 of title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). A Revised Amended Plan of Reorganization ("Plan") was confirmed by the Bankruptcy Court on April 26, 2021, and the Company emerged from bankruptcy (“Emergence”) on April 30, 2021 (the "Effective Date").
The Company applied ASC 852, Reorganizations, in preparing its Consolidated Financial Statements during its Chapter 11 bankruptcy proceedings, which required the financial statements for periods subsequent to filing for Chapter 11 to distinguish transactions and events that were directly associated with the Company's reorganization from the ongoing operations of the business. 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 Statements of Operations. Upon Emergence, the Company did not meet the requirements under ASC 852 for fresh start accounting and in accordance with ASC 852, a new reporting entity was not created for accounting purposes.
On the Effective Date, pursuant to the Plan:
•All intracompany transactions have been eliminated. As described in Note 3 Related Party Transactions with Honeywell, all significant transactions betweenshares of the Business and Honeywellcommon stock of the Company outstanding prior to the Spin-Off have been includedEffective 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 common stock held by such holders;
•The Company issued 65,035,801 shares of its new common stock ("Common Stock") to the holders of Old Common Stock who had not made the Cash-Out Election under the Plan;

•The Company issued 247,768,962 shares of Series A Preferred Stock to the parties to the Plan Support Agreement, the Equity Backstop Commitment Agreement (as both defined in the ConsolidatedPlan) and Combined Financial Statementsparticipants in the rights offering by the Company for aggregate consideration of $1,301 million;
•The Company issued 834,800,000 shares of Series B Preferred Stock to Honeywell International Inc. (“Honeywell”) in satisfaction and settled for cash priordischarge of certain claims of Honeywell;
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•The Company also paid $375 million to Honeywell in addition to the Spin-Offissuance of the Series B Preferred Stock in satisfaction and discharge of certain claims of Honeywell;
•The Company paid in full $101 million of interest and principal outstanding on, and terminated, the Senior Secured Super-Priority Debtor-in-Possession Credit Agreement (the “DIP Credit Agreement”);
•The Company repaid, and terminated, its pre-petition credit agreement including:
•Outstanding principal balance, accrued pre-petition and default interest on its five-year term A loan facility of $307 million;
•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;
•Outstanding principal balance and accrued interest of $374 million on its revolving credit facility; and
•Accrued pre-petition hedge obligations of $20 million.
•The Company repaid the outstanding principal balance on its senior subordinated notes of €350 million, or $423 million. The Company also paid accrued pre-petition interest of $10 million, post-petition interest of $13 million, and $15 million in connection with a complaint in the Bankruptcy Court against the indenture trustee of the 5.125% senior notes due 2026 (the "Make-Whole Litigation").
•The Company entered into certain secured debt facilities, see Note 16, Long-term Debt and Credit Agreements for discussion.
The Company further paid $75 million in connection with the exceptionreimbursement of certainCenterbridge 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 party notes which were forgiven. These transactions which were settledto their support of our emergence from Chapter 11 bankruptcy, as well as reimbursement to Centerbridge and Oaktree for cash priortheir participation in the Equity Backstop Commitment Agreement.
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 years ended December 31, 2022 and 2021:
Year Ended December 31,
20222021
(Dollars in millions)
Gain on settlement of Honeywell claims(1)
$— $(502)
Advisor fees1 174 
Bid termination and expense reimbursement— 79 
Director's and officers insurance— $— 39 
Expenses related to senior notes(2)
— $— 28 
Write off of pre-petition debt issuance cost— $— 25 
Employee stock cash out— $— 13 
DIP financing fees— $— 1 
Other2 $— 18 
Total reorganization items, net$3 $2 $(125)
(1)The gain on settlement of Honeywell claims of $502 million is comprised of the pre-emergence Honeywell claims of $1,459 million, less a $375 million payment made to Honeywell pursuant to the Spin-Off are reflectedPlan, 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 the Consolidatedconnection with Make-Whole Litigation and Combined Balance Sheets as Due from related parties or Due to related parties for the periods prior to the Spin-Off. In the Consolidated and Combined Statements of Cash Flows, the cash flows$13 million related to related party notes receivables presented in the Consolidated and Combined Balance Sheets in Due from related parties are reflected as investing activities since these balances represent amounts loaned to Former Parent. The cash flows related to related party notes payables presented in the Consolidated and Combined Balance Sheets in Due to related parties are reflected as financing activities since these balances represent amounts financed by Former Parent. Following the Spin-Off, Honeywell is no longer considered a related party.

Honeywell used a centralized approach to cash management and financing of its operations. For the periods prior to the Spin-Off, the majority of the Business’s cash was transferred to Honeywell daily and Honeywell funded its operating and investing activities as needed. This arrangement is not reflective of the manner in which the Business would have been able to finance its operations had it been a stand-alone business separate from Honeywell during the periods presented prior to the Spin-Off. Cash transfers to and from Honeywell’s cash management accounts are reflected in the Consolidated and Combined Balance Sheet as Due to and Due from related parties, current and in the Consolidated and Combined Statements of Cash Flows as net financing activities.

For the periods prior to the Spin-Off, the Consolidated and Combined Financial Statements include certain assets and liabilities that have historically been held at the Honeywell corporate level but are specifically identifiable or otherwise attributable to Garrett. The cash and cash equivalents held by Honeywell at the corporate level are not specifically identifiable to Garrett and therefore were not attributed for any of the periods presented. Honeywell third-party debt and the related interest expense have not been allocated for any of the periods presented as Honeywell’s borrowings were not directly attributable to Garrett.

For the periods prior to the Spin-Off, Honeywell provided certain services, such as legal, accounting, information technology, human resources and other infrastructure support, on behalf of the Business. The cost of these services has been allocated to the Business on the basis of the proportion of revenues. We consider these allocations to be a reasonable reflection of the benefits received by the Business. However, the financial information presented in the Consolidated and Combined Financial Statements may not reflect the consolidated and combined financial position, operating results and cash flows of the Business had the Business been a separate stand-alone entity during the periods presented. Actual costs that would have been incurred if the Business had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. We consider the basis on which the expenses have been allocated to be a reasonable reflection of the utilization of services provided to or the benefits received by the Business during the periods presented.

post-petition interest.

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Note 2.3. Summary of Significant Accounting Policies

Use of Estimates
The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions 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. Actual results could differ from those estimates. Estimates and assumptions are periodically reviewed and the effects of changes are reflected in the Consolidated Financial Statements in the period they are determined to be necessary.
Principles of Consolidation and Combination— For the periods subsequent to the Spin-Off, the
The Consolidated and Combined Financial Statements include the accounts of Garrett Motion Inc. and all of its subsidiaries in which a controlling financial interest is maintained. We consolidate entities that we control due to ownership of a majority voting interest, and we consolidate variable interest entities (“VIEs”) when we have variable interests and are the


primary beneficiary. Our consolidation policy requires equity investments that we exercise significant influence over but in which we do not control the investee and are not the primary beneficiary of the investee’s activitieshave a controlling financial interest to be accounted for using the equity method. Investments through which we are not able to exercise significant influence over the investee and which we do not have readily determinable fair values are accounted for under the cost method. All intercompany transactions and balances are eliminated in consolidation.

For the periods prior to the Spin-Off, the Consolidated and Combined Financial Statements were prepared on a stand-alone basis and include our business units and wholly owned direct and indirect subsidiaries and entities in which we had a controlling financial interest.

Cash and Cash Equivalents—
Cash and cash equivalentsincludecash on hand and highly liquidinvestmentshaving an originalmaturityof threemonthsor less.

Restricted Cash
Restricted cash primarily consists of bank deposits pledged as collateral to issue bank notes (refer to Note 9, Factoring and Notes Receivable).
Trade Receivables and Allowance for Doubtful Accounts—
Trade accountsreceivableare recordedat the invoicedamountas a resultof transactionswith customers.Garrett In accordance with ASC 326, Financial Instruments - Credit Losses, the Company maintainsallowancesfor doubtful accountsfor estimatedlossesas a resultof a customer’sinabilityto make requiredpayments.Garrett estimatesanticipated payments, estimated based on the expected credit lossesfromdoubtfulaccounts over the contractual life of the receivables based on days past due as measuredfromthe contractualdue date and historicalcollectionhistory.Garrett The Company also takesinto considerationchanges in economicconditions thatmay not be reflectedin historicaltrends(for (for example,customersin bankruptcy,liquidationor reorganization).Receivablesare written-offagainstthe allowancefor doubtfulaccountswhenthey are determineduncollectible.Such determinationincludesanalysisand considerationof the particularconditionsof the account,includingtimeintervalssincelastcollection,customerperformanceagainstagreedupon payment plans, solvencyof customerand any bankruptcyproceedings.

Transfer of Financial Instruments
Sales and transfers of financial instruments are accounted for under ASC 860, Transfers and Servicing. The Company may discount and sell accounts receivables during the normal course of business. These receivables which are transferred to a third party without recourse to the Company and that meet the criteria of sales accounting as per ASC 860, are excluded from the amounts reported in the Consolidated Balance Sheets. The cash proceeds received from such sales are included in operating cash flows. The expenses associated with the factoring of receivables are recorded within Other expense, net in the Consolidated Statements of Operations.
The Company may also receive bank notes in settlement of accounts receivables, primarily in the Asia Pacific region. Such bank notes are classified as notes receivables under Accounts, notes and other receivables – net in the Consolidated Balance Sheets. The collections of such bank notes are included in operating cash flows and any expenses related to discounting these are included within Other expense, net in the Consolidated Statements of Operations. 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.

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Inventories—
Inventoriesare statedat the lower of cost, determinedon a first-in,first-outbasis,includingdirectmaterialcostsand directand indirectmanufacturingcosts,or net realizablevalue. Obsoleteinventoryis identifiedbased on analysisof inventoryfor knownobsolescenceissues.The originalequipmentinventoryon hand in excessof one year’sforecastedusage and lack of consumption in the previous 12 months is fullyreserved.

reserved, unless the value of such material is recoverable from either the vendor or the customer.

Property, Plant and Equipment,— Net
Property,plantand equipmentare recordedat cost lessaccumulated depreciation and amortization.For financialreporting, Depreciation is calculated using the straight-linemethodof depreciationis used over the estimateduseful livesof assets, which are 10 to 50 yearsfor buildingsand improvements,2 to 16 yearsfor machineryand equipment, 3 to 10 yearsfor toolingequipment,and 5to 7 yearsfor software.

Maintenance and repairs are expensed as incurred.

Impairment testing of long lived assets is completed by the Company in accordance with ASC 360, Property, Plant and Equipment. The testing is completed when a triggering event occurs, or at least on an annual basis to assess if any impairment triggering events existed during the year. If a triggering event is occurs or is identified, the impairment testing is completed using the two-step impairment model. Asset classes are identified and tested for recoverability by comparing the net carrying value of the asset group to the undiscounted net cash flows to be generated from the use and eventual disposition of that asset group. If the carrying amount of an asset group is not recoverable, an impairment loss is recognized if the carrying amount exceeds the fair value. The impairment analysis was completed in 2022 with no triggering events identified.
Leases
Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of a lease (the “commencement date”) based on the present value of lease payments over the lease term. We determine if an arrangement is a lease at inception. Operating leases are included in Other assets, Accrued liabilities, and Other liabilities in our Consolidated Balance Sheets. No finance leases have been recognized. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease where it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Variable lease payments are expensed in the period in which they occur. We have lease agreements with lease and non-lease components, which are generally accounted for separately. For machinery and equipment, we account for the lease and non-lease components as a single lease component. We account for short-term leases by recognizing lease payments in net income on a straight-line basis over the lease term and will not recognize any ROU assets and lease liabilities on the Consolidated Balance Sheet.
Goodwill—
Goodwill is subject to impairment testing annually, as of March 31, and whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. This testing compares carrying value to fair value of our single reporting unit. The Company recognizes an impairment charge for the amount by which the carrying value of the reporting unit exceeds the reporting unit´s fair value. However, any impairment should not exceed the amount of goodwill allocated to the reporting unit. We completed our annual goodwill impairment test as of March 31, 2018, as well as an interim impairment test immediately following the Spin-Off and determined that there wasBecause we have a single reporting unit with a negative carrying value, no impairment as of these dates.

was recognized.

Warranties and Guarantees—
Expected warrantycostsfor productssold are recognizedbased on an estimateof the amountthateventuallywill be requiredto settlesuch obligations.These accrualsare based on factorssuch as past experience,lengthof the warrantyand variousotherconsiderations.Costs of productrecalls, which may includethe cost of the productbeing replacedas well as the customer’scost of the recall,including laborto removeand replacethe recalledpart,are accruedas partof our warrantyaccrualat the timean obligation becomesprobableand can be reasonablyestimated.These estimatesare adjustedfromtimeto timebased on factsand circumstancesthatimpactthe statusof existingclaims.For additionalinformation,see Note 21, 25, Commitmentsand Contingencies.

Contingencies.

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Sales Recognition—On January 1, 2018, we adopted the FASB´s updated guidance on revenue from contracts with customers, ASC 606 Revenue from Contracts With Customers (“ASC 606”), using the modified retrospective method applied to contracts that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting.


Product sales are recognized when we transfer control of the promised goods to our customer, which is based on shipping terms. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the promised goods.

goods, adjusted for any variable consideration such as price concessions or annual price adjustments as estimated at contract inception. Amounts billed but ultimately expected to be refunded to the customer are recorded as part of the customer pricing reserve within Accrued liabilities on the Consolidated Balance Sheet.

In the sale of products in the OEM channel, the transaction price for these goods is generally equal to the agreed price of each unit and represents the standalone selling price for the unit.

In the sale of products in the aftermarket channel, the terms of a contract or the historical business practice can give rise to variable consideration due to, but not limited to, discounts and bonuses. rebates.

We estimate variable consideration at the most likely amount we will receive from customers and reduce revenues recognized accordingly. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us.

Prior to January 1, 2018, sales were recognized when there was evidence We adjust our estimate of a sales agreement, the delivery of goods had occurred, the sales price was fixed or determinable and the collectability of revenue was reasonably assured. Sales were generally recorded upon shipment of product to customers and transfer of title under standard commercial terms. Sales incentives and allowances were recognized as a reduction to revenue at the timeearlier of when the value of consideration we expect to receive changes or when the consideration becomes fixed.

Research and Development
Garrett conducts research and development (“R&D”) activities, which consist primarily of the related sale. In addition, payments made to customers were generally recognized as a reduction to revenue at the time these paymentsdevelopment of new products and product applications. R&D costs are made or committed to the customers.

Research and Development—Garrett conductsresearchand development(“R&D”) activities,whichconsistprimarilyof the developmentof newproductsand productapplications.R&Dcostsare chargedto expense as incurred.Such costsare includedin Cost of goods sold of $128and were $153 million,$119 $136 millionand $112$111 million,for the yearsended December31, 2018, 2017,2022, 2021 and 2016,2020, respectively. Additionally, the Company incurs engineering-related expenses which are also included in Cost of goods sold of $10and were $11 million, $19$22 million and $21$13 million for the years ended December 31, 2018, 2017,2022, 2021 and 2016. 2020, respectively.

Government Incentives
The prior year amounts have been reclassified to conform to the current year presentation.

Asbestos-Related Contingencies and Insurance Recoveries—Honeywell is subject to certain asbestos-related and environmental-related liabilities, primarilyCompany receives incentives from governmental entities related to its legacy Bendix business. In conjunctionexpenses, assets, and other activities. The associated terms of the incentives can vary by country. Government incentives are recorded in the financial statements in accordance with their purpose as a reduction of expense, a reduction of asset cost or other operating or non-operating income. Incentives are recognized when there is probable assurance that the Company will comply with the Spin-Off, certain operationsconditions for the incentives and a reasonable expectation that were part of the Bendix business, along with the ownership of the Bendix trademark, as well as certain operations that were part of other legacy elements of the Business, were transferred to us. For periodsfunds will be received. Government incentives received prior to being earned are recognized as deferred income whereas incentives earned prior to being received are recognized as receivables. The Company recognized government incentives of $25 million in Cost of goods sold for the Spin-Off, we reflect anyear ended December 31, 2022.

Environmental Matters
The Company records liabilities for environmental assessments and remediation activities in the period in which it is probable that a liability has been incurred and the amount of that liability can be reasonably estimated. Estimated costs are recorded at undiscounted amounts, based on experience and assessments and are regularly evaluated. To the extent that the required remediation procedures change, or additional contamination is identified, the Company’s estimated liability for resolution of pending and future asbestos-related and environmental liabilities primarily related to the Bendix legacy Honeywell business, calculated as if we were responsible for 100% of the Bendix asbestos-liability payments. We recognized a liability for any asbestos-related contingency that was probable of occurrencemay also change. The liabilities are recorded in Accrued liabilities and reasonably estimable. In connection with the recognition ofOther liabilities for asbestos-related matters, we recorded asbestos-related insurance recoveries that are deemed probable. Asbestos-related expenses, net of probable insurance recoveries, are presented within Other expense, net in the Consolidated and Combined Statement of Operations. The Indemnification and Reimbursement Agreement provides that the agreement will terminate upon the earlier of (x) December 31, 2048 or (y) December 31st of the third consecutive year during which certain amounts owed to Honeywell during each such year were less than $25 million as converted into Euros in accordance with the terms of the agreement.

In periods subsequent to the Spin-Off, the accounting for the majority of our asbestos-related liability payments and accounts payable reflect the terms of the Indemnification and Reimbursement Agreement with Honeywell entered into on September 12, 2018, under which we are required to make payments to Honeywell in amounts equal to 90% of Honeywell’s asbestos-related liability payments and accounts payable, primarily related to the Bendix business in the United States, as well as certain environmental-related liability payments and accounts payable and non-United States asbestos-related liability payments and accounts payable, in each case related to legacy elements of the Business, including the legal costs of defending and resolving such liabilities, less 90% of Honeywell’s net insurance receipts and, as may be applicable, certain other recoveries associated with such liabilities. Net charges for asbestos-related and environmental-related matters in connection with the Indemnification and Reimbursement Agreement are presented within Other expense, net in the Consolidated and Combined Statement of Operations.

Balance Sheet.

Stock-Based Compensation Plans—

The principal awards issued under our stock-based compensation plans, which are described in Note 19 23, Stock-Based Compensation Plans,, are performance stock units and restricted stock units. The cost for such awards is measured at the grant date based on the fair value of the award. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods (generally the vesting period of the equity award) and is included in Selling, general and administrative expenses in the Consolidated and Combined Statements of Operations. Forfeitures are estimated at the time of grant to recognize expense for those awards that are expected to vest and are based on our historical forfeiture rates under our Former Parent´s plans.

For periods prior to the Spin-Off, certain employees within the Business participated in stock-based compensation plans sponsored by the Former Parent. The Former Parent’s stock-based compensation plans primarily include incentive compensation plans. Awards granted under the plans consist of stock options, restricted stock units (“RSUs”) and performance stock units (“PSUs”) and are based on the Former Parent’s common shares and, as such, are reflected in Invested deficit within the Consolidated and Combined Statements of Equity (Deficit).

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Pension Benefits—Following the Spin-Off, we
We sponsor defined benefit pension plans covering certain employees, primarily in Switzerland, the USU.S. and Ireland. For such plans, we are required to disaggregate the service cost component of net benefit costs and report those costs in the same line item or items in the Consolidated Statements of Operations as other compensation costs arising from services rendered by the pertinent employees during the period. The other non service components of net benefit costs are required to be presented separately from the service cost component. We record the service cost component of Pension ongoing (income) expense in Cost of goods sold or Selling, general and administrative expenses. The remaining components of net benefit costs within Pension ongoing (income) expense, primarily interest costs and assumed return on plan assets, are recorded in Non-operating expense (income). We recognize net actuarial gains or losses in excess of 10% of the greater of the fair value of plan assets or the plans’ projected benefit obligation (the corridor) annually in the fourth quarter each year (MTM Adjustment), and, if applicable, in any quarter in which an interim remeasurement(“MTM Adjustment”). The MTM Adjustment is triggered. The remaining components of pension expense, primarily service and interest costs and assumed return on plan assets, are recognized on a quarterly basis.

On January 1, 2018, we retrospectively adopted the new accounting guidance on presentation of net periodic pension costs. That guidance requires that we disaggregate the service cost component of net benefit costs and report those costs in the same line item or items in the Consolidated Statement of Operations as other compensation costs arising from services rendered by the pertinent employees during the period. The other nonservice components of net benefit costs are required to be presented separately from the service cost component.

Following the adoption of this guidance, we continue to record the service cost component of Pension ongoing (income) expense in Costs of goods sold or Selling, general and administrative expenses. The remaining components of net benefit costs within Pension ongoing (income) expense, primarily interest costs and assumed return on plan assets, are now recorded in Non-operating (income) expense. We will continue to recognize net actuarial gains or losses in excess of 10% of the greater of the fair value of plan assets or the plans’ projected benefit obligation (the corridor) annually in the fourth quarter each year (MTM Adjustment). The MTM Adjustment will also be reported in Non-operating (income) expense.

For periods prior to the Spin-Off, we sponsored a defined benefit pension plan covering certain employees in Ireland. Additionally, certain Garrett employees participated in defined benefit pension plans (the “Shared Plans”) sponsored by Honeywell which includes participants of other Honeywell subsidiaries and operations. We accounted for our participation in the Shared Plans as a multiemployer benefit plan. Accordingly, we did not record an asset or liability to recognize the funded status of the Shared Plans. The related pension expense was based on annual service cost of active Garrett participants and reported within Cost of goods sold in the Consolidated and Combined Statements of Operations. The pension expense specifically identified for the active Garrett participants in the Shared Plans for the years ended December 31, 2018, 2017 and 2016 was $5 million, $7 million and $6 million, respectively.

Foreign Currency Translation—
Assets and liabilitiesof subsidiariesoperatingoutsidethe United States with a functionalcurrencyotherthan U.S.Dollarsare translatedinto U.S.Dollarsusing year-endexchange rates. Sales, costsand expensesare translatedat the averageexchange ratesin effectduring the year. Foreign currency translationgains and lossesare includedas a componentof Accumulatedothercomprehensiveincome(loss).


DerivativeFinancial Instruments—

We minimize our risks from foreign currency exchange rate fluctuations through our normal operating and financing activities and, when deemed appropriate through the use of derivative financial instruments. Derivative financial instruments are used to manage risk and are not used for trading or other speculative purposes. Derivative financial instruments that qualify for hedge accounting must be designated and effective as a hedge of the identified risk exposure at the inception of the contract. Accordingly, changes in fair value of the derivative contract must be highly correlated with changes in fair value of the underlying hedged item at inception of the hedge and over the life of the hedge contract.

All derivatives are recorded on the balance sheet as assets or liabilities and measured at fair value. For derivatives designated as cash flow hedges, the effective portion of the changes in fair value of the derivatives are recorded in Accumulated other comprehensive income (loss) and subsequently recognized in earnings when the hedged items impact earnings. Cash flows of such derivative financial instruments are classified consistent with the underlying hedged item.

On September 27, 2018, we early adopted For derivatives designated as net investment hedges, provided the new accounting guidance containedhedging relationship is highly effective, the changes in ASU 2017-12 on a modified retrospective approach. The new standard is intended to improvefair value of the derivatives and simplify rules relating to hedge accounting, including the elimination of periodic hedge ineffectiveness, recognition of components excluded from hedge effectiveness assessment, the ability to elect to perform subsequent effectiveness assessments qualitatively, andsettlements are recorded in Accumulated other provisions designed to provide more transparency around the economics of a company’s hedging strategy.

comprehensive income (loss).

Income Taxes—
We account for income taxes pursuant to the asset and liability method which requires us to recognize current tax liabilities or receivables for the amount of taxes we estimate are payable or refundable for the current year and deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts and their respective tax bases of assets and liabilities and the expected benefits of net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period enacted. A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible.

Prior to the Spin-Off, the tax provision was presented on a separate company basis as if we were a separate filer. The effects of tax adjustments and settlements from taxing authorities are presented in our Consolidated and Combined Financial Statements in the period to which they relate as if we were a separate filer. Our current obligations for taxes are settled with our Former Parent on an estimated basis and adjusted in later periods as appropriate. All income taxes due to or due from our Former Parent that have not been settled or recovered by the end of the period are reflected in Invested deficit within the Consolidated and Combined Financial Statements. We are subject to income tax in the United States (federal, state and local) as well as other jurisdictions in which we operate. The tax provision has been calculated as if the carve-out entity was operating on a stand-alone basis and filed separate tax returns in the jurisdiction in which it operates. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of the actual tax balances prior to or subsequent to the carve-out.

Earnings per share—

Basic earnings per share isare calculated using the two-class method, pursuant to the issuance of our Series A Preferred Stock on the Effective Date. The calculation of basic earnings per share 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 calculated by dividing undistributed earnings allocated to common stock by the weighted average number of common shares.

Diluted earnings per share for the years ended December 31, 2022 and 2021 are 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
63
and assumes conversion of all potential shares including the participating securities. Diluted earnings per share for the year ended December 31, 2020 are computed based onupon the weighted average number of common shares outstanding. Diluted earnings per share is based on the weighted average number of common shares outstanding and all dilutive potential common shares outstanding. On October 1, 2018,share equivalents outstanding during the dateyear, whereby common share equivalents from equity-based awards are calculated using the treasury stock method. See Note 24, Earnings Per Share for further details.

Related Party Transactions

We lease certain facilities and receive property maintenance services from Honeywell, which as of consummationEmergence was the owner of our Series B Preferred Stock that has since been fully redeemed by the Spin-Off, 74,070,852 sharesCompany, is a holder of our common stock and Series A Preferred Stock, and appoints a director to the 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 amounted to $9 million for the year ended December 31, 2022, as well as for the period from Emergence through December 31, 2021, and were included in Cost of goods sold, and Selling, general and administrative expenses, in our Consolidated Statements of Operations. Related to the agreements with Honeywell, our Consolidated Balance Sheet includes liabilities of $10 million and $15 million as of December 31, 2022 and 2021, respectively. Liability balances are primarily related to lease contracts of $7 million and $12 million as of December 31, 2022 and 2021, respectively.
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 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 considered a participating security with the Company’s Common Stock were distributedas holders of the Series A Preferred Stock will also be entitled to Honeywell stockholderssuch dividends paid to holders of recordCommon Stock to the same extent as if such holders of September 18, 2018 who heldSeries A Preferred Stock had converted their shares throughof Series A Preferred Stock into Common Stock (without regard to any limitations on conversions) and had held such shares of Common Stock on the Distribution Date. Basicrecord date for such dividends and diluted EPSdistributions. See Note 21, Equity for all periods prior tofurther details.
We declared dividends on the Spin-Off reflectSeries A Preferred Stock for the number of distributed shares, or 74,070,852 shares. For 2018, the distributed shares were treated as issuedfirst time in September 2022 and outstanding from January 1, 2018 for purposes of calculating historical basic earnings per share.

Use of Estimates—again in December 2022. The preparationof the Consolidated and Combined FinancialStatementsin conformitywith U.S. GAAPrequiresmanagementto make estimatesand assumptionsthataffectthe reportedamountsdividends are recorded in the Consolidatedfinancial statements when declared, and Combined FinancialStatementsand relateddisclosuresare reflected as an increase in the accompanyingnotes. Actual resultscould differ fromthose estimates.Estimatesand assumptionsare periodicallyreviewedand the effectsof changes are reflectedinretained deficit on the Consolidated and Combined FinancialStatementsin the periodthey are determinedto be necessary.

Balance Sheet.

Recently Issued Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Standards

In October 2016,November 2021, the FASB issued ASU 2016-16, Intra-Entity Transfers2021-10, 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 Assets Other Than Inventory.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 ASU requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, at the time the entity transfer occurs rather than when the asset is ultimately transferred to a third party, as required under current U.S. GAAP. The guidance is intended to reduce diversity in practice, particularly for transfers involving intellectual property. Subsequent to 2017 fiscal year, weCompany adopted the accounting standard updatenew guidance prospectively as of January 1, 2018. The guidance requires application on a modified retrospective basis. The adoption of this guidance increased our deferred tax assets by $191 million with a cumulative-effect adjustment to retained earnings of the same amount.

2022.

Accounting Standards Issued But Not Yet Adopted
In January 2017,September 2022, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other2022-04, Disclosure of Supplier Finance Program Obligations (Topic 350).405-50): Disclosure of Supplier Finance Purchase Obligations. The ASU eliminates Step 2 of the goodwill impairment test, which requires determining the fair value of assets acquired or liabilities assumed in a business combination. Under the amendmentsamendment in this update requires companies to disclose key terms of supplier financing programs used in connection with the purchase of goods and services, along with information about their obligations under these programs including a goodwill impairment test is performed by comparing the fair valuerollforward of the reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. We have early adopted this guidance during the fourth quarter of 2018. The adoption did not have an impact on our Consolidated and Combined Balance Sheets, Statements of Operations and related Notes to Consolidated and Combined Financial Statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. These amendments are intended to better align a company’s risk management strategies and financial reporting for hedging relationships. As further noted in our Derivative financial instruments accounting policy above, we early adopted during the third quarter of 2018 the new accounting guidance contained in ASU 2017-12 on a modified retrospective approach. In relation to the Company’s foreign currency exchange forward and option contracts (foreign currency exchange contracts), the adoption did not have an impact on our Consolidated and Combined Balance Sheets and Statements of Operations.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued guidance on accounting for leases which requires lessees to recognize most leases on their balance sheets for the rights and obligations created by those leases. The guidance requires enhanced disclosures regarding the amount, timing and uncertainty of cash flows arising from leases that will be effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. We expect to adopt the requirements of the new standard effective January 1, 2019, and we will elect to not recast comparative periods in the transition. We estimate the adoption will result in the addition of $33 million to $43 million of right-of-use assets and liabilities to our consolidated balance sheet, with no significant change to our consolidated statements of operations or cash flows. In adopting the new leases standard as per January 1, 2019, the Company has applied the practical expedients as per ASC 842-10-65-1(f) and (g).

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 is effective for us in our first quarter of fiscal 2020, and earlier adoption is permitted beginning in the first quarter of fiscal 2019. We are currently evaluating the impact of the guidance on our Consolidated and Combined Balance Sheets, Statements of Operations and related Notes to Consolidated and Combined Financial Statements.

In February 2018, the FASB issued guidance that allows for an entity to elect to reclassify the income tax effects on items within Accumulated other comprehensive income resulting from U.S. tax reform to retained earnings.obligations. The guidance is effective for fiscal years beginning after December 15, 2018 with early adoption permitted,2022 on a retrospective basis, including interim periods within those years.fiscal years, except for the requirement to disclose rollforward information, which is effective on a prospective basis for fiscal years beginning after December 15, 2023. Early adoption is permitted. The guidance allows for adoption (i) at the beginning of the period of adoption or (ii) retrospective to each period in which the income tax effects of the U.S. tax reform related to items recognized in Accumulated other comprehensive income are recognized. We areCompany is currently evaluating the guidance to determine the impact of this standard on ourits disclosures.

There are no other recently issued, but not yet adopted, accounting pronouncements which are expected to have a material impact on the Company’s Consolidated and Combined Financial Statements and whether we will elect to reclassify the income tax effects on items within Accumulated other comprehensive income resulting from U.S. tax reform to retained earnings.


Note 3. Related Party Transactions with Honeywell

Subsequent to Spin-Off

Following the Spin-Off, Honeywell is no longer considered a related party.

We have Obligations payable to Honeywell related to the Indemnification and Reimbursement Agreement and Tax Matters Agreement. See Note 21 Commitments and Contingencies for further details.

Prior to Spin-Off

The Consolidated and Combined Financial Statements have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of Honeywell.

Prior to the Spin-Off, Honeywell provided certain services, such as legal, accounting, information technology, human resources and other infrastructure support, on behalf of the Business. The cost of these services has been allocated to the Business on the basis of the proportion of revenues. We consider the allocations to be a reasonable reflection of the benefits received by the Business. During the years ended December 31, 2018, 2017 and 2016, Garrett was allocated $87 million, $127 million and $75 million, respectively, of general corporate expenses incurred by Honeywell, and such amounts are included within Selling, general and administrative expenses in the Consolidated and Combined Statements of Operations. As certain expenses reflected in the Consolidated and Combined Financial Statements include allocations of corporate expenses from Honeywell, these statements could differ from those that would have been prepared had Garrett operated on a stand-alone basis.

Honeywell used a centralized approach for the purpose of cash management and financing of its operations. Prior to the Spin-Off, the Business’ cash was historically transferred to Honeywell daily, and Honeywell funded its operating and investing activities as needed. Honeywell had operated a centralized non-interest-bearing cash pool in U.S. and regional interest-bearing cash pools outside of U.S. As of December 31, 2017, the Company had non-interest-bearing cash pooling balances of $51 million which are presented in Invested deficit within the Consolidated and Combined Balance Sheets.

The Company received interest income for related party notes receivables of $1 million, $1 million and $4 million for the years ended December 31, 2018, 2017 and 2016, respectively. Additionally, the Company incurred interest expense for related party notes payable of $1 million, $6 million and $6 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Honeywell centrally hedged its exposure to changes in foreign exchange rates principally with forward contracts. Certain contracts were specifically designated to and entered on behalf of the Business with the Former Parent as a counterparty and were used to hedge known or probable anticipated foreign currency sales and purchases. The Business designated these hedges as cash flow hedges. These hedges were marked-to-market with the effective portion of the changes in fair value of the derivatives recorded in Accumulated other comprehensive income (loss) and subsequently recognized in earnings when the hedged items impact earnings. See Note 6 Non-Operating (Income) Expense, and Note 18 Accumulated Other Comprehensive Income (Loss), for the net impact of these economic foreign currency hedges in Non-Operating (Income) Expense and Accumulated Other Comprehensive Income, respectively, and Note 16 Financial Instruments and Fair Value Measures, for further details of these financial instruments.

Due from related parties, current consists of the following:

disclosures.

 

 

December 31,

2018

 

 

December 31,

2017

 

Cash pooling and short-term notes receivables

 

$

—

 

 

$

495

 

Other tax receivables from Former Parent

 

 

—

 

 

 

26

 

Receivables from related parties

 

 

—

 

 

 

8

 

Related party notes receivables, current

 

 

—

 

 

 

1

 

Foreign currency exchange contracts

 

 

—

 

 

 

—

 

 

 

$

—

 

 

$

530

 

64


Due from related parties, non-current consists of the following:

 

 

December 31,

2018

 

 

December 31,

2017

 

Other tax receivables from Former Parent

 

$

—

 

 

$

23

 

 

 

$

—

 

 

$

23

 

Due to related parties, current consists of the following:

 

 

December 31,

2018

 

 

December 31,

2017

 

Cash pooling and short-term notes payables

 

$

—

 

 

$

545

 

Related party notes payables, current

 

 

—

 

 

 

484

 

Payables to related parties

 

 

—

 

 

 

51

 

Foreign currency exchange contracts

 

 

—

 

 

 

37

 

 

 

$

—

 

 

$

1,117

 

Net transfers to and from Honeywell are included within Invested deficit on the Consolidated and Combined Balance Sheet. The components of the net transfers to and from Honeywell for the years ended December 31, 2018, 2017 and 2016 are as follows:

 

 

Years Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

General financing activities

 

$

1,774

 

 

$

(363

)

 

$

(151

)

Distribution to Former Parent

 

 

(2,994

)

 

 

(97

)

 

 

(117

)

Unbilled corporate allocations

 

 

41

 

 

 

70

 

 

 

37

 

Stock compensation expense and other

   compensation awards

 

 

17

 

 

 

19

 

 

 

16

 

Pension expense

 

 

7

 

 

 

9

 

 

 

13

 

Mandatory Transition Tax

 

 

(13

)

 

 

354

 

 

 

—

 

Other Income Tax

 

 

—

 

 

 

22

 

 

 

91

 

Spin-Off related adjustments

 

 

(250

)

 

 

—

 

 

 

—

 

Issuance of common stock and reclassification of invested

   deficit

 

 

2,714

 

 

 

—

 

 

 

—

 

Total net decrease (increase) in Invested deficit

 

$

1,296

 

 

$

14

 

 

$

(111

)

Note 4. Revenue Recognition and Contracts with Customers

The Company generates revenue through the sale of products to customers in the OEM and aftermarket channels. OEM and aftermarket contracts generally include scheduling agreements that stipulate the pricing and delivery terms that identify the quantity and timing of the product to be transferred.


Revenue recognition will be generally consistent with the previous standard, with the exception of how we account for payments made to customers in conjunction with future business. Historically these payments were recognized as a reduction of revenue at the time the payments were made. Under ASC 606, these payments result in deferred reductions to revenue that are subsequently recognized when the products are delivered to the customer. The Company evaluates the amounts capitalized each period end for recoverability and expenses any amounts that are no longer expected to be recovered over the term of the business arrangement. These payments are recorded in Other current assets and Other assets in our Consolidated and Combined Balance Sheet. Upon adoption the cumulative impact of this change is as follows:

 

 

December 31, 2017

 

 

 

As reported

 

 

Adjustments

 

 

As adjusted

 

Consolidated and Combined Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Other current assets

 

$

321

 

 

$

7

 

 

$

328

 

Other assets

 

 

2

 

 

 

53

 

 

 

55

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Non-current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

956

 

 

 

6

 

 

 

962

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

Invested deficit

 

 

(2,433

)

 

 

54

 

 

 

(2,379

)

Under the modified retrospective method of adoption, we are required to disclose the impact to revenues had we continued to follow our accounting policies under the previous revenue recognition guidance. We estimate the impact to revenues for the year ended December 31, 2018 would have been a decrease of $6 million. As of December 31, 2018, deferred payments to customers recorded in Other current assets and Other assets in our Consolidated and Combined Balance Sheet were $9 million and $56 million. Refer to Note 2, Summary of Significant Accounting Policies for a summary of our significant policies for revenue recognition.

Disaggregated Revenue

For Net sales by region (determined based on country of shipment) and channel, refer to Note 24, Concentrations.

27, Concentrations. We recognize virtually all of our revenues arising from performance obligations at a point in time. Less than 1% of our revenue is satisfied over time.

Contract Balances

The timing of revenue recognition, billings and cash collections results in unbilled receivables (contract assets) and billed accounts receivable, reported in Accounts, notes and other receivables – net, and customer advances and deposits (contract liabilities), reported in Accrued Liabilities, on the Consolidated and Combined Balance Sheet.Sheets. Contract assets arise when the timing of cash collected frombilling to customers differs from the timing of revenue recognition. Contract assets are recognized when the revenue associated with the contract is recognized prior to billing and derecognized once invoiced in accordance with the terms of the contract. Contract liabilities are recorded in scenarios where we enter into arrangements where customers are contractually obligated to remit cash payments in advance of us satisfying performance obligations and recognizing revenue. Contract liabilities are generally derecognized when revenue is recognized.

These assets and liabilities are reported on the Consolidated and Combined Balance SheetSheets on a contract-by-contract basis at the end of each reporting period.


The following table summarizes our contract assets and liabilities balances:

20222021

 

2018

 

(Dollars in millions)

Contract assets—January 1

 

$

5

 

Contract assets—January 1$63 $61 

Contract assets—December 31

 

 

5

 

Contract assets—December 31,Contract assets—December 31,46 63 

Change in contract assets—Increase/(Decrease)

 

 

—

 

Change in contract assets—Increase/(Decrease)$(17)$2 

Contract liabilities—January 1

 

$

(7

)

Contract liabilities—January 1$(5)$(2)

Contract liabilities—December 31

 

 

(2

)

Contract liabilities—December 31,Contract liabilities—December 31,(8)(5)

Change in contract liabilities—(Increase)/Decrease

 

$

5

 

Change in contract liabilities—(Increase)/Decrease$(3)$(3)

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is defined as the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For product sales, typically each product sold to a customer represents a distinct performance obligation.

Virtually all of our performance obligations are satisfied as of a point in time.

Performance obligations are supported by contracts with customers, providing a framework for the nature of the distinct goods, services or bundle of goods and services. The timing of satisfying the performance obligation is typically indicated by the terms of the contract. All performance obligations are expected to be satisfied within one year, with substantially all performance obligations being satisfied within a month.

The timing of satisfaction of our performance obligations does not significantly vary from the typical timing of payment, with cash advances (contract liabilities) and unbilled receivables (contract assets) being settled within 3 months. For some contracts, we may be entitled to receive an advance payment.

We have applied the practical expedient to not disclose the value of remaining performance obligations for contracts with an original expected term of one year or less.

65

Note 5. Other Expense, Net

Year Ended December 31,

 

Years Ended December 31,

 

202220212020

 

2018

 

 

2017

 

 

2016

 

(Dollars in millions)

Indemnification related — post Spin-Off

 

$

(16

)

 

$

—

 

 

$

—

 

Indemnification related — post Spin-Off$— $— $41 

Asbestos related, net of probable insurance

recoveries

 

 

131

 

 

 

132

 

 

 

181

 

Indemnification related — litigationIndemnification related — litigation— — 3 

Environmental remediation, non-active sites

 

 

5

 

 

 

(2

)

 

 

2

 

Environmental remediation, non-active sites— — 1 
Factoring and notes receivables discount feesFactoring and notes receivables discount fees2 1 1 

 

$

120

 

 

$

130

 

 

$

183

 

$2 $1 $46 

Note 6. Non-Operating (Income) Expense

Non-operating (income) expense
Year Ended December 31,

 

Years Ended December 31,

 

202220212020

 

2018

 

 

2017

 

 

2016

 

(Dollars in millions)

Equity income of affiliated companies

 

$

(5

)

 

$

(4

)

 

$

(6

)

Equity income of affiliated companies$(7)$(7)$(5)

Interest income

 

 

(7

)

 

 

(14

)

 

 

(16

)

Interest income(76)(11)(3)

Pension ongoing (income) expense—non service

 

 

2

 

 

 

(1

)

 

 

5

 

Pension (income) expense — non servicePension (income) expense — non service(37)(13)5 

Foreign exchange

 

 

6

 

 

 

—

 

 

 

9

 

Foreign exchange3 14 (35)

Others, net

 

 

(4

)

 

 

1

 

 

 

3

 

Others, net(4)1 — 

 

$

(8

)

 

$

(18

)

 

$

(5

)

$(121)$(16)$(38)


Note 7. Income Taxes

The sources of income (loss) from continuing operations, before income taxes, classified between domestic entities and those entities domiciled outside of the U.S., are as follows:

 

Years Ended December 31,

 

Income before taxes

 

2018

 

 

2017

 

 

2016

 

Years Ended December 31,
202220212020
(Dollars in millions)

Domestic entities

 

$

(99

)

 

$

(105

)

 

$

(181

)

Domestic entities$7 $242 $(87)

Entities outside the U.S.

 

 

495

 

 

 

471

 

 

 

431

 

Entities outside the U.S.489 296 206 

 

$

396

 

 

$

366

 

 

$

250

 

$496 $538 $119 

Tax expense (benefit)

Tax expense (benefit) consists of:

 

 

Years Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

7

 

 

$

311

 

 

$

13

 

State

 

 

1

 

 

 

(2

)

 

 

2

 

Foreign

 

 

113

 

 

 

67

 

 

 

75

 

 

 

$

121

 

 

$

376

 

 

$

90

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

 

(3

)

 

 

3

 

 

 

—

 

State

 

 

—

 

 

 

6

 

 

 

—

 

Foreign

 

 

(902

)

 

 

964

 

 

 

(39

)

 

 

$

(905

)

 

$

973

 

 

$

(39

)

 

 

$

(784

)

 

$

1,349

 

 

$

51

 

66

Years Ended December 31,
202220212020
(Dollars in millions)
Current:
Federal$9 $(1)$3 
State1 — 1 
Foreign50 80 69 
$60 $79 $73 
Deferred:
Federal$9 $(9)$— 
State— (2)— 
Foreign37 (25)(34)
$46 $(36)$(34)
$106 $43 $39 
The U.S. federal statutory income tax rate is reconciled to our effective income tax rate as follows:

 

 

Years Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

U.S. federal statutory income tax rate

 

 

21.0

%

 

 

35.0

%

 

 

35.0

%

Taxes on non-U.S. earnings different from U.S. tax

   rate, net of changes in valuation allowance

 

 

1.1

%

 

 

(28.0

)%

 

 

(46.1

)%

Reserves for tax contingencies

 

 

1.0

%

 

 

(14.3

)%

 

 

7.0

%

Enactment of the Tax Act

 

 

1.0

%

 

 

364.7

%

 

 

—

 

Non-deductible expenses

 

 

6.0

%

 

 

11.6

%

 

 

25.3

%

Restructuring/Foreign Unremitted Earnings

 

 

(227.7

)%

 

 

—

 

 

 

—

 

All other items

 

 

(0.4

)%

 

 

(0.4

)%

 

 

(0.8

)%

 

 

 

(198.0

)%

 

 

368.6

%

 

 

20.4

%

Years Ended December 31,
202220212020
(Dollars in millions)
U.S. federal statutory income tax rate21.0 %21.0 %21.0 %
Taxes on non-U.S. earnings different from U.S. tax(3.4)%(7.6)%(6.5)%
Reserves for tax contingencies(0.4)%3.7 %15.9 %
Non-deductible and permanent items0.7 %(14.4)%7.1 %
Withholding and other taxes on foreign earnings3.9 %5.7 %(14.7)%
Tax law changes0.1 %— %— %
Changes in valuation allowance(0.6)%(0.3)%10.5 %
All other items0.1 %(0.2)%(0.5)%
 21.4 %7.9 %32.8 %


The effective tax rate increased by 13.5 percentage points in 2022 compared to 2021. The increase was primarily attributable to the nontaxable gain on the settlement of the Honeywell claims (partially offset by non-deductible transaction costs) and increased tax benefits from an internal restructuring, both of which occurred in 2021 and are non-recurring. This increase was partially offset by tax benefits in the current year due to release of reserves for statute of limitation expirations.
The effective tax rate decreased by 566.624.9 percentage points in 20182021 compared to 2017.2020. The decrease was primarily attributable to the impacts of U.S. tax reform from 2017 (see "The Tax Act" further below) and due to tax benefits fromnontaxable gain on the mitigation of certain potential tax liabilities as partsettlement of the internal restructuring of Garrett’s business in advance ofHoneywell claims during the Spin-Off. The Company's non-U.S. effective tax rate was (197.6)%, a decrease of approximately 417 percentage points compared to 2017. The year-over-year decrease in the non-U.S. effective tax rate was primarily driven by the Company's change in assertion regarding foreign unremitted earnings in connection with the Tax Act, decreased expense for tax reserves in various jurisdictions, and higher earnings taxed at lower rates.

The effective tax rate increased by 348.2 percentage points in 2017 compared to 2016. The increase was primarily attributable to the provisional impact of U.S. tax reform (see "The Tax Act" further below), partially offset byyear, increased tax benefits from an internal restructuring and fewer losses in jurisdictions that we do not expect to benefit from such losses; partially offset by increases in withholding taxes on unrepatriated earnings. The internal restructuring occurred predominantly in the resolutionfourth quarter of tax audits. The Company's non-U.S.2021 which involved transfers of certain rights to intellectual property and various intercompany financing arrangements resulting in an approximate 11 percentage point decrease to the effective tax rate was 218.9%, an increase of approximately 210.5 percentage points compared to 2016.during 2021. The year-over-yearoverall increase in the non-U.S.earnings from 2020 was also a contributing factor to a lower effective tax rate


was primarily driven by because the Company's change in assertion regarding foreign unremittedtax impacts as a percentage to earnings in connection with the Tax Act, partially offset by decreased expense for tax reserves in various jurisdictions and higher earnings taxed at lower rates.

is less sensitive.

Deferred tax assets (liabilities)

The tax effects of temporary differences and tax carryforwards which give rise to future income tax benefits and payables are as follows:

 

 

December 31,

 

 

 

2018

 

 

2017

 

Deferred tax assets:

 

 

 

 

 

 

 

 

Pension

 

$

—

 

 

$

7

 

Other accruals and reserves

 

 

38

 

 

 

22

 

Net operating and capital losses

 

 

27

 

 

 

77

 

Depreciation and amortization

 

 

158

 

 

 

(8

)

Other

 

 

10

 

 

 

15

 

Total Deferred tax assets

 

 

233

 

 

 

113

 

Valuation allowance

 

 

(24

)

 

 

(48

)

Net deferred tax assets

 

$

209

 

 

$

65

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Investment basis differences

 

$

(56

)

 

$

(980

)

Other liabilities

 

 

(15

)

 

 

—

 

Total deferred tax liabilities

 

 

(71

)

 

 

(980

)

Net deferred tax asset/(liability)

 

$

138

 

 

$

(915

)

67

December 31,
20222021
(Dollars in millions)
Deferred tax assets:
Intangibles and fixed assets$173 $219 
Pension4 7 
Accruals and reserves33 39 
Net operating losses and other tax attribute carryforwards31 37 
Outside basis differences11 11 
Other34 30 
Total deferred tax assets286 343 
Valuation allowance(31)(32)
Net deferred tax assets$255 $311 
Deferred tax liabilities:
Outside basis differences$(5)$(19)
Other(43)(24)
Total deferred tax liabilities(48)(43)
Net deferred tax asset$207 $268 
As discussed further below, under “The Tax Act”, the Company no longer intends to reinvest the historical earnings of its foreign subsidiaries as of December 31, 2018 and has recorded a deferred tax liability, mainly comprised of non-US withholding taxes of approximately $56 million.

Our deferred tax assets of $209 million relate primarily to non-U.S. operations comprised principally of deductible temporary differences and2022, the Company had net operating loss carryforwards (mainlyof $85 million with the majority in Brazil, France, Germany and Portugal). the below jurisdictions:

JurisdictionExpiration
Period		 Net Operating
Loss
Carryforwards
(Dollars in millions)
BrazilIndefinite$50 
Luxembourg203820 
United KingdomIndefinite6 
OtherVarious9 
$85 
We maintain a valuation allowance of $24$31 million against a portion of the non-U.S. grosstotal deferred tax assets. In the event we determine that we will not be able to realize our net deferred tax assets in the future, we will reduce such amounts through an increase to Taxtax expense in the period such determination is made. Conversely, if we determine that we will be able to realize net deferred tax assets in excess of the carrying amounts, we will decrease the recorded valuation allowance through a reduction to Taxtax expense in the period that such determination is made. Our balance sheets present a deferred tax asset of $165$232 million and a deferred tax liability of $27$25 million after taking into accountconsidering jurisdictional netting.

As

Historically, the Company has not made the assertion to permanently reinvest its undistributed earnings. In the second quarter of 2022, we changed our assertion to permanently reinvest a portion (approximately $300 million) of our undistributed foreign earnings for China specific to the entity’s investment in intellectual property. For the portion of undistributed earnings that are not permanently reinvested, Garrett has recorded a deferred tax liability mainly consisting of withholding taxes of approximately $13 million as of December 31, 2018, our net operating loss carryforwards were as follows:

2022.

 

 

Expiration

 

Net Operating

 

 

 

Period

 

Loss

 

 

 

Jurisdiction

 

Carryforwards

 

Non-U.S.

 

2027

 

$

3

 

Non-U.S.

 

Indefinite

 

 

85

 

 

 

 

 

$

88

 

Many jurisdictions impose limitations on the timing and utilization of net operating loss carryforwards. In those instances whereby there is an expected permanent limitation on the utilization of the net operating loss or tax credit carryforward, the deferred tax asset and amount of the carryforward have been reduced.


The following table summarizes the activity related to the Company’s uncertain tax positions (excluding interest and penalties and related tax attributes):

 

 

2018

 

 

2017

 

 

2016

 

Change in unrecognized tax benefits:

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of year

 

$

100

 

 

$

152

 

 

$

136

 

Gross increases related to current period tax

   positions

 

 

7

 

 

 

11

 

 

 

21

 

Gross increases related to prior periods tax

   positions

 

 

5

 

 

 

1

 

 

 

1

 

Gross decreases related to prior periods tax

   positions

 

 

(8

)

 

 

(64

)

 

 

(5

)

Decrease related to resolutions of audits with tax

   authorities

 

 

—

 

 

 

(2

)

 

 

—

 

Expiration of the statute of limitations for the

   assessment of taxes

 

 

—

 

 

 

—

 

 

 

—

 

Potential Indemnifications to Honeywell for US

   and foreign taxes as contractually obligated in

   connection with Tax Matters Agreement

 

 

(71

)

 

 

—

 

 

 

—

 

Foreign currency translation

 

 

(1

)

 

 

2

 

 

 

(1

)

Balance at end of year

 

$

32

 

 

$

100

 

 

$

152

 

68

December 31,
202220212020
(Dollars in millions)
Change in unrecognized tax benefits:
Balance at beginning of year$80 $60 $54 
Gross increases related to current period tax positions4 13 8 
Gross increases related to prior periods tax positions5 31 6 
Gross decreases related to prior periods tax positions— (21)— 
Decrease related to resolutions of audits with tax authorities— — (7)
Expiration of the statute of limitations for the assessment of taxes(14)— (1)(2)
Foreign currency translation(4)(2)1 
Balance at end of year$71 $80 $60 
As of December 31, 2018, 2017,2022, 2021, and 20162020 there were $32$71 million, $100$80 million, and $152$60 million, respectively, of unrecognized tax benefits that, if recognized, would be recorded as a component of Taxtax expense.

The following table summarizesamount of unrecognized tax benefits that is reasonably possible to be resolved in the next twelve months is expected to be approximately $12 million, all of which, if recognized, would reduce tax expense and the effective tax rate.

Estimated interest and penalties related to uncertain tax benefits are classified as a component of tax expense in the Consolidated and Combined Statements of Operations and totaled $2 million of expense, $3 million of benefit and $5 million of expense for the years that remain subject to examination by major tax jurisdictionsended December 31, 2022, 2021, and 2020, respectively. Accrued interest and penalties were $29 million, $26 million, and $29 million, as of December 31, 2018:

2022, 2021, and 2020, respectively.

Open Tax Years Based on Originally

Filed Returns

Examination

Examination

in Progress

Not Yet

Jurisdiction

Initiated

U.S. Federal

2015-2016

2017-2018

U.S. State

2015-2017

2018

Germany

2008-2015

2016-2018

India

1999-2016

2017-2018

United Kingdom

2013-2015

2016-2018

* Includes provincial or similar localWe are currently under audit in multiple jurisdictions as applicable

primarily India for tax years 2020 through 2022 and U.S. for tax years 2018 and 2019. Based on the outcome of these examinations, or as a result of the expiration of statutes of limitations for specific jurisdictions, it is reasonably possible that certain unrecognized tax benefits for tax positions taken on previously filed tax returns will materially change from those recorded as liabilities in our financial statements. In addition, the outcome of these examinations may impact the valuation of certain deferred tax assets (such as net operating losses) in future periods.

Estimated interest and penalties related to the underpayment of income taxes are classified as a component of Tax expense in the Consolidated and Combined Statement of Operations and totaled $2 million of income attributed to recognition of previously unrecognized tax benefits, $6 million of income, and $5 million of expense for the years ended December 31, 2018, 2017, and 2016, respectively. Accrued interest and penalties were $29 million, $35 million, and $43 million, as of December 31, 2018, 2017, and 2016, respectively.


TheTaxAct

On December 22, 2017, the U.S. enacted H.R. 1, commonly known as the Tax Cuts and Jobs Act (“Tax Act”) that instituted fundamental changes to the taxation of multinational corporations. The Tax Act changed the taxation of foreign earnings by implementing a dividend exemption system, expansion of the current anti-deferral rules, a minimum tax on low-taxed foreign earnings and new measures to deter base erosion. The Tax Act also included a permanent reduction in the corporate tax rate to 21%, repeal of the corporate alternative minimum tax, expensing of capital investment and limitation of the deduction for interest expense.

Furthermore, as part of the transition to the new tax system, a one-time transition tax was imposed on a U.S. shareholder’s historical undistributed earnings of foreign affiliates. Although the Tax Act was generally effective January 1, 2018, GAAP required recognition of the tax effects of new legislation during the reporting period that includes the enactment date, which was December 22, 2017.

As a result of the impacts of the Tax Act, the SEC provided guidance that allowed the Company to record provisional amounts for those impacts, with the requirement that the accounting be completed in a period not to exceed one year from the date of enactment. As of December 31, 2018, the Company has completed the accounting for the tax effects of the Tax Act. The primary impacts of the Tax Act relate to the re-measurement of deferred tax assets and liabilities resulting from the change in the corporate tax rate (“Corporate Tax Rate Change”); the one-time mandatory transition tax on undistributed earnings of foreign affiliates (“MTT”); and deferred taxes in connection with a change in the Company’s intent to permanently reinvest the historical undistributed earnings of its foreign affiliates (“Undistributed Foreign Earnings”).

Corporate Tax Rate Change—For the year ended December31, 2017 when the Business was still part of Honeywell and its consolidated tax return filings, werecordeda tax expense of lessthan $1 milliondue to the decreasein the corporatetax ratefrom35% to 21% with respect to the remeasurement of the deferred tax assets and liabilities.

At the date of enactment, the Company had a deferred tax asset for the excess of its tax basis over net book value of its U.S. assets and liabilities that will generate future tax deductions in excess of book value. Due to the Tax Act, these additional tax deductions will be subject to tax at a lower corporate tax rate, consequently reducing the Company’s deferred tax asset as of the date of enactment.

Mandatory Transition Tax—For the year ended December 31, 2017, we recorded a provisional tax charge of approximately $354 million determined as if the Company was a stand-alone business due to the imposition of the MTT on the deemed repatriation of undistributed foreign earnings.

The Tax Act imposes a one-time tax on undistributed and previously untaxed post-1986 foreign earnings and profits (“E&P”) as determined in accordance with U.S. tax principles of certain foreign corporations owned by U.S. shareholders. In general, we estimated $1.7 billion of E&P related to our foreign affiliates that is subject to the MTT. The MTT is imposed at a rate of 15.5% to the extent of the cash and cash equivalents that are held by the foreign affiliates at certain testing dates; the remaining E&P is taxed at a rate of 8.0%. As a result of Honeywell finalizing its computation of the MTT, Garrett was allocated an indemnity obligation of $240 million. The Company has completed its analysis of the impact of the Tax Act and fully recorded this impact.

In addition, pursuant to the Tax Matters Agreement, we will be required to make payments to a subsidiary of Honeywell in an amount payable in Euros (calculated by reference to the Distribution Date Currency Exchange Rate) representing the net tax liability of Honeywell under the mandatory transition tax attributable to the Business, as determined by Honeywell. Following the Spin-Off which occurred in October 2018, Honeywell has determined the portion of its net tax liability attributable to the Business is $240 million. The amount will be payable in installments over 8 years and may be adjusted at Honeywell’s discretion in the event of an audit adjustment or otherwise. Furthermore, Honeywell will control any subsequent tax audits or legal proceedings with respect to the mandatory transition tax, and accordingly we do not expect to be able to make definitive decisions regarding settlements or other outcomes that could influence our potential related exposure.

Undistributed Foreign Earnings—For the year ended December 31, 2017, we recorded a tax charge of $980 million due to the Company’s intent to not permanently reinvest the historical undistributed earnings of its foreign affiliates. The amount was calculated as if the Company was operating on a stand-alone basis for the full year and filed separate tax returns in the jurisdictions in which it operates. The Company has completed its analysis of the impact of the Tax Act and fully recorded this impact.


We previously considered substantially all of the earnings in our non-U.S. subsidiaries to be permanently reinvested and, accordingly, recorded no deferred income taxes on such earnings. As a result of the fundamental changes to the taxation of multinational corporations created by the Tax Act, the Company no longer intends to permanently reinvest the historical undistributed earnings of its foreign affiliates which amount to approximately $1.7 billion as of December 31, 2018 (including current year earnings). GAAP requires recognition of a deferred tax liability in the reporting period in which its intent to no longer permanently reinvest its historical undistributed foreign earnings is made. Although no U.S. federal taxes will be imposed on such future distributions of foreign earnings, in many cases the cash transfer will be subject to foreign withholding and other local taxes. Accordingly, at December 31, 2018, the Company has included a deferred tax liability of $56 million, mostly related to non-U.S. withholding taxes. Further, the Company previously recorded its provisional estimate based on E&P as distributable reserves was not available at that time. We have finalized our analysis using distributable reserves to compute the deferred tax liability.

Global Intangible Low-Taxed Income—In addition to the changes described above, the Tax Act imposes a U.S. tax on global intangible low-taxed income (“GILTI”) that is earned by certain foreign affiliates owned by a U.S. shareholder. The computation of GILTI is still subject to interpretation and additional clarifying guidance is expected, but is generally intended to impose tax on earnings of a foreign corporation that are deemed to exceed a certain threshold return relative to the underlying business investment. For purposes of the Consolidated and Combined Financial Statements, future taxes related to GILTI have not been included as they are being recorded as a current period expense in the reporting period in which the tax is incurred.

Supplemental Cash Flow Information—Included in Income taxes paid, net of refunds for 2017 on the Consolidated and Combined Statements of Cash Flows is the provisional tax charge settled with the Former Parent of $354 million due to the imposition of the mandatory transition tax on the deemed repatriation of certain undistributed foreign earnings. As noted above within the Mandatory Transition Tax section, this liability was ultimately reduced to $240 million in 2018 as an adjustment to equity in connection with the opening balance sheet (and will be paid to Honeywell over an 8 year period). Additionally, included within the change in 2017 deferred income taxes is the provisional tax charge of $980 million related to a reduction of estimated foreign and state taxes on undistributed earnings of its foreign affiliates. As noted above under “Tax expense (benefit)”, the Company recorded a tax benefit due to the mitigation of certain potential tax liabilities as part of the internal restructuring of Garrett’s business in advance of the Spin-Off.  The balance as of December 31, 2018 is $56 million.

Note 8. Accounts, Notes and Other Receivables—Net

December 31,
20222021

 

December 31,

2018

 

 

December 31,

2017

 

(Dollars in millions)

Trade receivables

 

$

593

 

 

$

592

 

Trade receivables$619 $553 

Notes receivables

 

 

93

 

 

 

83

 

Notes receivables105 121 

Other receivables

 

 

67

 

 

 

73

 

Other receivables88 78 

 

$

753

 

 

$

748

 

$812 $752 

Less—Allowance for doubtful accounts

 

 

(3

)

 

 

(3

)

Less — Allowance for expected credit lossesLess — Allowance for expected credit losses(9)(5)

 

$

750

 

 

$

745

 

$803 $747 

Trade Receivablesreceivables include $5$46 million and $6$63 million of unbilled balances as of December 31, 20182022 and 2017,2021, respectively. These
Note 9. Factoring and Notes Receivable
The Company enters into arrangements with financial institutions to sell eligible trade receivables. The receivables are sold without recourse and the Company accounts for these arrangements as true sales. The Company also receives guaranteed bank notes without recourse, in settlement of accounts receivables, primarily in the Asia Pacific region. The Company can hold the bank notes until maturity, exchange them with suppliers to settle liabilities, or sell them to third-party financial institutions in exchange for cash. Bank notes sold to third-party financial institutions without recourse are likewise accounted for as true sales.
69
Year Ended December 31,
202220212020
(Dollars in millions)
Eligible receivables sold without recourse$664$566$473
Guaranteed bank notes sold without recourse102—160
The expenses related to the sale of trade receivables and guaranteed bank notes are recognized within Other expense, net in the consolidated statements of operations, and were $2 million, $1 million and $1 million for the years ended December 31, 2022, 2021 and 2020, respective.
December 31,
20222021
(Dollars in millions)
Receivables sold but not yet collected by the bank from the customer$5 $26 
Guaranteed bank notes sold but not yet collected by the bank from the customer— — 
As of December 31, 2022 the Company has no guaranteed bank notes pledged as collateral and as of December 31, 2021 and 2020, the Company has pledged as collateral $5 million and $18 million, respectively, of guaranteed bank notes, which have not been sold in order to be able to issue bank notes as payment to certain suppliers. Such pledged amounts are billedincluded as Notes receivable in accordance with the terms of customer contracts to which they relate. See our Consolidated Balance Sheet.
Note 4 Revenue Recognition and Contracts with Customers.


Note 9.10. Inventories—Net

December 31,
20222021

 

December 31,

2018

 

 

December 31,

2017

 

(Dollars in millions)

Raw materials

 

$

112

 

 

$

118

 

Raw materials$203 $162 

Work in process

 

 

19

 

 

 

20

 

Work in process18 19 

Finished products

 

 

64

 

 

 

73

 

Finished products80 92 

 

$

195

 

 

$

211

 

$301 $273 

Less—Reserves

 

 

(23

)

 

 

(23

)

Less — ReservesLess — Reserves(31)(29)

 

$

172

 

 

$

188

 

$270 $244 

Note 10.11. Other Current Assets

 

December 31,

 

 

2018

 

 

2017

 

December 31,

Marketable securities(a)

 

$

—

 

 

$

298

 

Insurance recoveries for asbestos-related liabilities

 

 

—

 

 

 

17

 

20222021
(Dollars in millions)

Prepaid expenses

 

 

14

 

 

 

3

 

Prepaid expenses$16 $13 

Taxes receivable

 

 

35

 

 

 

—

 

Taxes receivable12 15 

Advanced discounts to customers, current

 

 

9

 

 

 

—

 

Advanced discounts to customers, current12 11 

Customer reimbursable engineering

 

 

10

 

 

 

3

 

Customer reimbursable engineering1 5 

Other

 

 

3

 

 

 

—

 

Foreign exchange forward contractsForeign exchange forward contracts27 12 
Receivable from transfer agent(1)
Receivable from transfer agent(1)
42 — 

 

$

71

 

 

$

321

 

$110 $56 
________________________________

(a)

Represents time deposits greater than 90 days, but less than a year.

(1)    Receivable from transfer agent includes the Series A Preferred Stock dividend that was paid to the transfer agent in December 2022, and settled with shareholders on January 3, 2023. Refer to Note 11.21, Equity.

70
Note 12. Other Assets
December 31,
20222021
(Dollars in millions)
Advanced discounts to customers, non-current$51 $61 
Operating right-of-use assets (Note 18)
44 51 
Income tax receivable22 27 
Pension and other employee related4 15 
Designated cross-currency swap74 30 
Designated and undesignated derivatives76 7 
Other10 9 
$281 $200 
Note 13. Property, Plant and Equipment—Equipment, Net

 

December 31,

 

 

2018

 

 

2017

 

December 31,
20222021
(Dollars in millions)
Land and improvementsLand and improvements$15 $16 
Buildings and improvementsBuildings and improvements144 149 

Machinery and equipment

 

$

623

 

 

$

720

 

Machinery and equipment696 711 

Tooling

 

 

306

 

 

 

291

 

Tooling400 393 

Buildings and improvements

 

 

136

 

 

 

145

 

SoftwareSoftware76 72 

Construction in progress

 

 

57

 

 

 

65

 

Construction in progress97 87 

Software

 

 

54

 

 

 

54

 

Land and improvements

 

 

16

 

 

 

14

 

Others

 

 

24

 

 

 

25

 

Others25 26 

 

 

1,216

 

 

 

1,314

 

1,453 1,454 

Less—Accumulated depreciation and amortization

 

 

(778

)

 

 

(872

)

Less — Accumulated depreciation and amortizationLess — Accumulated depreciation and amortization(983)(969)

 

$

438

 

 

$

442

 

$470 $485 

Depreciation and amortization expense was $72amounted to $84 million, $64$92 million and $59$86 million in 2018, 2017for the years ended December 31, 2022, 2021 and 2016,2020, respectively.

Note 12.14. Goodwill

The change in

There were no changes to the carrying amount of goodwill for the years ended December 31, 20182022 and 2017 is as follows:

2021:

 

 

December 31,

2017

 

 

Currency

Translation

Adjustment

 

 

December 31,

2018

 

Goodwill

 

$

193

 

 

 

—

 

 

$

193

 

December 31,
2022		December 31,
2021
(Dollars in millions)
Goodwill$193 $193 



71

Note 13.15. Accrued Liabilities

 

 

December 31,

2018

 

 

December 31,

2017

 

Asbestos-related liabilities(a)

 

$

—

 

 

$

185

 

Customer pricing reserve

 

 

107

 

 

 

114

 

Compensation, benefit and other employee related

 

 

71

 

 

 

65

 

Repositioning

 

 

15

 

 

 

60

 

Product warranties and performance guarantees

 

 

32

 

 

 

28

 

Other taxes

 

 

113

 

 

 

22

 

Advanced discounts from suppliers, current

 

 

17

 

 

 

12

 

Customer advances and deferred income(b)

 

 

14

 

 

 

21

 

Accrued interest

 

 

6

 

 

 

—

 

Other (primarily operating expenses)

 

 

51

 

 

 

64

 

 

 

$

426

 

 

$

571

 

(a)

For periods prior to the Spin-Off, we reflect an estimated liability for resolution of pending and future asbestos-related liabilities primarily related to the Bendix legacy Honeywell business, calculated as if we were responsible for 100% of the Bendix asbestos-liability payments. In periods subsequent to the Spin-Off, the accounting for the majority of our asbestos-related liability payments and accounts payable reflect the terms of the Indemnification and Reimbursement Agreement with Honeywell. Such liabilities are recorded in Obligations payable to Honeywell. Refer to Note 21 Commitments and Contingencies.

(b)

Customer advances and deferred income include $2 million and $7 million of contract liabilities as of December 31, 2018 and 2017, respectively. See Note 4 Revenue Recognition and Contracts with Customers.

December 31,
2022		December 31,
2021
(Dollars in millions)
Customer pricing reserve$50 $72 
Compensation, benefits and other employee related69 76 
Repositioning9 10 
Product warranties and performance guarantees - Short-term18 21 
Income and other taxes39 25 
Advanced discounts from suppliers, current8 14 
Customer advances and deferred income (1)
29 23 
Accrued interest13 8 
Short-term lease liability (Note 18)
9 9 
Freight accrual9 11 
Dividends declared on Series A Preferred Stock42 — 
Other (primarily operating expenses)(2)
25 26 
$320 $295 

(1)Customer advances and deferred income include $8 million and $5 million of contract liabilities as of December 31, 2022 and 2021, respectively. See Note 4, Revenue Recognition and Contracts with Customers.
(2)Other accrued liabilities includes $3 million of environmental liabilities as of December 31, 2022 and 2021.
The Company accrued repositioning costs related to projects to optimize our product costs and to right-size our organizational structure. Expenses related to the repositioning accruals are included in Cost of goods sold in our Consolidated and Combined StatementStatements of Operations.

 

 

Severance

Costs

 

 

Exit

Costs

 

 

Total

 

Balance at December 31, 2016

 

$

35

 

 

$

8

 

 

$

43

 

Charges

 

 

20

 

 

 

—

 

 

 

20

 

Usage—cash

 

 

(6

)

 

 

(2

)

 

 

(8

)

Foreign currency translation

 

 

4

 

 

 

1

 

 

 

5

 

Balance at December 31, 2017

 

 

53

 

 

 

7

 

 

 

60

 

Charges

 

 

2

 

 

 

—

 

 

 

2

 

Usage—cash

 

 

(42

)

 

 

(5

)

 

 

(47

)

Foreign currency translation

 

 

—

 

 

 

—

 

 

 

—

 

Balance at December 31, 2018

 

$

13

 

 

$

2

 

 

$

15

 

Severance
Costs		Exit
Costs		Total
(Dollars in millions)
Balance at December 31, 2020$7 $— $7 
Charges16 — 16 
Usage—cash(13)— (13)
Balance at December 31, 202110 — 10 
Charges4 — 4 
Usage—cash(5)— (5)
Balance at December 31, 2022$9 $— $9 

Note 14.16. Long-term Debt and Credit Agreements

The principal amounts outstanding on long-term debt and

Long Term Debt
On the revolving credit facility are as follows:

 

 

December 31,

2018

 

Term Loan A

 

$

374

 

Term Loan B

 

 

853

 

Senior Notes

 

 

401

 

 

 

 

1,628

 

Less: current portion

 

 

(23

)

 

 

$

1,605

 


On September 27, 2018, weEffective Date, in accordance with the Plan, the Company entered into a Credit Agreement by and among us, Garrett LX I S.à r.l., Garrett LX II S.à r.l. (“Lux Guarantor”(the “Credit Agreement”), Garrett LX III S.à r.l. (“Lux Borrower”), Garrett Borrowing LLC (in such capacity, the “US Co-Borrower”), and Honeywell Technologies Sàrl (“Swiss Borrower” and, together with Lux Borrower and US Co-Borrower, the “Borrowers”), the lenders and issuing banks party thereto and JPMorgan Chase Bank, N.A., as administrative agent, (the “Credit Agreement”).

which provides for long-term senior secured financing consisting of:

•Dollar Facility: a seven-year secured first-lien U.S. Dollar term loan facility for $715 million; and
•Euro Facility: a seven-year secured first-lien Euro term loan facility for €450 million.
72
The principal outstanding and carrying amounts of our long-term debt as of December 31, 2022 are as follows:
(Dollars in millions)Maturity Date Interest RateDecember 31, 2022December 31, 2021
Dollar FacilityApril 30, 2028LIBOR plus 325 bps$706 $713 
Euro FacilityApril 30, 2028EURIBOR plus 350 bps480 510 
Total principal outstanding1,186 1,223 
Less: unamortized deferred financing costs(31)(35)
Less: current portion of long-term debt(7)(7)
Total long-term debt$1,148 $1,181 
The following table summarizes the minimum scheduled principal repayments of long-term debt as of December 31, 2022:
December 31,
(Dollars in millions)
2023$7 
20247 
20257 
20267 
20277 
Thereafter1,151 
Total payments on long-term debt$1,186 
Revolving Facility and Letters of Credit
The Credit Agreement also provides for a five-year multi-currency senior secured first-lien Revolving Facility which matures on April 30, 2026. In 2022, the maximum borrowing capacity under the Revolving Facility was increased from $300 million to $475 million.
Under the Revolving Facility, the Company may use up to $125 million under the Revolving Facility for the issuance of letters of credit to its subsidiaries. Letters of credit are available for issuance under the Credit Agreement on terms and conditions customary for financings of this kind, which issuances will reduce availability under the Revolving Facility. As of December 31, 2022, the Company had no borrowings outstanding under the Revolving Facility, no outstanding letters of credit, and available borrowing capacity of $475 million.
Separate from the Revolving Facility, the Company has a bilateral letter of credit facility, which also matures on April 30, 2026. On September 14, 2022, the Company amended the bilateral letter of credit agreement to reduce the available capacity from $35 million to $15 million. The maturity date and other terms of the amended agreement remained the same. As of December 31, 2022, the Company had $14 million utilized and $1 million of remaining available capacity.

Amendments to the Credit Agreement
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, of approximately the Euro equivalent of $1,254 million, consisting of (i) a seven-year senior secured first-lien U.S. Dollar term B loan facility which consistsinitially in the amount of a tranche denominated in Euro of €375 million and a tranche denominated in U.S. Dollars of $425$715 million (the “Term B“Dollar Term Facility”), (ii) five-year seniora seven-year secured first-lien Euro term A loan facility initially in an aggregate principalthe amount of €330€450 million (the “Term A Facility”“Euro Term Facility,” and together with the Term BDollar Facility, the “Term Loan Facilities”); and (iii) a five-year senior secured first-lien revolving credit facility initially in an aggregate principalthe amount of €430$300 million with providing for multi-currency revolving loans, to Swiss Borrower, to be made available in a number of currencies including Australian Dollars, Euros, Pounds Sterling, Swiss Francs, U.S. Dollars and Yen (the “Revolving Facility”Facility,” and together with the Term Loan Facilities, the “Senior“Credit Facilities”). On January 11, 2022 and March 22, 2022, the Company amended the Credit Facilities”). EachAgreement, 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 and the Term A Facility matures five years after the effective date of the Credit Agreement, in each caseremains unchanged at April 30, 2026, with certain extension rights inat the discretion of each lender.
Under the first amendment, London Inter-bank Offered Rate ("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 Secured Overnight Financing Rate (“SOFR”) published by the Federal Reserve Bank of New York and for loans borrowed in
73
Australian Dollars, the average bid reference rate administered by ASX Benchmarks Pty Limited. The Term B Facility matures seven yearsLoan Facilities under the Credit Agreement continue to be able to accrue interest under the LIBOR, but will switch to an alternative benchmark rate upon the cessation of LIBOR after June 30, 2023. The Euro Facilities under the effective dateCredit 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 shares of the Company's Series A Preferred Stock, par value $0.001 per share (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 debt modifications that did not result in an extinguishment or have a material impact on our Consolidated Financial Statements.
Security
The Credit Facilities are secured on a first-priority basis by: (i) a perfected security interest in the equity interests of each direct material subsidiary of each guarantor under the Credit Facilities and (ii) perfected security interests in, and mortgages on, substantially all tangible and intangible personal property and material real property of each of the guarantors under the Credit Facilities, subject, in each case, to certain exceptions and limitations, including the agreed guaranty and security principles. The guarantors organized under the laws of England and Wales, Luxembourg, Switzerland and the United States entered into security documents securing the obligations of each borrower concurrently with the effectiveness of the Credit Agreement, with certain extension rights inAgreement. The guarantors organized under the discretionlaws of each lender.

Australia, Ireland, Japan, Mexico, Romania and Slovakia have subsequently executed security documents.

Interest Rate and Fees
The Senior Credit Facilities areDollar Facility is subject to an interest rate, at our option, of either (a) an alternate base rate determined by reference to the highest of (1) the rate of interest last quoted by The Wall Street Journal as the “prime rate” in the United States, (2) the greater of the federal funds effective rate and the overnight bank funding rate, plus 0.5% and (3) the one month adjusted LIBOR rate, plus 1% per annum (“ABR”), (b) an adjusted LIBOR rate (“LIBOR”) (which shall not be less than zero),1.50%) or (c)(b) an adjusted EURIBORLIBOR (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 Facility is subject to an interest rate equal to an adjusted Euro Interbank Offered Rate (“EURIBOR”) (which shall not be less than zero), plus an applicable margin equal to 3.50%. As of December 31, 2022, the Revolving Facility is subject to an interest rate comprised of an applicable benchmark rate (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. The applicable margin for the U.S. Dollar tranche of the Term B Facility is currently 2.50% per annum (for LIBOR loans) and 1.50% per annum (for ABR loans) while that for the Euro tranche of the Term B Facility is currently 2.75% per annum (for EURIBOR loans). The applicable margin for each of the Term A Facility and the Revolving Credit Facility varies based on our leverage ratio. Accordingly, the interest rates for the Senior Credit Facilities will fluctuate during the term of the Credit Agreement based on changes in the ABR, LIBOR, EURIBOR and other applicable benchmark rates or future changes in our leverage ratio. The Credit Agreement provides the Benchmark Replacement, given the reference rate reform discontinuing LIBOR. Interest payments with respect to the Term Loan 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.

We See discussion of the amendment to the Revolving Facility in Amendments to the Credit Agreement, above.

In addition to paying interest on outstanding borrowings under the Revolving Facility, the Borrowers are required to pay a quarterly commitment fee based on the unused portion of the Revolving Facility, which is determined by our leverage ratio and ranges from 0.25% to 0.50% per annum.
Prepayments
The Borrowers are obligated to make quarterly principal payments throughout the term of the Term Loan FacilitiesDollar Facility according to the amortization provisions in the Credit Agreement. BorrowingsAgreement, as such payments may be reduced from time to time in accordance with the terms of the Credit Agreement as a result of the application of loan prepayments made by us, if any, prior to the scheduled date of payment thereof.
We may voluntarily prepay borrowings under the Credit Agreement are prepayable at our option without premium or penalty, subject to a 1.00% prepayment premium in connection with any repricing transaction with respect to the Term B FacilityLoan Facilities in the first six months after the effective dateEffective Date of the Credit Agreement.Agreement and customary breakage” costs with respect to LIBOR and EURIBOR loans. We may request to extendalso reduce the maturity date of allcommitments under the Revolving Facility, in whole or a portion of the Senior Credit Facilitiesin part, in each case, subject to certain conditions customary for financingsminimum amounts and increments. See discussion of this type. the amendment to the Revolving Facility in Amendments to the Credit Agreement, above.
74
The Credit Agreement also contains certain mandatory prepayment provisions in the event that we incur certain types of indebtedness, or 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, 0.50% of excess cash flow on an annual basis (with step-downs to 25% and 0% subject to compliance with certain leverage ratios), in each case subject to terms and conditions customary for financings of this type.

kind.

Representations and Warranties
The scheduleCredit Agreement contains certain representations and warranties (subject to certain agreed qualifications) that are customary for financings of principal payments on long-term debt and the revolving credit facility is as follows:

this kind.

 

 

December 31,

2018

 

2019

 

$

23

 

2020

 

 

28

 

2021

 

 

47

 

2022

 

 

65

 

2023

 

 

231

 

Thereafter

 

 

1,234

 

 

 

$

1,628

 

Less: current portion

 

 

(23

)

 

 

$

1,605

 

Certain Covenants


The Credit Agreement contains certain affirmative and negative covenants customary for financingsfinancing of this type that, among other things, limit our and our subsidiaries’ ability to incur additional indebtedness or liens, to dispose of assets, to make certain fundamental changes, to enter into restrictive agreements, to make certain investments, loans, advances, guarantees and acquisitions, to prepay certain indebtedness and to pay dividends, to make other distributions or redemptions/ repurchases, in respect of the our and our subsidiaries’ equity interests, to engage in transactions with affiliates, amend certain material documents or to permit the International Financial Reporting Standards equity amount of Lux Borrower to decrease below a certain amount.type. The Credit AgreementRevolving Facility also contains a financial covenantscovenant requiring the maintenance of a consolidated total leverage ratio of not greater than 4.25 to 1.00 (with step-downs to (i) 4.00 to 1.00 in approximately 2019, (ii) 3.75 to 1.00 in approximately 20204.7 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 (iii) 3.50 to 1.00 in approximately 2021),letters of credit (excluding backstopped or cash collateralized letters of credit and a consolidated interest coverage ratioother letters of credit with an aggregate face amount not less than 2.75 to 1.00. We areexceeding $30 million) outstanding under the Revolving Facility exceeds 35% of the aggregate commitments thereunder.

As of December 31, 2022, the Company was in compliance with all its financing 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 financial covenantscommon 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. 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 17. Mandatorily Redeemable Series B Preferred Stock
On the Effective Date, pursuant to the Plan, the Company issued 834,800,000 shares of Series B Preferred Stock to Honeywell International Inc. ("Honeywell") in satisfaction of certain claims of Honeywell. Under the Certificate of Designations of the Series B Preferred Stock, the Company is required to redeem on April 30 each year, beginning on April 30, 2022 and ending on April 30, 2030, an aggregate number of shares of Series B Preferred Stock based on a scheduled redemption amount determined in the Certificate of Designations. Any shares of Series B Preferred Stock that have not been redeemed as of April 30, 2030, will be redeemed on that date. The Series B Preferred Stock is not entitled to any dividends or other distributions or payments other than the scheduled redemption payments and payments upon liquidation as provided in the Certificate of Designations of the Series B Preferred Stock.
On December 28, 2021, the Company completed a partial early redemption of 345,988,497 shares of Series B Preferred Stock for a cash payment of $211 million including $10 million as interest.
During the year ended December 31, 2022, the Company further redeemed 488,811,503 shares of Series B Preferred Stock, representing the entirety of the remaining outstanding shares, for a total aggregate price of $409 million, of which $28 million related to settlement of accrued interest. A loss on extinguishment of debt of $5 million was recognized in the Consolidated Statement of Operations related to the final early redemption. There were no shares of Series B Preferred Stock outstanding as of December 31, 2018.

On September 27, 2018, we completed2022.

75
Note 18. Leases
We have operating leases that primarily consist of real estate, machinery and equipment. Our leases have remaining lease terms of up to 15 years, some of which include options to extend the offeringleases for up to two years, and some of €350 million (approximately $400 million) in aggregate principal amountwhich include options to terminate the leases within the year.
The components of 5.125% senior notes due 2026 (the “Senior Notes”). The Senior Notes bear interest at a fixed annual interest rate of 5.125% and mature on October 15, 2026.

The Senior Notes were issued pursuantlease expense are as follows:

Year Ended December 31,
202220212020
(Dollars in millions)
Operating lease cost$16 $15 $15 
Supplemental cash flow information related to an Indenture, dated September 27, 2018 (the “Indenture”), which, among other things and subject to certain limitations and exceptions, limits our ability and the ability of our restricted subsidiaries to: (i) incur, assume or guarantee additional indebtedness or issue certain disqualified equity interests and preferred shares, (ii) pay dividends or distributions on, or redeem or repurchase, capital stock and make other restricted payments, (iii) make investments, (iv) consummate certain asset sales or transfers, (v) engage in certain transactions with affiliates, (vi) grant or assume certain liens on assets to secure debt unless the Senior Notes are secured equally and ratably (vii) restrict dividends and other payments by certain of their subsidiaries and (vii) consolidate, merge, sell or otherwise dispose of all or substantially all of our or our restricted subsidiaries’ assets.

All debt issuance costs, except for those associated to the Revolving Credit Facility, are deferred and recognized as a direct deduction to the related debt liability and are amortized to interest expense over the debt term. The company paid approximately $37 million of debt issuance costs in connection with the Term A Facility, Term B Facility, and Senior Notes.

The unutilized portion of the Revolving Credit Facility is subject to an annual commitment fee of 0.40% to 0.50% depending on the Company’s consolidated leverage ratio. Debt issuance costs associated with the Revolving Credit Facility were capitalized in Other assets and are amortized to interest expense over the debt term. Approximately, $6 million of debt issuance costs were paid in connection with the Revolving Credit Facility.

Note 15. Lease Commitments

Future minimum lease payments under operating leases having initial non-cancellableis as follows:

Year Ended December 31,
202220212020
(Dollars in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases$13 $12 $13 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$5 $26 $7 
Supplemental balance sheet information related to operating leases is as follows:
Year Ended December 31,
20222021
(Dollars in millions)
Other assets$44 $51 
Accrued liabilities9 9 
Other liabilities36 42 
Year Ended December 31,
20222021
Weighted-average lease term (in years)8.418.88
Weighted-average discount rate5.61 %5.65 %
Maturities of operating lease terms in excess of one year areliabilities were as follows:

 

 

December 31,

2018

 

2019

 

$

12

 

2020

 

 

8

 

2021

 

 

5

 

2022

 

 

4

 

2023

 

 

4

 

Thereafter

 

 

15

 

 

 

$

48

 

Year Ended December 31, 2022
(Dollars in millions)
2023$11 
20249 
20257 
20265 
20274 
Thereafter20 
Total lease payments56 
Less imputed interest(11)
$45 

Rent expense was $14 million, $10 million and $11 million in 2018, 2017 and 2016, respectively.


76

Note 16.19. Financial Instruments and Fair Value Measures

Credit and Market Risk—
We continually monitor the creditworthiness of our customers to which we grant credit terms in the normal course of business. The terms and conditions of our credit sales are designed to mitigate or eliminate concentrations of credit risk with any single customer.

Foreign Currency Risk Management—
We are exposed to market risks from changes in currency exchange rates. These exposures may impact future earnings and/or operating cash flows. Our exposure to market risk for changes in foreign currency exchange rates arises from international financing activities between subsidiaries, foreign currency denominated monetary assets and liabilities and transactions arising from international trade.

For the periods prior to the Spin-Off, as part of Honeywell´s centralized treasury function, the primary objective was to preserve the U.S. Dollar value of foreign currency denominated cash flows and earnings. We hedged major exposures to foreign currency denominated cash flows to smoothen the effects of fluctuations in foreign currency exchange rates on earnings. We designated the related hedging instruments as cash flow hedges, except in cases where the hedged item was recognized on balance sheet. The gain or loss from a derivative financial instrument designated as a cash flow hedge was classified in the same line of the Consolidated and Combined Statements of Operations as the offsetting loss or gain on the hedged item.

The historical treasury strategies implemented by Honeywell’s centralized treasury function differ from our treasury strategy as a standalone company, which is described below.

We hedge currency exposures with natural offsets to the fullest extent possible and, once these opportunities have been exhausted, through foreign currency exchange forward contracts (foreign currency exchange contracts). We hedge monetary assetsThese forward currency exchange contracts are assessed as effective and liabilities denominatedare designated as cash flow hedges. Gains and losses on derivatives qualifying as cash flow hedges are recorded in non-functional currencies. Prior to conversion into U.S. dollars, these assets and liabilities are remeasured at spot exchange rates in effect onAccumulated other comprehensive income (loss) until the balance sheet date. The effects of changes in spot ratesunderlying transactions are recognized in earnings and included in Non-operating (income) expense. Open foreign currencyearnings.
The Company also entered into float to float cross-currency swaps exchange contracts (excludingto hedge net investments in foreign subsidiaries. These cross-currency swaps exchange contracts are assessed as effective and are designated as net investment hedges. Gains and losses on derivatives qualifying as net investment hedges are recorded in Accumulated other comprehensive income (loss) until the below cross-currency swap) mature in the next four months.

Atnet investment is liquidated or sold.

As of December 31, 20182022 and December 31, 2017,2021, we had contracts with aggregate gross notional amounts of $838$2,621 million and $928$2,788 million, respectively, to exchangehedge 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 December 31, 20182022 and December 31, 2017:

 

 

 

 

 

 

 

 

 

 

Fair Value

 

 

 

 

Notional Amounts

 

 

Assets

 

 

Liabilities

 

 

 

 

December 31,

2018

 

 

December 31,

2017

 

 

December 31,

2018

 

 

December 31,

2017

 

 

December 31,

2018

 

 

December 31,

2017

 

 

Designated forward currency

   exchange contracts

 

$

—

 

 

$

556

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

35

 

(d)

Undesignated instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Undesignated cross-currency swap

 

 

425

 

 

 

—

 

 

 

16

 

(a)

 

—

 

 

 

—

 

 

 

—

 

 

Undesignated forward currency

   exchange contracts

 

 

413

 

 

 

372

 

 

 

4

 

(b)

 

—

 

 

 

1

 

(c)

 

2

 

(d)

 

 

 

838

 

 

 

372

 

 

 

20

 

 

 

—

 

 

 

1

 

 

 

2

 

 

 

 

$

838

 

 

$

928

 

 

$

20

 

 

$

—

 

 

$

1

 

 

$

37

 

 

(a)

Recorded within Other assets in the Company’s Consolidated and Combined Balance Sheets

2021:

(b)

Recorded within Other current assets in the Company’s Consolidated and Combined Balance Sheets

77

 Fair Value
Notional AmountsAssets Liabilities
December 31,
2022		 December 31,
2021		December 31,
2022		December 31,
2021		 December 31,
2022		December 31,
2021
(Dollars in millions)
Designated instruments:
Designated forward currency exchange contracts$565 $382 $22 $9 (a)$6 $1 (c)
Designated cross-currency swap715715 7430 (b)— — 
Total designated instruments1,280 1,097 96 39 6 1 
Undesignated instruments: 
Undesignated interest rate swap1,024 940 76 7 (a)— — 
Undesignated forward currency exchange contracts317 751 4 2 (a)2 4 (c)
Total undesignated instruments1,341 1,691 80 9  2 4  
Total designated and undesignated instruments$2,621 $2,788 $176 $48  $8 $5 

(c)

Recorded within Accrued liabilities in the Company’s Consolidated and Combined Balance Sheets


(d)

Recorded within Due to related parties in the Company’s Consolidated and Combined Balance Sheet

(a)Recorded within Other current assets in the Company’s Consolidated Balance Sheets

On September 27, 2018,

(b)Recorded within Other assets in the Company’s Consolidated Balance Sheets
(c)Recorded within Accrued liabilities in the Company’s Consolidated Balance Sheets
The Company entered into ainterest rate swap and forward interest rate swap contracts to partially mitigate market value risk associated with interest rate fluctuations on its variable rate term loan debt. As of December 31, 2022, the Company had outstanding interest rate and forward interest rate swaps with an aggregate notional amount of €960 million, with respective maturities of April 2023, April 2024, April 2025, April 2026, April 2027 and April 2028. The Company uses interest rate swaps specifically to mitigate variable interest risk exposure on its long-term debt portfolio and has not designated them as hedging instruments for accounting purposes.
The Company has floating-floating cross-currency swap contractcontracts to hedgelimit its exposure to investments in certain foreign subsidiaries exposed to foreign exchange fluctuations. The cross-currency swaps have been designated as net investment hedges of its Euro-denominated operations. As of December 31, 2022, an aggregate notional amount of €606 million was designated as net investment hedges of the foreign currency exposure from foreign currency-denominated debt which will mature on September 27, 2025.Company’s investment in Euro-denominated operations, with mandatory termination options in April 2023, April 2024, April 2025 and April 2026. The gain or loss on this derivative instrument is recognizedcross-currency swaps’ fair values were net assets of $74 million at December 31, 2022. Our Consolidated Statements of Comprehensive Income (loss) includes Changes in earnings and included in Non-operating (income) expense. Forfair value of net investment hedges, net of tax, of $44 million during the year ended December 31, 2018, gains2022 related to these net investment hedges. No ineffectiveness has been recorded on the net investment hedges.
The Company also enters into forward currency exchange contracts with maturities up to 18 months to mitigate exposure to foreign currency exchange rate volatility and the associated impact on earnings related to forecasted foreign currency commitments. As of December 31, 2022, the Company had outstanding forward currency exchange contracts with an aggregate notional amount of $565 million. These forward currency exchange contracts are designated as cash flow hedges and are assessed as highly effective. Gains and losses on the derivatives qualifying as cash flow hedges are recorded in Non-operating (income) expense, underAccumulated other comprehensive income (loss) until the cross-currency swap contract were $16 million.                

underlying transactions are recognized in earnings, and amounted to a gain of $6 million, net of tax, for the year ended December 31, 2022.

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 fair value of the cross-currency swap are considered levelLevel 2 inputs, which are based upon market observable interest rate curves, cross currency basis curves, credit default swap curves, and foreign exchange rates.

78
The carrying value of Cash, and cash equivalents Marketable securities (Level 2),and restricted cash, Account receivables notes and otherNotes and Other receivables Due from related parties, Account payables, and Due to related parties contained in the Consolidated and Combined Balance Sheets approximates fair value.

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

 

 

December 31, 2018

 

 

 

Carrying Value

 

 

Fair Value

 

Long-term debt and related current maturities

 

$

1,592

 

 

$

1,548

 

December 31, 2022
Carrying ValueFair Value
(Dollars in millions)
Term Loan Facilities$1,156 $1,151 

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

Note 17.20. Other Liabilities

liabilities

 

Years Ended December 31,

 

 

2018

 

 

2017

 

December 31,
20222022
(Dollars in millions)
Income taxesIncome taxes$99 $106 

Pension and other employee related

 

$

71

 

 

$

54

 

Pension and other employee related21 61 
Long-term lease liability (Note 18)
Long-term lease liability (Note 18)
36 42 

Advanced discounts from suppliers

 

 

63

 

 

 

53

 

Advanced discounts from suppliers6 16 

Income taxes

 

 

59

 

 

 

42

 

Product warranties and performance guarantees – Long-termProduct warranties and performance guarantees – Long-term10 11 
Environmental Remediation – Long-termEnvironmental Remediation – Long-term14 15 

Other

 

 

16

 

 

 

12

 

Other19 18 

 

$

209

 

 

$

161

 

$205 $269 


Note 18.21. Equity
Issuance of Series A Preferred Stock
In connection with the Company’s emergence from bankruptcy and pursuant to the Plan, the Company issued 247,757,290 shares of the Company’s Series A Preferred Stock to affiliated funds of Centerbridge, affiliated funds of Oaktree and certain other investors and parties, including in connection with the consummation of two rights offerings and that certain replacement equity backstop commitment agreement. The Company is authorized to grant 1,200,000,000 shares of preferred stock in the reorganized company.
Series A Preferred Stock
Holders of the Series A Preferred Stock will be entitled to receive, when, as and if declared by a committee of disinterested directors of the Board (which initially consisted of Daniel Ninivaggi, Julia Steyn, Robert Shanks, and D’aun Norman) out of funds legally available for such dividend, cumulative cash dividends at an annual rate of 11% on the stated amount per share plus the amount of any accrued and unpaid dividends on such share, accumulating daily and payable quarterly on January 1, April 1, July 1 and October 1, respectively, in each year. Such a dividend will not be declared at any time when Consolidated EBITDA (as defined in the Series A Certificate of Designations) of the Company and its subsidiaries for the most recent four fiscal quarters for which financial statements of the Company are available is less than $425 million. Dividends on the Series A Preferred Stock will accumulate whether or not declared.
Holders of the Series A Preferred Stock will also be entitled to such dividends paid to holders of Common Stock to the same extent as if such holders of Series A Preferred Stock had converted their shares of Series A Preferred Stock into Common Stock (without regard to any limitations on conversions) and had held such shares of Common Stock on the record date for such dividends and distributions. Such payments will be made concurrently with the dividend or distribution to the holders of the Common Stock.
The Company is restricted from paying or declaring any dividend, or making any distribution, on any class of Common Stock or any future class of preferred stock established thereafter by the Board (other than any series of capital
79
stock that ranks pari passu to the Series A Preferred Stock) (such stock, “Dividend Junior Stock”), other than a dividend payable solely in Dividend Junior Stock, unless (i) all cumulative accrued and unpaid preference dividends on all outstanding shares of Series A Preferred Stock have been paid in full and the full dividend thereon due has been paid or declared and set aside for payment and (ii) all prior redemption requirements with respect to Series A Preferred Stock have been complied with, provided, notwithstanding the foregoing, that the Company may pay a dividend or make a distribution on Dividend Junior Stock if (a) the holders of the Series A Preferred Stock also participate in such dividends or distributions, (b) such dividends or distributions are made on or prior to December 31, 2022, and (c) the full Board of the Company has ratified the Disinterested Directors’ Committee’s declaration of any such dividend or distribution.
On March 3, 2022, the terms of the Series A Certificate of Designations were further amended to provide the Company with greater flexibility to pay dividends and make certain distributions on, and to purchase, redeem or otherwise acquire, including in individually negotiated transactions, shares of the Company’s Common Stock or any future class of preferred stock that ranks junior to the Series A Preferred Stock in right of payment of dividends. Specifically, the amendments (i) expanded the scope of permitted Distributions on Dividend Junior Stock (as each term is 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) removed the requirement that dividends or Distributions on Dividend Junior Stock must occur on or prior to December 31, 2022, and (iii) expressly permitted 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.
On September 8, 2022, the Disinterested Directors Committee of the board of directors (the "Board") of the Company declared a cash dividend of $0.17 per share on the Company's Series A Preferred Stock. As of the record date of September 23, 2022, a total of 245,413,317 shares of Series A Preferred Stock were outstanding, resulting in an aggregate dividend amount of $42 million. This dividend was settled in full on October 3, 2022.
On December 6, 2022, the Board declared a cash dividend of $0.17 per share on the Company's Series A Preferred Stock. As of the record date of December 20, 2022, a total of 245,171,837 shares of Series A Preferred Stock were outstanding, resulting in an aggregate dividend amount of $42 million. Cash was transferred on December 28, 2022, to the transfer agent for the Series A Preferred Stock in the amount of $42 million for the settlement of the dividend which occurred on January 3, 2023. As of December 31, 2022, a dividend payable of $42 million was recorded within Accrued liabilities, and the cash held by the transfer agent was recorded within Other Current Assets.
The Board determined that the amount of preference dividends which will accumulate for the preference dividend for the year ended December 31, 2022 is $0.251772 per share, amounting to $157 million and is presented as a reduction to Net income available to common shareholders in our Consolidated Statements of Operations. There were 247,757,290 shares of Series A Preferred Stock outstanding as of December 31, 2022, with an the aggregate accumulated dividend as of December 31, 2022 of $171 million.
Voting
Holders of the Series A Preferred Stock will be entitled to vote together as a single class with the holders of Common Stock, with each such holder entitled to cast the number of votes equal to the number of votes such holder would have been entitled to cast if such holder were the holder of a number of shares of Common Stock equal to the whole number of shares of Common Stock that would be issuable upon conversion of such holder’s shares of Series A Preferred Stock in addition to a number of shares of Common Stock equal to the amount of cumulative unpaid preference dividends (whether or not authorized or declared) divided by the lesser of (i) the fair market value per share of such additional shares and (ii) the fair market value per share of the Common Stock.
So long as any shares of Series A Preferred Stock are outstanding, a vote or the consent of the holders representing a majority of the Series A Preferred Stock will be required for (i) effecting or validating any amendment, modification or alteration to the Certificate of Incorporation that would authorize or create, or increase the authorized amount of, any shares of any class or series or any securities convertible into shares of any class or series of capital stock that would rank senior or pari passu to the Series A Preferred Stock with respect to dividend payments or upon the occurrence of a liquidation, (ii) any increase in the authorized number of shares of Series A Preferred Stock or of any series of capital stock that ranks pari passu with Series A Preferred Stock, (iii) effecting or validating any amendment, alteration or repeal of any provision of the Certificate of Incorporation or Bylaws that would have an adverse effect on the rights, preferences, privileges or voting power of Series A Preferred Stock or the holders thereof in any material respect, or (iv) any action or inaction that would reduce the stated amount of any share of Series A Preferred Stock to below $5.25 per share.
80
Liquidation
Upon liquidation, Series A Preferred Stock will rank senior to the Common Stock and the Series B Preferred Stock, and will have the right to be paid, out of the assets of the Company legally available for distribution to its stockholders, an amount equal to the Aggregate Liquidation Entitlement (as defined in the Series A Certificate of Designations) for all outstanding shares of Series A Preferred Stock.
Other Rights
All shares of Series A Preferred Stock will automatically convert to shares of Common Stock, at an initial conversion price of $5.25 per share of Common Stock (subject to adjustment as described in the Series A Certificate of Designations) (the “Conversion Price”) upon either (i) the election of holders representing a majority of the then-outstanding Series A Preferred Stock or (ii) the occurrence of a Trading Day (as defined in the Series A Certificate of Designations) at any time on or after the date which is two years after the Effective Date on which (A) the aggregate stated amount of all outstanding shares of Series B Preferred Stock is an amount less than or equal to $125 million, (B) the Common Stock is traded on a Principal Exchange, a Fallback Exchange or an Over-the-Counter Market (each as defined in the Series A Certificate of Designations) and, in each case, the Automatic Conversion Fair Market Value (as defined in the Series A Certificate of Designations) of the Common Stock exceeds 150% of the Conversion Price, and (C) the Consolidated EBITDA (as defined in the Series A Certificate of Designations) of the Company and its subsidiaries for the last twelve months ended as of the last day of each of the two most recent fiscal quarters is greater than or equal to $600 million.
Shares of Series A Preferred Stock are also convertible into Common Stock at any time at the option of the holder, effective on January 1, April 1, July 1 and October 1 in each year, or on the third business day prior to the date of redemption of the outstanding shares of the Series A Preferred Stock as described in the following paragraph.
The Company may, at its election, redeem all but not less than all of the outstanding shares of Series A Preferred Stock (i) at any time following the date which is six years after the Effective Date or (ii) in connection with the consummation of a Change of Control (as defined in the Series A Certificate of Designations), in either case for a cash purchase price equal to $5.25 per share plus cumulative unpaid preference dividends (whether or not authorized or declared) as of the redemption date.
Share Repurchase Program
On November 16, 2021, the Board of Directors authorized a $100 million share repurchase program valid until November 15, 2022, providing for the purchase of shares of Series A Preferred Stock and Common Stock. The share repurchase program was subsequently extended by one year, to November 15, 2023. Through December 31, 2022, the Company has repurchased 2,669,335 shares of Series A Preferred Stock for $22 million, and 559,749 shares of Common Stock for $4 million.

81
Note 22. Accumulated OtherComprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) are provided in the tables below:

 

Pre-Tax

 

 

Tax

 

 

After-Tax

 

Year Ended December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

Pre-TaxTaxAfter-Tax
(Dollars in millions)
Year Ended December 31, 2020Year Ended December 31, 2020

Foreign exchange translation adjustment

 

$

29

 

 

$

—

 

 

$

29

 

Foreign exchange translation adjustment$(234)$— $(234)

Pension adjustments

 

 

(12

)

 

 

—

 

 

 

(12

)

Pension adjustments(17)(1)(18)

Changes in fair value of effective cash flow

hedges

 

 

38

 

 

 

(5

)

 

 

33

 

Changes in fair value of effective cash flow hedges(8)1 (7)

 

$

55

 

 

$

(5

)

 

$

50

 

$(259)$— $(259)

Year Ended December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2021Year Ended December 31, 2021

Foreign exchange translation adjustment

 

$

72

 

 

$

—

 

 

$

72

 

Foreign exchange translation adjustment$38 $— $38 

Pension adjustments

 

 

—

 

 

 

—

 

 

 

—

 

Pension adjustments43(7)36 

Changes in fair value of effective cash flow

hedges

 

 

(84

)

 

 

7

 

 

 

(77

)

Changes in fair value of effective cash flow hedges11(1)10 
Changes in fair value of net investment hedgesChanges in fair value of net investment hedges51(10)41 

 

$

(12

)

 

$

7

 

 

$

(5

)

$143 $(18)$125 

Year Ended December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2022Year Ended December 31, 2022

Foreign exchange translation adjustment

 

$

(198

)

 

$

—

 

 

$

(198

)

Foreign exchange translation adjustment$(1)$— $(1)

Pension adjustments

 

 

(2

)

 

 

—

 

 

 

(2

)

Pension adjustments(11)2 (9)

Changes in fair value of effective cash flow

hedges

 

 

37

 

 

 

(2

)

 

 

35

 

Changes in fair value of effective cash flow hedges8(2)6 
Changes in fair value of net investment hedgesChanges in fair value of net investment hedges57(13)44 

 

$

(163

)

 

$

(2

)

 

$

(165

)

$53 $(13)$40 


Changes in Accumulated Other Comprehensive Income (Loss) by Component

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Foreign

 

 

Changes in Fair

 

 

 

 

 

 

Accumulated

 

 

 

Exchange

 

 

Value of

 

 

 

 

 

 

Other

 

 

 

Translation

 

 

Effective Cash

 

 

Pension

 

 

Comprehensive

 

 

 

Adjustment

 

 

Flow Hedges

 

 

Adjustments

 

 

Income (Loss)

 

Balance at December 31, 2016

 

$

212

 

 

$

42

 

 

$

(11

)

 

$

243

 

Other comprehensive income (loss) before

   reclassifications

 

 

72

 

 

 

(66

)

 

 

—

 

 

 

6

 

Amounts reclassified from accumulated other

   comprehensive income (loss)

 

 

—

 

 

 

(11

)

 

 

—

 

 

 

(11

)

Net current period other comprehensive income

   (loss)

 

 

72

 

 

 

(77

)

 

 

—

 

 

 

(5

)

Balance at December 31, 2017

 

$

284

 

 

$

(35

)

 

$

(11

)

 

$

238

 

Other comprehensive income (loss) before

   reclassifications

 

 

(198

)

 

 

12

 

 

 

(5

)

 

 

(191

)

Amounts reclassified from accumulated other

   comprehensive income

 

 

—

 

 

 

23

 

 

 

3

 

 

 

26

 

Net current period other comprehensive income

   (loss)

 

 

(198

)

 

 

35

 

 

 

(2

)

 

 

(165

)

Balance at December 31, 2018

 

$

86

 

 

$

—

 

 

$

(13

)

 

$

73

 

Foreign
Exchange
Translation
Adjustment		 Changes in Fair
Value of
Effective Cash
Flow Hedges		 Changes in Fair Value of Net Investment HedgesPension
Adjustments		 Total
Accumulated
Other
Comprehensive
Income (Loss)
(Dollars in millions)
Balance at December 31, 2020$(81)$(3)$— $(45)$(129)
Other comprehensive income before reclassifications38 11 41 35 125 
Amounts reclassified from accumulated other comprehensive income— (1)— 1 — 
Net current period other comprehensive income38 10 41 36 125 
Balance at December 31, 2021$(43)$7 $41 $(9)$(4)
Other comprehensive income before reclassifications(1)27 44 (11)59 
Amounts reclassified from accumulated other comprehensive income— (21)— 2 (19)
Net current period other comprehensive income(1)(1)6 44 (9)40 
Balance at December 31, 2022$(44)$13 $85 $(18)$36 


82

ReclassificationsOutof AccumulatedOther ComprehensiveIncome (Loss)

Year ended December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affected Line in the Consolidated and Combined Statement of Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of

 

 

General and

 

 

 

 

 

 

 

 

 

 

Net

 

 

Goods

 

 

Administrative

 

 

Non-Operating (Income)

 

Year Ended December 31, 2022Year Ended December 31, 2022Net
Sales		Cost of
Goods
Sold		Selling,
General and
Administrative
Expenses		Non-Operating (Income) ExpenseTotal
 

 

Sales

 

 

Sold

 

 

Expenses

 

 

Expense

 

 

Total

 

(Dollars in millions)

Amortization of Pension and Other Postretirement

Items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of Pension and Other Postretirement Items:

Actuarial losses recognized

 

$

—

 

 

$

—

 

 

$

—

 

 

$

3

 

 

$

3

 

Actuarial losses recognized$— $— $— $2 $2 

Losses (gains) on cash flow hedges

 

 

(1

)

 

 

26

 

 

 

—

 

 

 

—

 

 

 

25

 

Losses (gains) on cash flow hedges— (21)— — (21)

Tax expense (benefit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

Tax expense (benefit)— — — — — 

Total reclassifications for the period, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

26

 

Total reclassifications for the period, net of tax$— $(21)$— $2 $(19)

Year ended December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affected Line in the Consolidated and Combined Statement of Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of

 

 

General and

 

 

 

 

 

 

 

 

 

Net
Sales		Cost of
Goods
Sold		Selling,
General and
Administrative
Expenses		Non-Operating (Income) ExpenseTotal

 

Net

 

 

Goods

 

 

Administrative

 

 

Non-Operating (Income)

 

Year Ended December 31, 2021Year Ended December 31, 2021Net
Sales		Cost of
Goods
Sold		Selling,
General and
Administrative
Expenses		Non-Operating (Income) ExpenseTotal

 

Sales

 

 

Sold

 

 

Expenses

 

 

Expense

 

 

Total

 

(Dollars in millions)

Amortization of Pension and Other Postretirement

Items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of Pension and Other Postretirement Items:     

Actuarial losses recognized

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

Actuarial losses recognized$— $— $— $1 $1 

Losses (gains) on cash flow hedges

 

 

—

 

 

 

(14

)

 

 

—

 

 

 

—

 

 

 

(14

)

Losses (gains) on cash flow hedges— (1)— — (1)

Tax expense (benefit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

Tax expense (benefit)— — — — — 

Total reclassifications for the period, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(11

)

Total reclassifications for the period, net of tax$— $(1)$— $1 $— 

Note 19.23. Stock-Based Compensation

On September 14, 2018, our Board adopted, and Honeywell, as our sole stockholder, approved,

Cancellation of Incentive Awards
As part of the 2018Company's emergence from Chapter 11, the Plan provided for the acceleration of all outstanding awards under the Stock Incentive Plan. As of the Effective Date, all outstanding awards were cancelled as follows:
•Restricted stock units ("RSUs") - 1,205,650 RSUs were settled for consideration of $6.25 per share, for a total cash settlement of $8 million of which $7 million was recorded to equity, and $1 million was recorded to Reorganization items, net in the Consolidated Statement of Operations. Measurement of the cash settlement value of RSU awards was performed on an individual grant basis. As of the Effective Date, unamortized stock compensation expense of $7 million was charged to Reorganization items, net in the Consolidated Statement of Operations.
•Performance stock units - 228,765 PSUs were settled for consideration of $6.25 per share, for a total cash settlement of $1 million which was recorded to Reorganization items, net in the Consolidated Statement of Operations.
•Stock options - All unvested stock options were considered “out of the money” and cancelled for no consideration. Unamortized stock compensation expense of $1 million was charged to Reorganization items, net in the Consolidated Statement of Operations.
•Cash performance stock units ("CPSUs") - 2,069,897 CPSUs were settled for consideration of $1.00 per unit, for a total cash settlement of $2 million which was charged to Reorganization items, net in the Consolidated Statement of Operations.
The cash settlement of an equity award is treated as the repurchase of an outstanding equity instrument. In accordance with ASC 718, all outstanding awards were cancelled with no replacement grant, therefore modification accounting was not applied.
83
Continuity Awards
In September 2020, one-time cash continuity awards (“Continuity Awards”) were granted to certain employees in exchange for the forfeiture of RSUs and PSUs that had been granted in February 2020. The Continuity Awards amounted to $11 million, with $9 million paid in September 2020 and the remaining $2 million paid in 2021. As the Continuity Awards were subject to a one-year service requirement, the combined transaction was accounted for as a modification to liability-classified awards. The total incremental compensation cost resulting from the modification was $5 million. The Continuity Awards were fully vested as of December 31, 2021.
The following table summarizes information about the Continuity Awards:
 
Number of
Awards
Weighted
Average Grant
Date Fair Value
Per Award
Non-vested at December 31, 202043$257,536 
Granted——
Vested(43)(257,536)
Forfeited——
Non-vested at December 31, 2021—$— 
2021 Long-Term Incentive Plan of
On May 25, 2021, the Garrett Motion Inc. and its Affiliates2021 Long-Term Incentive Plan (the “Stock“Long-Term Incentive Plan”) and the 2018 Stock Plan for Non-Employee Directors (the “Director Equity Plan”).was adopted. The StockLong-Term Incentive Plan provides for the grant of stock options, stock appreciation rights, performance awards, restricted stock units, restricted stock, other stock-based awards, and cash-based awards to employees and non-employee directors of Garrett or its affiliates, and independent contractors or consultants of Garrett. The maximum aggregate number of shares of our common stockCommon Stock that may be issued under the StockLong-Term Incentive Plan is 10,000,000 shares and, for the Director Equity Plan, 400,00031,280,476 shares. Up to 5,000,000 shares may be granted as incentive stock options under the Stock Incentive Plan.

As of December 31, 2018, 6,620,6192022, an aggregate of 4,560,935 shares of our common stockCommon Stock were awarded, net of forfeitures and 26,719,541 shares of our Common Stock were available for future issuance under the StockLong-Term Incentive Plan.

As of December 31, 2018, no awards have been granted to members of our Board under the Director Equity Plan and 400,000 shares of our common stock remain available for future issuance under such plan.

Restricted Stock Units—Restricted stock unit (“RSU”) awards
RSUs are issued to certain key employees and directors at fair market value at the date of grant. RSUs typically vest over a period of three3 years or four5 years and when vested, each unit entitles the holder to one share of our common stock.

In 2018, 496,240 RSUs were granted to officers of Garrett with three- and four-year vesting periods pursuant to the Stock Incentive Plan.

•

In connection with the Spin-Off, any Honeywell equity awards held by our employees that were outstanding and unvested as of the date of the Spin-Off were terminated and canceled in accordance with their terms and we issued replacement RSU awards in the amount of 2,848,541 RSUs under our Stock Incentive Plan. The vesting schedule for each replacement award is substantially the same as that of the


forfeited award. These replacement awards were intended to preserve the intrinsic value of the forfeited awards as of the Spin-Off. As a result, there was no incremental stock-based compensation expense recorded. Compensation expense for these awards will continue to be recognized ratably over the remaining term of the unvested awards, which ranges from 0 to 5.4 years as of the date of the Spin-Off, and shall be based on management's estimate of the number of shares expected to vest.

Common Stock. The following table summarizes information about RSU activity relatedincluding for periods prior to our Stock Incentive Plan for the year ended December 31, 2018:

Emergence:

 

Number of

Restricted

Stock Units

 

 

Weighted

Average Grant

Date Fair Value

Per Share

 

Non-vested at October 1, 2018

 

 

2,848,541

 

 

$

8.70

 

Number of
Restricted
Stock Units
Weighted
Average Grant
Date Fair Value
Per Share
Non-vested at December 31, 2020Non-vested at December 31, 20201,538,969 $13.11 

Granted

 

 

530,840

 

 

 

17.76

 

Granted1,827,599 8.31 

Vested

 

 

(4,452

)

 

 

6.67

 

Vested(326,058)13.10 

Forfeited

 

 

(5,307

)

 

 

14.16

 

Forfeited(16,551)11.71 

Non-vested at December 31, 2018

 

 

3,369,622

 

 

$

10.12

 

Vested and cancelledVested and cancelled(1,205,650)13.10 
Non-vested at December 31, 2021Non-vested at December 31, 20211,818,309 $8.31 
GrantedGranted1,096,012 6.46 
VestedVested(436,992)8.40 
ForfeitedForfeited(75,429)7.38 
Non-vested at December 31, 2022Non-vested at December 31, 20222,401,900 $7.48 

As of December 31, 2018,2022, there was approximately $25$14 million of total unrecognized compensation cost related to unvested RSUs, granted under our Stock Incentive Plan, which is expected to be recognized over a weighted-average period of 2.82.58 years.

Performance Stock Units
84
As of December 31, 2022,an aggregate of 1,774,135 PSU awards were granted to officers and certain key employees under the Long-Term Incentive Plan, which, upon vesting, entitles the holder to shares of our Common Stock. The actual number of shares an employee receives for each PSU depends on the Company’s performance against various measures.
For PSUs granted in 2021, the performance measures are related to absolute total shareholder return (“TSR”) with stock price hurdles, Adjusted EBITDA and Adjusted EBITDA margin, weighted 60%, 20% and 20% respectively over a two-year performance period from January 1, 2022 through December 31, 2023 for the TSR measure and a three-year performance period from January 1, 2021 through December 31, 2023 for the Adjusted EBITDA and Adjusted EBITDA margin measures. Each grantee is granted a target level of PSUs and may earn between 0% and 100% of the target level depending on achievement of the performance measures.
For PSUs granted in 2022, the performance measures are based on Adjusted EBITDA and Adjusted EBITDA margin, weighted 50% each, over a three-year performance period from January 1, 2022 through December 31, 2024. The PSUs vest at levels ranging from 0% to 200% of the target level depending on the Company’s performance against the financial measures.
The awards associated with the TSR performance measure are considered to have a market condition. A Monte-Carlo simulation model was used to determine the grant date fair value by simulating a range of possible future stock prices for the Company over the performance period. This model requires an input of assumptions including the simulation term, the risk-free interest rate, a volatility estimate for the Company’s shares, and a dividend yield estimate. The simulation term was the period of time between performance period start date and the performance end date. The risk-free interest rate assumption was based on observed interest rates from the Treasury Constant Maturity yield curve consistent with the simulation term. The Company’s volatility estimate was based on the historical volatilities of peers over a historical period consistent with the simulation term. The Company does not expect to pay a dividend on the Common Stock during the applicable term. The fair value of the PSUs granted in 2021 was estimated using the following assumptions:
Monte Carlo AssumptionsPSUs Granted in 2021
Volatility64.01%
Dividend yield0.00%
Risk-free interest rate0.24%
The following table summarizes information about the income statement impact from RSUs for the year ended December 31, 2018:

Compensation expense

 

$

5

 

Future income tax benefit recognized

 

 

1

 

Stock Based Awards Granted by Honeywell—For periods prior to the Spin-Off, Honeywell maintained stock-based compensation plans for the benefit of its officers, directors and employees. Under the Former Parent´s stock-based compensation plans, Honeywell awarded RSUs, stock options and PSUs to certain employees. Stock-based compensation expensePSU activity related to awards granted by Honeywell recognized inboth the ConsolidatedStock Incentive Plan and Combined Statementsthe Long-Term Incentive Plan for each of Operations amounted to $16 million, $15 million and $12 million for the years ended December 31, 2018, 2017 and 2016, respectively,periods presented:

 
Number of
Performance
Stock Units
Weighted
Average Grant
Date Fair Value
Per Share
Non-vested at December 31, 2020314,111$16.17 
Granted1,472,8758.67
Vested——
Forfeited(85,346)14.00
Vested and cancelled(228,765)—
Non-vested at December 31, 20211,472,875 $8.67 
Granted301,2606.79
Vested——
Forfeited(52,092)8.15
Non-vested at December 31, 20221,722,043 $8.36 
The fair value of which approximately $10 million, $8 million and $5 million are specifically identified for employees within the Business, respectively and $6 million, $7 million and $7 millionTSR-based PSUs is related to shared employees not specifically identifiable to the Business, respectively. These amounts represent stock-based compensation expenses attributable to the Business based on the awardsoutput of the Monte Carlo simulation model noted above and terms previously granted under the incentivePSUs not containing a market condition are based on the fair market value of the Company’s common stock at the grant date. The number of underlying shares to be issued will be based on actual performance achievement over the performance period.
The fair value of each PSU grant is amortized monthly into compensation plans to employees withinexpense on a graded vesting (accelerated) basis over a vesting period of 36 months. The accrual of compensation costs is based on our estimate of the Businessfinal expected value of the award and an allocation of Former Parent’s corporate and shared functional employee stock based compensation expenses. Accordingly, the amounts presented are not necessarily indicative of current and future awards and do not necessarily reflect the results that the Business would have experiencedis adjusted as an independent companyrequired for the periods presented.

performance-based condition. As the payout of PSUs granted in 2021

85
includes dividend equivalents, no separate dividend yield assumption is required in calculating the fair value of those PSUs. The activityCompany currently does not pay dividends on its common stock.
As of December 31, 2022, there was $7 million of total unrecognized compensation cost related to stock based awards granted by Honeywellunvested PSUs, which is expected to employeesbe recognized over a weighted average period of 1.36 years.
Stock-Based Compensation Expense
The following table summarizes the Business forimpact to the year ended December 31, 2017 consistedConsolidated Statement of Operations from the following:

 

 

RSUs

 

 

Options

 

 

 

 

 

 

 

 

Wtd Avg

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

Grant Date

 

 

Number of

 

 

 

Wtd Avg

 

 

 

RSUs

 

 

 

Fair Value

 

 

Options

 

 

 

Exercise Price

 

Outstanding as of December 31, 2016

 

 

163,110

 

 

 

$

96

 

 

 

475,476

 

 

 

$

87

 

Granted(a)

 

 

45,503

 

 

 

 

131

 

 

 

162,600

 

 

 

 

125

 

Vested/exercised

 

 

(41,137

)

 

 

 

83

 

 

 

(121,231

)

 

 

 

79

 

Outstanding as of December 31, 2017

 

 

167,476

 

(b)(c)

 

$

108

 

 

 

516,845

 

(d)

 

$

101

 

(a)

Primarily represents awards granted by Honeywell in February and July 2017.

Company's incentive awards:

(b)

Aggregate unrecognized compensation expense related to RSUs was $9.4 million as of December 31, 2017, which is expected to be recognized over a weighted average period of 3.6 years.

 Year Ended December 31,
 202220212020
(Dollars in millions)
RSUs$6 $4 $9 
PSUs5 2 — 
Stock options— — 1 
Stock-based compensation expense11 6 10 
Continuity Awards— 5 7 
Reorganization items, net— 9 — 
Future income tax benefits recognized1 2 4 


(c)

Substantially all RSUs outstanding as of December 31, 2017 are expected to vest over time.

(d)

Aggregate unrecognized compensation expense related to stock options was $4.2 million as of December 31, 2017, which is expected to be recognized over a weighted average period of 2.5 years.

Note 20.24. Earnings Per Share

On October 1, 2018,

Earnings per share is calculated using the datetwo-class method pursuant to the issuance of consummationour Series A Preferred Stock on the Effective Date. Our Series A Preferred Stock is considered a participating security because holders of the Spin-Off, 74,070,852Series 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 years ended December 31, 2022 and 2021 are calculated using the more dilutive of the Company’stwo-class or if-converted methods. The two-class method uses net income available to common stock were distributed to Honeywell stockholdersshareholders and assumes conversion of record asall potential shares other than the participating securities. The if-converted method uses net income and assumes conversion of September 18, 2018 who held theirall potential shares throughincluding the Distribution Date. Basicparticipating securities. Diluted earnings per share for the year ended December 31, 2020 are computed based upon the weighted average number of common shares outstanding and Diluted EPS for all historical periods prior todilutive potential common shares outstanding and all potentially issuable PSUs at the Spin-Off reflectend of the period (if any) based on the number of distributed shares or 74,070,852 shares. For 2018, these shares are treated as issuedissuable if it were the end of the vesting period using the treasury stock method and outstanding from January 1, 2018 to the Spin-Offaverage market price of our Common Stock for purposes of calculating basic earnings per share.

the year.

86
The details of the earnings per share calculations for the years ended December 31, 2018, 20172022, 2021 and 20162020 are as follows:

Year Ended December 31
202220212020
(Dollars in millions except per share amounts)
Basic earnings per share:
Net Income$390 $495 $80 
Less: preferred stock dividend(157)(97)— 
Net income available for distribution233 398 80 
Less: earnings allocated to participating securities(184)(280)— 
Net income available to common shareholders49 118 80 
Weighted average common shares outstanding - Basic64,708,635 69,706,183 75,543,461 
EPS – Basic$0.75 $1.69 $1.06 
Diluted earnings per share:
Method used:Two-classIf-converted
Weighted average common shares outstanding - Basic64,708,635 69,706,183 75,543,461 
Dilutive effect of unvested RSUs and other contingently issuable shares367,357 28,155 557,048 
Dilutive effect of participating securities— 247,768,962 — 
Weighted average common shares outstanding – Diluted65,075,992 317,503,300 76,100,509 
EPS – Diluted$0.75 $1.56 $1.05 

 

 

Years Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

1,180

 

 

$

(983

)

 

$

199

 

Weighted average common shares outstanding

 

 

74,059,240

 

 

 

74,070,852

 

 

 

74,070,852

 

EPS – Basic

 

$

15.93

 

 

$

(13.27

)

 

$

2.69

 

 

 

Years Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

1,180

 

 

$

(983

)

 

$

199

 

Weighted average common shares

   outstanding – Basic

 

 

74,059,240

 

 

 

74,070,852

 

 

 

74,070,852

 

Dilutive effect of unvested RSUs

 

 

342,908

 

 

 

—

 

 

 

—

 

Weighted average common shares

   outstanding – Diluted

 

 

74,402,148

 

 

 

74,070,852

 

 

 

74,070,852

 

EPS – Diluted

 

$

15.86

 

 

$

(13.27

)

 

$

2.69

 

Diluted EPS is computed based uponThe 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. For the years ended December 31, 2021 and 2020, the weighted average number of common shares outstanding forstock options excluded from the year plus the dilutive effect of common stock equivalents using the treasury stock methodcomputations was 131,623 and the average market price of our common stock for the year.428,690 respectively. There were no anti-dilutive shares excluded from the computationoptions outstanding as of Diluted EPS for anyDecember 31, 2022 and 2021, and 403,517 options outstanding as of the periods presented.

December 31, 2020.

Note 21.25. Commitments and Contingencies

Obligations payable to Honeywell

Honeywell is

Securities Litigation
On September 25, 2020, a defendant in asbestos-related personal injury actions mainly related to its legacy Bendix friction materials (“Bendix”) business. The Bendix business manufactured automotive brake linings that contained chrysotile asbestos in an encapsulated form. Claimants consist largely of individuals who allege exposure to asbestos from brakes from either performing or being in the vicinity of individuals who performed brake replacements. Certain operations that were part of the Bendix business were transferred to Garrett.

In connection with the Spin-Off, we entered into an Indemnificationputative securities class action complaint was filed against Garrett Motion Inc. and Reimbursement Agreement with Honeywell on September 12, 2018. As of the Spin-Off date of October 1, 2018, we are obligated to make payments to Honeywell in amounts equal to 90% of Honeywell’s asbestos-related liability paymentscertain current and accounts payable, primarily related to the Bendix businessformer Garrett officers and directors in the United States as well as certain environmental-related liability paymentsDistrict Court for the Southern District of New York. The case bears the caption: Steven Husson, Individually and accounts payableOn Behalf of All Others Similarly Situated, v. Garrett Motion Inc., Olivier Rabiller, Alessandro Gili, Peter Bracke, Sean Deason, and non-United States asbestos-related liability paymentsSu Ping Lu, Case No. 1:20-cv-07992-JPC (SDNY) (the “Husson Action”). The Husson Action asserted claims under Sections 10(b) and accounts payable, in each case related to legacy elements20(a) of the Business, includingSecurities Exchange Act of 1934, as amended (the "Exchange Act"), for securities fraud and control person liability. On September 28, 2020, the legal costsplaintiff sought to voluntarily dismiss his claim against Garrett Motion Inc. in light of defendingthe Company’s bankruptcy; this request was granted.

On October 5, 2020, another putative securities class action complaint was filed against certain current and resolving such liabilities, less 90%former Garrett officers and directors in the United States District Court for the Southern District of Honeywell’s net insurance receiptsNew York. This case bears the caption: The Gabelli Asset Fund, The Gabelli Dividend & Income Trust, The Gabelli Value 25 Fund Inc., The Gabelli Equity Trust Inc., SM Investors LP and SM Investors II LP, on behalf of themselves and all others similarly situated, v. Su Ping Lu, Olivier Rabiller, Alessandro Gili, Peter Bracke, Sean Deason, Craig Balis, Thierry Mabru, Russell James, Carlos M. Cardoso, Maura J. Clark, Courtney M. Enghauser, Susan L. Main, Carsten Reinhardt, and Scott A. Tozier, Case No. 1:20-cv-08296-JPC (SDNY) (the “Gabelli Action”). The Gabelli Action also asserted claims under Sections 10(b) and 20(a) of the Exchange Act.
On November 5, 2020, another putative securities class action complaint was filed against certain current and former Garrett officers and directors in the United States District Court for the Southern District of New York. This case bears the caption: Joseph Froehlich, Individually and On Behalf of All Others Similarly Situated, v. Olivier Rabiller, Allesandro Gili, Peter Bracke, Sean Deason, and Su Ping Lu, Case No. 1:20-cv-09279-JPC (SDNY) (the “Froehlich Action”). The Froehlich Action also asserted claims under Sections 10(b) and 20(a) of the Exchange Act.
87
All 3 actions are currently assigned to Judge John P. Cronan. Su Ping Lu filed a waiver of service in the Gabelli Action on November 10, 2020. On November 24, 2020, competing motions were filed seeking the appointment of lead plaintiff and lead counsel and the consolidation of the Husson, Gabelli, and Froehlich Actions.
On December 8, 2020, counsel for the plaintiffs in the Gabelli Action — the Entwistle & Cappucci law firm — filed an unopposed stipulation and proposed order that would (1) appoint the plaintiffs in the Gabelli Action — the “Gabelli Entities” — the lead plaintiffs; (2) would appoint Entwistle & Cappucci as may be applicable, certain other recoveries associated with such liabilities. Pursuantlead counsel for the plaintiff class; and (3) consolidate the Gabelli Action, the Husson Action, and the Froehlich Action (the “Consolidated D&O Action”). On January 21, 2021, the Court granted the motion to consolidate the actions and granted the Gabelli Entities’ motions for appointment as lead plaintiff and for selection of lead counsel. On February 25, 2021, plaintiffs filed a Consolidated Amended Complaint for Violation of the federal securities laws.
The Company’s insurer, AIG, has accepted the defense, subject to the termscustomary reservation of rights.
The Company agreed with the Gabelli Entities and their lead counsel to permit a class claim to be recognized in the bankruptcy court and to have securities claims against the Company to be litigated in the district court alongside the Consolidated D&O Action. The Gabelli Entities have agreed that any recoveries against Garrett Motion Inc. on account of securities claims litigated through the class claim are limited to available insurance policy proceeds. On July 2, 2021, the bankruptcy court entered an order approving the joint request from the Company and the Gabelli Entities to handle the securities claims against Garrett Motion Inc. in this Indemnificationmanner.

The Gabelli Entities were authorized, and Reimbursement Agreement, we are responsible for payingon July 22, 2021 filed a second amended complaint to Honeywell such amounts, upadd claims against Garrett Motion Inc. On August 11, 2021, Garrett Motion Inc., Olivier Rabiller, Alessandro Gili, Peter Bracke, Sean Deason, Russell James, Carlos Cardoso, Maura Clark, Courtney Enghauser, Susan Main, Carsten Reinhardt, and Scott Tozier filed a motion to dismiss with respect to claims asserted against them. On the same day, Su Ping Lu, who is represented separately, filed a cap of an amount equalmotion to dismiss with respect to the Euro-to-U.S. dollar exchange rate determinedclaims asserted against her. Lead plaintiffs’ opposition to the motions to dismiss was filed on October 26, 2021, and the defendant's reply briefs were filed on or before December 8, 2021. On March 31, 2022, the judge dismissed the complaints entirely - Su Ping Lu's motion to dismiss was granted with prejudice while the court granted the plaintiffs 30 days to file a third amended complaint against the Company and the other defendants. On May 2, 2022, the plaintiffs filed a Third Amended Complaint (“TAC”) against all of the foregoing Defendants apart from Alessandro Gili, Craig Balis, Thierry Mabru and Su Ping Lu. On June 24, 2022, defendants moved to dismiss the TAC in its entirety, with prejudice. Plaintiffs filed their opposition on August 16, 2022, and defendants filed their reply brief on September 23, 2022. On September 22, 2022, the action was reassigned from Judge John P. Cronan to Judge Jennifer L. Rochon, who was recently appointed.
Brazilian Tax Matters
In September 2020, the Brazilian tax authorities issued an infraction notice against Garrett Motion Industria Automotiva Brasil Ltda, challenging the use of certain tax credits (“Befiex Credits”) between January 2017 and February 2020. The infraction notice results in a loss contingency that may or may not ultimately be incurred by Honeywellthe Company. The estimated total amount of the contingency as of December 31, 2022 was $33 million including penalties and interest. The Company appealed the infraction notice on October 23, 2020. In March 2021, in response to our request, the Brazilian Tax Authorities reconsidered their position for a date within two business days prior to the dateportion of the Distribution (1.16977 USD = 1 EUR)


equivalent of $175$33 million mentioned above and allowed Garrett Motion Brazil the right to offset Federal Tax with the Befiex Credits. The letter does not qualify as a formal decision and requires formal recognition from the Judge and from the Federal Judgement Office in respect of such liabilities arising in any given calendar year. The payments that we are required to make to Honeywell pursuant to the terms of this agreement will not be deductible for U.S. federal income tax purposes. The Indemnification and Reimbursement Agreement provides that the agreement will terminate upon the earlier of (x) December 31, 2048 or (y) December 31stcharge of the third consecutive year duringdisputes. On August 21, 2021, we requested such formal recognition from the Judge, which certain amounts owed to Honeywell during each such year were less than $25 million as converted into Eurosrequest resulted in accordance with the termsa suspension of the agreement. Duringclaims of the fourth quarterBrazilian Tax Authorities as set out in their initial September 2020 letter, until such a time as the Judge makes a formal determination on our request. The Company believes, based on management’s assessment and the advice of 2018, we paid Honeywell the Euro-equivalent of $41 millionexternal legal counsel, that it has meritorious arguments in connection with the Indemnificationinfraction notice and Reimbursement Agreement.

On September 12, 2018, we also entered into a Tax Matters Agreement with Honeywell (the “Tax Matters Agreement”), which governsany liability for the respective rights, responsibilities and obligations of Honeywell and us after the Spin-Off with respect to all tax matters (including tax liabilities, tax attributes, tax returns and tax contests). The Tax Matters Agreement generally provides that, following the Spin-Off date of October 1, 2018, we are responsible and will indemnify Honeywell for all taxes, including income taxes, sales taxes, VAT and payroll taxes, relating to Garrett for all periods, including periods prior to the completion date of the Spin-Off. Among other items, as a result of the mandatory transition tax imposed by the Tax Cuts and Jobs Act, one of our subsidiariesinfraction notice is currently not probable. Accordingly, no accrual is required to make payments to a subsidiary of Honeywell in the amount representing the net tax liability of Honeywell under the mandatory transition tax attributable to us, as determined by Honeywell. We currently estimate that our aggregate payments to Honeywell with respect to the mandatory transition tax will be $240 million. Under the terms of the Tax Matters Agreement, we are required to payat this amount in Euros, without interest, in five annual installments, each equal to 8% of the aggregate amount, followed by three additional annual installments equal to 15%, 20% and 25% of the aggregate amount, respectively. In connection with this agreement, we paid Honeywell the Euro-equivalent of $19 million during the fourth quarter of 2018.

In addition, the Tax Matters Agreement addresses the allocation of liability for taxes incurred as a result of restructuring activities undertaken to effectuate the Spin-Off. The Tax Matters Agreement also provides that we are required to indemnify Honeywell for certain taxes (and reasonable expenses) resulting from the failure of the Spin-Off and related internal transactions to qualify for their intended tax treatment under U.S. federal, state and local income tax law, as well as foreign tax law. Further, the Tax Matters Agreement also imposes certain restrictions on us and our subsidiaries (including restrictions on share issuances, redemptions or repurchases, business combinations, sales of assets and similar transactions) that are designed to address compliance with Section 355 of the Internal Revenue Code of 1986, as amended, and are intended to preserve the tax-free nature of the Spin-Off.

The following table summarizes our Obligation payable to Honeywell related to these agreements following the Spin-Off:

time.

 

 

2018

 

 

 

Asbestos and

environmental

 

 

Tax Matters

 

 

Total

 

Beginning of year

 

$

—

 

 

$

—

 

 

$

—

 

Spin-Off related adjustments

 

 

1,328

 

 

 

308

 

 

 

1,636

 

Accrual for update to estimated liability

 

 

(30

)

 

 

—

 

 

 

(30

)

Legal fees expensed

 

 

14

 

 

 

—

 

 

 

14

 

Payments to Honeywell

 

 

(41

)

 

 

(19

)

 

 

(60

)

Currency translation adjustment

 

 

(27

)

 

 

(7

)

 

 

(34

)

End of year

 

$

1,244

 

 

$

282

 

 

$

1,526

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

108

 

 

 

19

 

 

 

127

 

Non-current

 

 

1,136

 

 

 

263

 

 

 

1,399

 

Total

 

$

1,244

 

 

$

282

 

 

$

1,526

 

Asbestos Matters

For the periods prior to the Spin-Off, these Consolidated and Combined Financial Statements reflect an estimated liability for resolution of pending and future asbestos-related and environmental liabilities primarily related to the Bendix legacy Honeywell business, calculated as if we were responsible for 100% of the Bendix asbestos-liability payments. However, this recognition model differs from the recognition model applied subsequent to the Spin-Off as outlined above. In periods subsequent to the Spin-Off, the accounting for the majority of our asbestos-related liability


payments and accounts payable reflect the terms of the Indemnification and Reimbursement Agreement with Honeywell entered into on September 12, 2018, under which we are required to make payments to Honeywell in amounts equal to 90% of Honeywell’s asbestos-related liability payments and accounts payable, primarily related to the Bendix business in the United States, as well as certain environmental-related liability payments and accounts payable and non-United States asbestos-related liability payments and accounts payable, in each case related to legacy elements of the Business, including the legal costs of defending and resolving such liabilities, less 90% of Honeywell’s net insurance receipts and, as may be applicable, certain other recoveries associated with such liabilities. The Indemnification and Reimbursement Agreement provides that the agreement will terminate upon the earlier of (x) December 31, 2048 or (y) December 31st of the third consecutive year during which certain amounts owed to Honeywell during each such year were less than $25 million as converted into Euros in accordance with the terms of the agreement.

The following table summarizes information concerning both Bendix and other asbestos-related balances. Other represents asbestos liabilities related to claimants outside the United States.

Asbestos-Related Liabilities

 

 

Year ended December 31, 2018

 

 

Year ended December 31, 2017

 

 

Year ended December 31, 2016

 

 

 

Bendix

 

 

Other

 

 

Total

 

 

Bendix

 

 

Other

 

 

Total

 

 

Bendix

 

 

Other

 

 

Total

 

Beginning of year

 

$

1,703

 

 

$

9

 

 

$

1,712

 

 

$

1,789

 

 

$

6

 

 

$

1,795

 

 

$

1,793

 

 

$

6

 

 

$

1,799

 

Accrual for update to

   estimated liabilities

 

 

141

 

 

 

—

 

 

 

141

 

 

 

199

 

 

 

4

 

 

 

203

 

 

 

203

 

 

 

—

 

 

 

203

 

Change in estimated

   cost of future claims

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(65

)

 

 

—

 

 

 

(65

)

 

 

(10

)

 

 

—

 

 

 

(10

)

Update of expected

   resolution values

   for pending claims

 

 

—

 

 

 

—

 

 

 

—

 

 

 

3

 

 

 

—

 

 

 

3

 

 

 

4

 

 

 

—

 

 

 

4

 

Asbestos-related

   liability payments

 

 

(151

)

 

 

(4

)

 

 

(155

)

 

 

(223

)

 

 

(1

)

 

 

(224

)

 

 

(201

)

 

 

—

 

 

 

(201

)

Spin-Off related

  adjustments

 

 

(1,693

)

 

 

(4

)

 

 

(1,697

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

End of year

 

$

—

 

 

$

1

 

 

$

1

 

 

$

1,703

 

 

$

9

 

 

$

1,712

 

 

$

1,789

 

 

$

6

 

 

$

1,795

 

Insurance Recoveries for Asbestos-Related Liabilities

 

 

2018

 

 

2017

 

 

2016

 

 

 

Bendix

 

 

Bendix

 

 

Bendix

 

Beginning of year

 

$

191

 

 

$

201

 

 

$

222

 

Probable insurance recoveries related to estimated

   liability

 

 

10

 

 

 

10

 

 

 

8

 

Insurance receipts for asbestos-related liabilities

 

 

(24

)

 

 

(20

)

 

 

(37

)

Insurance receivables settlements and write-offs

 

 

1

 

 

 

—

 

 

 

7

 

Other

 

 

—

 

 

 

—

 

 

 

1

 

Spin-Off related adjustments

 

 

(178

)

 

 

—

 

 

 

—

 

 

 

$

—

 

 

$

191

 

 

$

201

 


Asbestos balancesare includedin the followingbalancesheetaccounts:

 

 

December 31,

 

 

 

2018

 

 

2017

 

Other current assets

 

$

—

 

 

$

17

 

Insurance recoveries for asbestos-related liabilities

 

 

—

 

 

 

174

 

 

 

$

—

 

 

$

191

 

Accrued liabilities

 

$

—

 

 

$

185

 

Asbestos-related liabilities

 

 

1

 

 

 

1,527

 

 

 

$

1

 

 

$

1,712

 

The following tables present information regarding Bendix-related asbestos claims activity:

 

 

Years Ended December 31,

 

Claims Activity

 

2018

 

 

2017

 

Claims Unresolved at the beginning of year

 

 

6,280

 

 

 

7,724

 

Claims Filed

 

 

2,430

 

 

 

2,645

 

Claims Resolved

 

 

(2,501

)

 

 

(4,089

)

Claims Unresolved at the end of the year

 

 

6,209

 

 

 

6,280

 

 

 

December 31,

 

Disease Distribution of Unresolved Claims

 

2018

 

 

2017

 

Mesothelioma and Other Cancer Claims

 

 

2,949

 

 

 

3,062

 

Nonmalignant Claims

 

 

3,260

 

 

 

3,218

 

Total Claims

 

 

6,209

 

 

 

6,280

 

Honeywell has experienced average resolutions per Bendix-related asbestos claim, excluding legal costs, as follows:

 

 

Years Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

(in whole dollars)

 

Malignant claims

 

$

55,300

 

 

$

56,000

 

 

$

44,000

 

 

$

44,000

 

 

$

53,500

 

Nonmalignant claims

 

$

4,700

 

 

$

2,800

 

 

$

4,485

 

 

$

100

 

 

$

120

 

It is not possible to predict whether resolution values for Bendix-related asbestos claims will increase, decrease or stabilize in the future.

Other Matters

We are subject to other lawsuits, investigations and disputes arising out of the conduct of our business, including matters relating to commercial transactions, government contracts, product liability, prior acquisitions and divestitures, employee benefit plans, intellectual property and environmental, health and safety matters. We recognize a liability for any contingency that is probable of occurrence and reasonably estimable. We continually assess the likelihood of adverse judgments of outcomes in these matters, as well as potential ranges of possible losses (taking into consideration any
88
insurance recoveries), based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts. To date, no such matters are material to the Consolidated
Warranties and Combined Statements of Operations.

Guarantees


WarrantiesandGuarantees

In the normal course of business, we issue product warranties and product performance guarantees. We accrue for the estimated cost of product warranties and performance guarantees based on contract terms and historical experience at the time of sale to the customer. Adjustments to initial obligations for warranties and guarantees are made as changes to the obligations become reasonably estimable. Product warranties and product performance guarantees are included in Accrued liabilities.liabilities and Other Liabilities. The following table summarizes information concerning our recorded obligations for product warranties and product performance guarantees.

Year Ended December 31,

 

Years Ended December 31,

 

 20222021

 

2018

 

 

2017

 

 

2016

 

(Dollars in millions)

Beginning of year

 

$

28

 

 

$

22

 

 

$

19

 

Beginning of year$32 $14 

Accruals for warranties/guarantees issued during the

year

 

 

33

 

 

 

14

 

 

 

14

 

Accruals for warranties/guarantees issued during the year15 21 

Settlement of warranty/guarantee claims

 

 

(29

)

 

 

(8

)

 

 

(11

)

Settlement of warranty/guarantee claims(17)(19)
Amounts reclassified from Liabilities subject to compromiseAmounts reclassified from Liabilities subject to compromise— 16 
Foreign currency translationForeign currency translation(2)— 

 

$

32

 

 

$

28

 

 

$

22

 

$28 $32 

Note 22.26. Defined Benefit Pension Plans

We sponsor several funded U.S. and non-U.S. defined benefit pension plans. Pension benefits for many of our U.S. employees are provided through a non-contributory, qualified defined benefit plan. All non-union hourly and salaried employees joining the Business for the first time after December 31, 2012, are not eligible to participate in our U.S. defined benefit pension plans. We also sponsor defined benefit pension plans which cover non-U.S. employees who are not U.S. citizens, in Switzerland and Ireland. Other pension plans outside of the U.S. are not material to the Company either individually or in the aggregate.

For periods prior to the Spin-Off, we only accounted for our pension plan in Ireland as a defined benefit pension plan. Our other pension plans were accounted for as multiemployer plans.

On October 1, 2018, in connection with the Spin-Off, we performed an interim remeasurement of our defined benefit pension plan in Ireland to update the discount rate as of the date immediately prior to the Spin-Off as mandated by the Employee Matters Agreement.


The following tables summarize the balance sheet impact, including the benefit obligations, assets and funded status associated with our significant pension plans.

89
Pension Benefits
U.S.
Plans		 U.S.
Plans		 Non-U.S.
Plans		 Non-U.S.
Plans
20222021 20222021
(Dollars in millions)
Change in benefit obligation:
Benefit obligation at beginning of the year$208 $220 $229 $259 
Service cost1 1 7 10 
Interest cost5 4 2 1 
Actuarial (gains) losses(1)
(39)(6)(65)(25)
Benefits paid(10)(11)3 (3)
Settlements and curtailments— — (10)— 
Foreign currency translation— — (9)(15)
Transfers— — — (1)
Other3 — 10 3 
Benefit obligation at end of the year168 208 167 229 
Change in plan assets:    
Fair value of plan assets at beginning of the year223 219 182 172 
Actual return on plan assets(44)14 (28)16 
Employer contributions— — 7 7 
Benefits paid(10)(11)3 (3)
Settlements and curtailments(2)
— — (10)— 
Foreign currency translation— — (7)(10)
Transfers— — — (1)
Other— 1 5 1 
Fair value of plan assets at end of year169 223 152 182 
Funded status of plans$1 $15 $(15)$(47)
Amounts recognized in Consolidated Balance Sheet consist of:    
Other assets - non-current(3)
1 15 2 — 
Accrued pension liabilities- non-current(4)
— — (17)(47)
Net amount recognized$1 $15 $(15)$(47)

 

 

Pension Benefits

 

 

 

U.S. Plans

 

 

Non-U.S. Plans

 

 

Non-U.S. Plans

 

 

 

2018

 

 

2018(1)

 

 

2017(1)

 

Change in benefit obligation:

 

 

 

 

 

 

 

 

 

 

 

 

Benefit obligation at beginning of the year

 

$

—

 

 

$

107

 

 

$

89

 

Transfer of plan obligations from Former Parent

 

 

181

 

 

 

65

 

 

 

—

 

Spin-Off remeasurement adjustment

 

 

—

 

 

 

2

 

 

 

—

 

Service cost

 

 

—

 

 

 

4

 

 

 

2

 

Interest cost

 

 

2

 

 

 

2

 

 

 

2

 

Plan amendments

 

 

—

 

 

 

1

 

 

 

—

 

Actuarial (gains) losses

 

 

(3

)

 

 

(5

)

 

 

3

 

Benefits paid

 

 

(2

)

 

 

(3

)

 

 

(1

)

Foreign currency translation

 

 

—

 

 

 

(5

)

 

 

12

 

Other

 

 

—

 

 

 

4

 

 

 

—

 

Benefit obligation at end of the year

 

 

178

 

 

 

172

 

 

 

107

 

Change in plan assets:

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of plan assets at beginning of the year

 

 

—

 

 

 

64

 

 

 

50

 

Transfer of plan assets from Former Parent

 

 

181

 

 

 

54

 

 

 

—

 

Spin-Off remeasurement adjustment

 

 

—

 

 

 

(10

)

 

 

—

 

Actual return on plan assets

 

 

(2

)

 

 

2

 

 

 

4

 

Employer contributions

 

 

—

 

 

 

16

 

 

 

3

 

Benefits paid

 

 

(2

)

 

 

(3

)

 

 

—

 

Foreign currency translation

 

 

—

 

 

 

(4

)

 

 

7

 

Other

 

 

—

 

 

 

4

 

 

 

—

 

Fair value of plan assets at end of year

 

 

177

 

 

 

123

 

 

 

64

 

Funded status of plans

 

$

(1

)

 

$

(49

)

 

$

(43

)

Amounts recognized in Consolidated Balance Sheet consist of:

 

 

 

 

 

 

 

 

 

 

 

 

Accrued pension liabilities - current

 

 

—

 

 

 

—

 

 

 

(3

)

Accrued pension liabilities - noncurrent(2)

 

 

(1

)

 

 

(49

)

 

 

(40

)

Net amount recognized

 

$

(1

)

 

$

(49

)

 

$

(43

)

(1)

For the periods prior to the Spin-Off, only the pension plan in Ireland is reflected as a non-U.S. defined benefit pension plan as all other pension plans were accounted for as multiemployer plans. Following the Spin-Off, the defined benefit pension plan in Switzerland is also reflected.

(1)The actuarial gain on the U.S. plan during 2022 was $39 million, driven by higher discount rates. For the non-US plans, the 2022 actuarial gain amounted to $65 million. The increase in discount rates led to an assumption gain of $54 million in Ireland and $28 million in Switzerland. The overall financial gain was offset by a losses of $10 million and $9 million attributable to changes in interest credited rate demographic assumptions in Switzerland, and increases in salary rates and mortality rate demographic assumptions in Ireland, respectively.

(2)

Included in Other liabilities in the Consolidated and Combined Balance Sheet

(2)In Switzerland, the total lump sum benefit payments of $10 million were greater than the service cost and interest cost for year ended December 31, 2022, therefore settlement accounting was applied. Following the settlement accounting, part of the previously unrecognized gain amounting to approximately $1 million was recognized as a gain on pension settlement.

(3)Included in Other assets in the Consolidated Balance Sheet.
(4)Included in Other liabilities in the Consolidated Balance Sheet.
Amounts recognized in Accumulated other comprehensive (income) loss associated with our significant pension and other postretirement benefit plans atas of December 31, 20182022 and 2021 are as follows:

follow:

 

 

Pension Benefits

 

 

 

U.S. Plans

 

 

Non-U.S. Plans

 

 

Non-U.S. Plans

 

 

 

2018

 

 

2018(1)

 

 

2017(1)

 

Prior service (credit)

 

$

(2

)

 

$

—

 

 

$

—

 

Net actuarial loss

 

 

4

 

 

 

7

 

 

 

11

 

Net amount recognized

 

$

2

 

 

$

7

 

 

$

11

 

90

(1)

For the periods prior to the Spin-Off, only the pension plan in Ireland is reflected as a non-U.S. defined benefit pension plan as all other pension plans were accounted for as multiemployer plans. Following the Spin-Off, the defined benefit pension plan in Switzerland is also reflected.


Pension Benefits
U.S.
Plans		 U.S.
Plans		 Non-U.S.
Plans		 Non-U.S.
Plans
20222021 20222021
(Dollars in millions)
Prior service (credit)$(1)$(1)$(7)$(8)
Net actuarial (gain) loss13 (1)(14)(11)
Net amount recognized$12 $(2)$(21)$(19)

The components of net periodic benefit (income) cost and other amounts recognized in Other comprehensive (income) loss for our significant pension and other postretirement benefit plans include the following components:

 Pension Benefits
 U.S. PlansNon-U.S. Plans
Net Periodic Benefit Cost202220212020202220212020
(Dollars in millions)
Service cost$1 $1 $1 $7 $10 $9 
Interest cost5 4 6 2 1 2 
Expected return on plan assets(9)(10)(11)(6)(6)(6)
Amortization of prior service (credit) cost— — — (1)(1)— 
Recognition of actuarial gains— — — (27)— 13 
Settlements and curtailments(1)
— — — (1)— 1 
Net periodic (income) benefit cost$(3)$(5)$(4)$(26)$4 $19 

 

 

Pension Benefits

 

 

 

U.S. Plans

 

 

Non-U.S. Plans

 

Net Periodic Benefit Cost

 

2018

 

 

2018(1)

 

 

2017(1)

 

Service cost

 

$

—

 

 

$

4

 

 

$

2

 

Interest cost

 

 

2

 

 

 

2

 

 

 

2

 

Expected return on plan assets

 

 

(3

)

 

 

(3

)

 

 

(2

)

Recognition of actuarial losses

 

 

—

 

 

 

3

 

 

 

—

 

Net periodic benefit (income) cost

 

$

(1

)

 

$

6

 

 

$

2

 

(1)

For(1)In Switzerland, the total lump sum benefit payments of $10 million were greater than the periods prior to the Spin-Off, only the pension plan in Ireland is reflected as a non-U.S. defined benefit pension plan as all other pension plans were accounted for as multiemployer plans. Following the Spin-Off, the defined benefit pension plan in Switzerland is also reflected.

Other Changes in Plan Assets and

Benefits Obligations Recognized in

 

U.S. Plans

 

 

Non-U.S. Plans

 

Other Comprehensive (Income) Loss

 

2018

 

 

2018(1)

 

 

2017(1)

 

Actuarial (gains) losses

 

$

2

 

 

$

(4

)

 

$

—

 

Prior service (credit)

 

 

—

 

 

 

1

 

 

 

—

 

Actuarial losses recognized during year

 

 

—

 

 

 

(3

)

 

 

—

 

Total recognized in other comprehensive

   (income) loss

 

$

2

 

 

$

(6

)

 

$

—

 

Total recognized in net periodic benefit

   (income) cost and other comprehensive

   (income) loss

 

$

1

 

 

$

—

 

 

$

2

 

(1)

For the periods prior to the Spin-Off, only the pension plan in Ireland is reflected as a non-U.S. defined benefit pension plan as all other pension plans were accounted for as multiemployer plans. Following the Spin-Off, the defined benefit pension plan in Switzerland is also reflected.

The estimated prior service (credit)cost and interest cost for pension benefits that will be amortized from Accumulated other comprehensive (income) loss into net periodic benefit (income) cost in 2019 are expectedyear ended December 31, 2022, therefore settlement accounting was applied. Following the settlement accounting, part of the previously unrecognized gain amounting to be less thanapproximately $1 million for both the U.S. and non-U.S.was recognized as gain on pension plans.

settlement.

Other Changes in Plan Assets and Benefits Obligations Recognized in
Other Comprehensive (Income) Loss		U.S. PlansNon-U.S. Plans
202220212020202220212020
(Dollars in millions)
Actuarial (gains) losses$14 $(10)$3 $(33)$(34)$15 
Prior service (credit)— — — — — (10)
Prior service credit recognized during year— — — 1 1 — 
Actuarial losses recognized during year— — — 30 — (14)
Foreign currency translation— — — — — 2 
Total recognized in other comprehensive (income) loss$14 $(10)$3 $(2)$(33)$(7)
Total recognized in net periodic benefit (income) cost and other comprehensive (income) loss$11 $(15)$(1)$(28)$(29)$12 

Major

91
The main actuarial assumptions used in determining the benefit obligations and net periodic (income) benefit (income) cost for our significant benefit plans are presented in the following table as weighted averages.

Pension Benefits
U.S. PlansNon-U.S. Plans
202220212020202220212020
Actuarial assumptions used to determine benefit obligations as of December 31:
Discount rate5.21 %2.95 %2.65 %2.91 %0.86 %0.46 %
Expected annual rate of compensation increase4.98 %3.20 %3.57 %4.93 %2.07 %1.82 %
Interest credited to accounts (1)
— %— %— %3.00 %1.50 %1.50 %
Actuarial assumptions used to determine net periodic benefit (income) cost for years ended December 31:
Discount rate—benefit obligation2.95 %2.65 %3.30 %0.80 %0.46 %0.79 %
Discount rate—service cost3.00 %3.37 %4.47 %0.82 %0.23 %1.20 %
Discount rate—interest cost2.38 %2.86 %4.06 %0.73 %0.63 %1.74 %
Expected rate of return on plan assets3.97 %4.88 %5.49 %3.36 %3.60 %3.79 %
Expected annual rate of compensation increase3.20 %3.57 %3.74 %1.99 %1.80 %1.77 %

 

 

Pension Benefits

 

 

 

U.S. Plans

 

 

Non-U.S. Plans

 

 

 

2018

 

 

2018(1)

 

 

2017(1)

 

Actuarial assumptions used to determine

   benefit obligations as of December 31:

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

 

 

4.33

%

 

 

1.50

%

 

 

1.80

%

Expected annual rate of compensation

   increase

 

 

3.74

%

 

 

1.77

%

 

 

2.00

%

Actuarial assumptions used to determine net

   periodic benefit (income) cost for years

   ended December 31:

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate—benefit obligation

 

 

4.33

%

 

 

1.50

%

 

 

1.80

%

Discount rate—service cost

 

 

4.11

%

 

 

1.50

%

 

 

1.80

%

Discount rate—interest cost

 

 

4.02

%

 

 

1.50

%

 

 

1.80

%

Expected rate of return on plan assets

 

 

6.00

%

 

 

3.77

%

 

 

4.00

%

Expected annual rate of compensation

   increase

 

 

3.74

%

 

 

1.77

%

 

 

2.00

%

(1)Only applicable to the defined benefit pension plan in Switzerland.

(1)

For the periods prior to the Spin-Off, only the pension plan in Ireland is reflected as a non-U.S. defined benefit pension plan as all other pension plans were accounted for as multiemployer plans. Following the Spin-Off, the defined benefit pension plan in Switzerland is also reflected.

The discount raterates for our significant pension plans reflectsreflect the current raterates at which the associated liabilities could be settled at the measurement date of December 31, 2018 and 2017, respectively.2022. To determine the discount rates, we use a modeling process that involves matching the expected cash outflows of our benefit plans to a yield curve constructed from a portfolio of high quality, fixed-income debt instruments. We use the single weighted-average yield of this hypothetical portfolio as a discount rate benchmark.

For both our U.S. and non-U.S. defined benefit pension plan,plans, we estimate the service and interest cost components of net period benefit (income) cost by utilizing a full yield curve approach in the estimation of these cost components by applying the specific spot rates along the yield curve used in the determination of the pension benefit obligation to their underlying projected cash flows. This approach provides a more precise measurement of service and interest costs by improving the correlation between projected cash flows and their corresponding spot rates. For our Switzerland and Ireland defined benefit pension plans, we estimated such cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the pension benefit obligation. In 2019, we expect to update the approach for estimating the service and interest cost components of net period benefit (income) cost for the Switzerland and Ireland plans to the full yield curve approach.

For non-U.S. benefit plans, actuarial assumptions reflect economic and market factors relevant to each country.

The following amounts relate to our significant pension plans with accumulated benefit obligations exceeding the fair value of plan assets.

 

 

December 31,

 

 

 

U.S. Plans

 

 

Non-U.S. Plans

 

 

 

2018

 

 

2018(1)

 

 

2017(1)

 

Projected benefit obligation

 

$

178

 

 

$

172

 

 

$

107

 

Accumulated benefit obligation

 

 

177

 

 

 

164

 

 

 

104

 

Fair value of plan assets

 

 

177

 

 

 

123

 

 

 

64

 

(1)

For the periods prior to the Spin-Off, only the pension plan in Ireland is reflected as a non-U.S. defined benefit pension plan as all other pension plans were accounted for as multiemployer plans. Following the Spin-Off, the defined benefit pension plan in Switzerland is also reflected.


December 31,
U.S. Plans Non-U.S. Plans
2022202120222021
(Dollars in millions)
Projected benefit obligation$— $— $89 $229 
Accumulated benefit obligation— — 85 217 
Fair value of plan assets— — 72 182 

Our U.S. pension asset investment strategy for our U.S. pension plan focuses on maintaining a diversified portfolio using various asset classes in order to achieve market exposure and diversification on an interim basis as we complete an asset liability study and develop our long-term investment objectives on a risk adjusted basis. Once finalized, we will implement our long-term strategy. Our interim target allocations are as follows: 35%60% global equity securities, 50% fixed20% real estate investments, 10% multi-asset credit income securities, and cash, 10% real estate investments, and 5% high yield bonds. Equityhedge funds. Global equity securities include mutual funds that invest in companies located both inside and outside the United States. Fixed income securities include exposure to medium and high quality investment grade corporate bonds, pooled consumer loans and U.S. government bonds with an average maturity of 5 – 25 years. The real estate fund invests in real estate investment trusts – companies that purchase office buildings, hotels and other real estate property. The high yield bond fund investsmulti-asset credit funds invest in a diversified portfoliogeographies, asset classes and credit instruments to capture global credit risk premiums. The hedge funds are pooled investments structured to reduce volatility of intermediate term below investment-grade debt securities. returns and
92
long-term return enhancements. Our assets are reviewed on a daily basis to ensure that we are within the targeted asset allocation ranges and, if necessary, asset balances are adjusted back within target allocations.

Our non-U.S. pension assets are typically managed by decentralized fiduciary committees. Our non-U.S. investment policies are different for each country as local regulations, funding requirements, and financial and tax considerations are part of the funding and investment allocation process in each country.

The fair values of both our U.S. and non-U.S. pension plans assets by asset category are as follows:

 

U.S. Plans

 

 

December 31, 2018

 

U.S. Plans

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

December 31, 2022
Total Level 1 Level 2 Level 3
(Dollars in millions)
Cash and cash equivalentsCash and cash equivalents$1 $1 $— $— 

Equity funds

 

$

60

 

 

$

—

 

 

$

60

 

 

$

—

 

Equity funds21 — 21 — 

Short-term investments

 

 

8

 

 

 

—

 

 

 

8

 

 

 

—

 

Government bond fundsGovernment bond funds36 — 36 — 
Corporate bond fundsCorporate bond funds97 — 97 — 
Real estate fundsReal estate funds11 — 11 — 
OtherOther3 — 3 — 
Total assets at fair valueTotal assets at fair value$169 $1 $168 $168 $— 
U.S. Plans
December 31, 2021
TotalLevel 1Level 2Level 3
(Dollars in millions)
Cash and cash equivalentsCash and cash equivalents$4 $4 $— $— 
Equity fundsEquity funds34 — 34 — 
Government bond fundsGovernment bond funds39 — 39 — 

Corporate bond funds

 

 

92

 

 

 

—

 

 

 

92

 

 

 

—

 

Corporate bond funds135 — 135 — 

Real estate funds

 

 

17

 

 

 

—

 

 

 

17

 

 

 

—

 

Real estate funds11 — 11 — 

Total assets at fair value

 

$

177

 

 

$

—

 

 

$

177

 

 

$

—

 

Total assets at fair value$223 $4 $219 $— 

 

Non-U.S. Plans

 

 

December 31, 2018

 

Non-U.S. Plans

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

December 31, 2022
TotalLevel 1Level 2Level 3
(Dollars in millions)
Cash and cash equivalentsCash and cash equivalents$3 $3 $— $— 

Equity funds

 

$

48

 

 

$

—

 

 

$

48

 

 

$

—

 

Equity funds83 — 83 — 

Short-term investments

 

 

12

 

 

 

—

 

 

 

12

 

 

 

—

 

Government bond funds

 

 

28

 

 

 

—

 

 

 

28

 

 

 

—

 

Government bond funds27 — 27 — 

Corporate bond funds

 

 

16

 

 

 

—

 

 

 

16

 

 

 

—

 

Corporate bond funds9 — 9 — 

Real estate funds

 

 

11

 

 

 

—

 

 

 

11

 

 

 

—

 

Real estate funds17 — 17 — 

Other

 

 

8

 

 

 

—

 

 

 

8

 

 

 

—

 

Other13 — 13 — 

Total assets at fair value

 

$

123

 

 

$

—

 

 

$

123

 

 

$

—

 

Total assets at fair value$152 $3 $149 $— 

 

 

Non-U.S. Plans

 

 

 

December 31, 2017

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Equity funds

 

$

33

 

 

$

—

 

 

$

33

 

 

$

—

 

Government bond funds

 

 

19

 

 

 

—

 

 

 

19

 

 

 

—

 

Corporate bond funds

 

 

6

 

 

 

—

 

 

 

6

 

 

 

—

 

Other

 

 

6

 

 

 

—

 

 

 

6

 

 

 

—

 

Total assets at fair value

 

$

64

 

 

$

—

 

 

$

64

 

 

$

—

 

93

Non-U.S. Plans
December 31, 2021
TotalLevel 1Level 2Level 3
(Dollars in millions)
Cash and cash equivalents$3 $3 $— $— 
Equity funds100 — 100 — 
Government bond funds34 — 34 — 
Corporate bond funds11 — 11 — 
Real estate funds22 — 22 — 
Other13 — 13 — 
Total assets at fair value$183 $3 $180 $— 
Equity funds, corporate bond funds, government bond funds, real estate funds and short-term investments are valued either by bids provided by brokers or dealers or quoted prices of securities with similar characteristics. Other includes diversified mutual funds. These investments are valued at estimated fair value based on quarterly financial information received from the investment advisor and/or general partner.


Our general funding policy for qualified defined benefit pension plans is to contribute amounts at least sufficient to satisfy regulatory funding standards. We are not required to make any contributions to our U.S. pension plan in 2019.2022. In 2018,2022, contributions of $16$7 million were made to our non-U.S. pension plans to satisfy regulatory funding requirements. In 2019,2023, we expect to make contributions of cash and/or marketable securities of approximately $6$7 million to our non-U.S. pension plans to satisfy regulatory funding standards. Contributions for both our U.S. and non-U.S. pension plans do not reflect benefits paid directly from Company assets.

Benefit payments, including amounts to be paid from Company assets, and reflecting expected future service, as appropriate, are expected to be paid as follows:

 

 

U.S. Plans

 

 

Non-U.S.

Plans

 

2019

 

$

9

 

 

$

3

 

2020

 

 

10

 

 

 

3

 

2021

 

 

10

 

 

 

3

 

2022

 

 

10

 

 

 

3

 

2023

 

 

11

 

 

 

3

 

2024-2028

 

 

56

 

 

 

18

 

U.S.
Plans		Non-U.S.
Plans
(Dollars in millions)
2023$11 $4 
202411 4 
202511 5 
202611 6 
202711 6 
2028-203261 43 


Note 23. China Variable Interest Entity

On September 20, 2018 in preparation of the Spin-Off, we entered into an agreement by and between Honeywell International Inc. and Garrett Motion Inc. (the “China Purchase Agreement”) in which Honeywell agreed to sell to Garrett 100% of the equity interests of Honeywell Transportation Investment (China) Co., Ltd. (“Garrett China”) consisting of our primary operations in China, in exchange for upfront consideration of 8,444,077 shares of our common stock. No further consideration from Garrett is due. The transfer of the equity interests in Garrett China from Honeywell to Garrett will occur following the current share lock-up period, one year from the date of the agreement.

Garrett China is considered a variable interest entity for which Garrett is the primary beneficiary because the China Purchase Agreement provides Garrett, prior to the transfer of the equity interests, control to direct the management and operation of Garrett China as well as all economic benefits and losses. The intent of the agreement is to place Garrett in the same position as if it already owned 100% of the equity interests of Garrett China. As the agreement was effective prior to the Spin-Off date while the Company and Garrett China were under common control of Honeywell, the assets and liabilities of Garrett China are recognized at their carrying amounts. Additionally, the assets and liabilities and related operations of Garrett China were included in our Consolidated and Combined Balance Sheets and Consolidated and Consolidated and Combined Statements of Operations as of and for the years ended December 31, 2017 and 2016 which were prepared on a carve-out basis.

27. Concentrations

The following table summarizes the consolidated assets and liabilities of Garrett China:

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(Dollars in millions)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

70

 

 

$

78

 

Accounts, notes and other receivables—net

 

 

224

 

 

 

240

 

Inventories—net

 

 

19

 

 

 

21

 

Due from related parties, current

 

 

—

 

 

 

73

 

Total current assets

 

 

313

 

 

 

412

 

Property, plant and equipment—net

 

 

67

 

 

 

66

 

Deferred income taxes

 

 

20

 

 

 

8

 

Other assets

 

 

1

 

 

 

—

 

Total assets

 

$

401

 

 

$

486

 

LIABILITIES

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

261

 

 

$

245

 

Due to related parties, current

 

 

—

 

 

 

37

 

Accrued liabilities

 

 

77

 

 

 

84

 

Total current liabilities

 

 

338

 

 

 

366

 

Other liabilities

 

 

13

 

 

 

16

 

Total liabilities

 

$

351

 

 

$

382

 

Net sales from Garrett China were $470 million, $393 million, and $279 million for the years ended December 31, 2018, 2017, and 2016, respectively. Related expenses primarily consisted of Costs of Goods Sold of $340 million, $310 million, and $199 million, Selling, general and administrative expenses of $19 million, $20 million, and $17 million and Tax expense of $24 million, $28 million and $14 million for the years ended December 31, 2018, 2017, and 2016, respectively.

Note 24. Concentrations

Sales concentration—Net sales by region (determined based on country of shipment(1))shipment) and channel are as follows:

 

 

Year ended December 31, 2018

 

 

 

OEM

 

 

Aftermarket

 

 

Other

 

 

Total

 

United States

 

$

338

 

 

$

175

 

 

$

5

 

 

$

518

 

Europe

 

 

1,686

 

 

 

151

 

 

 

54

 

 

 

1,891

 

Asia

 

 

847

 

 

 

50

 

 

 

26

 

 

 

923

 

Other International

 

 

22

 

 

 

21

 

 

 

—

 

 

 

43

 

 

 

$

2,893

 

 

$

397

 

 

$

85

 

 

$

3,375

 

 

 

Year ended December 31, 2017(1)

 

 

 

OEM

 

 

Aftermarket

 

 

Other

 

 

Total

 

United States

 

$

277

 

 

$

178

 

 

$

6

 

 

$

461

 

Europe

 

 

1,568

 

 

 

140

 

 

 

54

 

 

 

1,762

 

Asia

 

 

750

 

 

 

49

 

 

 

33

 

 

 

832

 

Other International

 

 

19

 

 

 

22

 

 

 

—

 

 

 

41

 

 

 

$

2,614

 

 

$

389

 

 

$

93

 

 

$

3,096

 


Year Ended December 31, 2022
OEMAftermarketOtherTotal
(Dollars in millions)
United States$478 $213 $3 $694 
Europe1,550 157 27 1,734 
Asia1,031 47 24 1,102 
Other International48 25 — 73 
$3,107 $442 $54 $3,603 

 

 

Year ended December 31, 2016(1)

 

 

 

OEM

 

 

Aftermarket

 

 

Other

 

 

Total

 

United States

 

$

296

 

 

$

164

 

 

$

6

 

 

$

466

 

Europe

 

 

1,622

 

 

 

149

 

 

 

35

 

 

 

1,806

 

Asia

 

 

611

 

 

 

53

 

 

 

28

 

 

 

692

 

Other International

 

 

12

 

 

 

21

 

 

 

—

 

 

 

33

 

 

 

$

2,541

 

 

$

387

 

 

$

69

 

 

$

2,997

 

94

(1)

The sales concentration information was previously presented based on the customer’s origin and is now presented based on country of shipment. As a result, the prior periods presented were recast to conform to the current year presentation.

Year Ended December 31, 2021
OEMAftermarketOtherTotal
(Dollars in millions)
United States$383 $176 $6 $565 
Europe1,602 155 27 1,784 
Asia1,153 50 28 1,231 
Other International28 25 — 53 
$3,166 $406 $61 $3,633 
Year Ended December 31, 2020
OEMAftermarketOtherTotal
(Dollars in millions)
United States$309 $148 $5 $462 
Europe1,395 122 30 1,547 
Asia928 41 26 995 
Other International11 19 — 30 
$2,643 $330 $61 $3,034 
Customer concentration—Net salesto Garrett’s largestcustomersand the correspondingpercentageof total net salesare as follows:

 

Net sales

 

Net sales
Year Ended December 31,

 

Years ended December 31,

 

2022%2021%2020%

 

2018

 

 

%

 

 

2017

 

 

%

 

 

2016

 

 

%

 

(Dollars in millions)

Customer A

 

$

455

 

 

 

13

 

 

$

423

 

 

 

14

 

 

$

436

 

 

 

15

 

Customer A$350 10 $347 10 $301 10 

Customer B

 

 

254

 

 

 

8

 

 

 

246

 

 

 

8

 

 

 

303

 

 

 

10

 

Customer B444 12 480 13 346 11 

Others

 

 

2,666

 

 

 

79

 

 

 

2,427

 

 

 

78

 

 

 

2,258

 

 

 

75

 

Others2,809 78 2,806 77 2,387 79 

 

$

3,375

 

 

 

100

 

 

$

3,096

 

 

 

100

 

 

$

2,997

 

 

 

100

 

 $3,603 100 $3,633 100 $3,034 100 

Long-lived assets concentration—Long-livedassetsby regionare as follows:

 

Long-lived Assets(1)

 

Long-lived Assets (1)
December 31

 

December 31,

 

202220212020

 

2018

 

 

2017

 

 

2016

 

(Dollars in millions)

United States

 

$

26

 

 

$

23

 

 

$

21

 

United States$16 $19 $21 

Europe

 

 

273

 

 

 

273

 

 

 

219

 

Europe276 291 315 

Asia

 

 

123

 

 

 

124

 

 

 

109

 

Asia158 162 151 

Other International

 

 

16

 

 

 

22

 

 

 

22

 

Other International20 14 18 

 

$

438

 

 

$

442

 

 

$

371

 

$470 $486 $505 
_________________________

(1)

Long-lived assets are comprised of property, plant and equipment–net.

(1)Long-lived assets are comprised of property, plant and equipment–net.


Supplier concentration—The Company’s largestsupplieraccountedfor 14%7%, 16%6% and 17%8% of directmaterialspurchasesfor the yearsended December31, 2018, 20172022, 2021 and 2016,2020, respectively.


Note 25.28. Unaudited Quarterly Financial Information


The following tables show selected unaudited quarterly results of operations for 2018the years ended December 31, 2022 and 2017.2021. The quarterly data have been prepared on the same basis as the audited annual financial statements and include
95
all adjustments, which include only normal recurring adjustments, necessary for the fair statement of our results of operations for these periods.

 

 

2018

 

 

 

March 31

 

 

June 30

 

 

September 30(b)

 

 

December 31

 

 

Year Ended

December 31,

 

Net Sales

 

$

915

 

 

$

877

 

 

$

784

 

 

$

799

 

 

$

3,375

 

Gross Profit

 

 

211

 

 

 

215

 

 

 

178

 

 

 

172

 

 

 

776

 

Net Income (Loss)

 

 

58

 

 

 

150

 

 

 

929

 

 

 

43

 

 

 

1,180

 

Earnings (loss) per share - basic(a)

 

 

0.78

 

 

 

2.03

 

 

 

12.54

 

 

 

0.58

 

 

 

15.93

 

Earnings (loss) per share - diluted(a)

 

 

0.78

 

 

 

2.03

 

 

 

12.54

 

 

 

0.57

 

 

 

15.86

 


 

 

2017

 

 

 

March 31

 

 

June 30

 

 

September 30

 

 

December 31(c)

 

 

Year Ended

December 31,

 

Net Sales

 

$

772

 

 

$

775

 

 

$

745

 

 

$

804

 

 

$

3,096

 

Gross Profit

 

 

188

 

 

 

197

 

 

 

177

 

 

 

173

 

 

 

735

 

Net Income (Loss)

 

 

75

 

 

 

105

 

 

 

57

 

 

 

(1,220

)

 

 

(983

)

Earnings (Loss) per share - basic(a)

 

 

1.01

 

 

 

1.42

 

 

 

0.77

 

 

 

(16.47

)

 

 

(13.27

)

Earnings per share - diluted(a)

 

 

1.01

 

 

 

1.42

 

 

 

0.77

 

 

 

(16.47

)

 

 

(13.27

)

(a)

On October 1, 2018, the date of consummation of the Spin-Off, 74,070,852 shares of the Company’s common stock were distributed to Honeywell stockholders of record as of September 18, 2018 who held their shares through the Distribution Date. Basic and Diluted EPS for all periods prior to the Spin-Off reflect the number of distributed shares, or 74,070,852 shares.

(b)

Net income for three months ended September 30, 2018 was impacted by an $870 million reduction in tax expense primarily due to tax benefits from an internal restructuring of Garrett’s business in advance of the Spin-Off and tax benefits related to the currency impacts on withholding taxes on undistributed foreign earnings, partially offset by adjustments to the provisional tax amount related to U.S. tax reform and non-deductible expenses.

2022
March 31June 30September 30December 31Year Ended December 31
(Dollars in millions)
Net Sales$901 $859 $945 $898 $3,603 
Gross Profit175 169 178 161 683 
Net Income88 85 105 112 390 
Net Income available for distribution50 46 65 72 233 
Earnings per share - basic0.15 0.15 0.21 0.23 0.75 
Earnings per share - diluted0.15 0.15 0.21 0.23 0.75 
Earnings per share - diluted methodTwo-classTwo-classTwo-classTwo-classTwo-class

(c)

Net Loss for the quarter ended December 31, 2017 was impacted by the Tax Act in the amount of $1,335 million. Refer to Note 7 Income Taxes.

2021
March 31June 30September 30December 31Year Ended December 31
(Dollars in millions)
Net Sales$997 $935 $839 $862 $3,633 
Gross Profit196 193 163 155 707 
Net Income (Loss)(105)409 63 128 495 
Net Income (Loss) available to common shareholders(105)385 27 91 398 
Earnings (loss) per share - basic(1.38)1.63 0.09 0.29 1.69 
Earnings (loss) per share - diluted(1.38)1.29 0.09 0.29 1.56 
Earnings (loss) per share - diluted methodIf-convertedTwo-classTwo-classIf-converted


96

Item 9. Changes in and Disagreements with AccountantsAccountants on Accounting and Financial Disclosure

The information required by this Item 9 was previously reported in the Company’s Current Report on Form 8-K that was filed with the Securities and Exchange Commission on November 6, 2018.

None.

Item 9A. Controls and Procedures


Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.objectives and that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Our Chief Executive Officer and Chief Financial Officer previously concluded that the Company’s disclosure controls and procedures were not effective as of the quarter ended September 30, 2018 as a result of the material weakness in internal control over financial reporting that was identified by Honeywell in August 2018 prior to the Spin-Off related to the estimation in the liability for unasserted Bendix-related asbestos claims. Our financial statements in periods prior to the Spin-Off were derived from the consolidated financial statements and accounting records of Honeywell and reflected an estimated liability for resolution of pending and future asbestos-related and environmental liabilities. Following the Spin-Off, Based on management's evaluation, our financial statements are no longer derived from the consolidated financial statements and accounting records of Honeywell and no longer reflect an estimated liability for resolution of pending and future asbestos-related and environmental liabilities. Because the material weakness disclosed in our Form 10 and our Form 10-Q for the quarter ended September 30, 2018 was solely related to Honeywell’s reassessment of its accounting for these liabilities, and because these liabilities are no longer reflected on our balance sheet, management has concluded that the material weakness identified as of September 30, 2018 no longer exists.

Our Consolidated and Combined Financial Statements for periods beginning on and after October 1, 2018 reflect the impact of the Indemnification and Reimbursement Agreement with Honeywell, under which we are required to make payments to Honeywell in amounts equal to 90% of Honeywell’s asbestos-related liability payments and accounts payable, primarily related to the Bendix business in the United States, as well as certain environmental-related liability payments and accounts payable and non-United States asbestos-related liability payments and accounts payable, in each case related to legacy elements of the Business, including the legal costs of defending and resolving such liabilities, less 90% of Honeywell’s net insurance receipts and, as may be applicable, certain other recoveries associated with such liabilities. See Note 21 Commitments and Contingencies.

In accordance with the terms of the Indemnification and Reimbursement Agreement, our Consolidated and Combined Balance Sheets reflect a liability of $1,244 million in Obligations payable to Honeywell as of December 31, 2018 (the “Indemnification Liability”). The amount of the Indemnification Liability is based on information provided to us by Honeywell with respect to Honeywell’s assessment of its own asbestos-related liability payments and accounts payable as of such date and is calculated in accordance with the terms of the Indemnification and Reimbursement Agreement as described above. Honeywell is responsible for litigating the underlying proceedings, and estimates its future liability for asbestos-related claims based on a number of factors.

In the course of preparing this Annual Report on Form 10-K and our Consolidated and Combined Financial Statements for the year ended December 31, 2018, our management determined that there is a material weakness in our internal control over financial reporting relating to the supporting evidence for our liability to Honeywell under the Indemnification and Reimbursement Agreement. Specifically, we were unable to independently verify the accuracy of certain information Honeywell provided to us that we used to calculate the amount of our Indemnification Liability, including information provided in Honeywell's actuary report and the amounts of settlement values and insurance receivables. For example, Honeywell did not provide us with sufficient information to make an independent assessment of the probable outcome of the underlying asbestos proceedings and whether certain insurance receivables are recoverable.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2018, our disclosure controls and procedures were not effective at the reasonable assurance level as a resultof December 31, 2022.

Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Our management conducted an assessment of the material weaknesseffectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control-Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2022.
Deloitte SA, our independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting, which is included in Item 8, Financial Statements and Supplementary Data, of this Annual Report.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting relating to the supporting evidence for our liability(as defined in Rules 13a-15(f) and 15d-15(f) under the Indemnification and Reimbursement Agreement described above.


Our management is committed to maintaining a strong internal control environment. In response to the identified material weakness, our management, with the oversight of the Audit Committee of the Board of Directors, has taken steps to remediate the material weakness by working to obtain additional information about the Indemnification Liability through a dialogue and iterative process with Honeywell.

This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our independent registered public accounting firm due to a transition period established by the SEC for newly public companies.

In periods prior to the Spin-Off, we relied on financial information and resources provided by Honeywell to manage certain aspects of our business. Following the Spin-Off, several areas of our internal control over financial reporting have changed. New corporate and oversight functions have been implemented in the areas of investor relations, communications, payroll and benefits, stock administration, financial reporting, tax, legal, human resources, and treasury, including insurance and risk management, to address corporate-level activities previously performed by Honeywell and to meet all regulatory requirements for a stand-alone company. Apart from the foregoing changes and the material weakness relating to the supporting evidence for our liability to Honeywell under the Indemnification and Reimbursement Agreement described above, there were no changes in our internal control over financial reporting that occurredExchange Act) during the quarter ended December 31, 20182022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None


None.

Part

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
97
PART III

Item 10. Directors, Executive Officers and Corporate Governance

MANAGEMENT

The following table presents information concerning

Information with respect to this Item will be set forth in our executive officers2023 Proxy Statement, which will be filed with the Securities and directors.

Name

Age

Position

Olivier Rabiller

48

Director, President & Chief Executive Officer

Carlos Cardoso

61

Chairman of the Board

Maura J. Clark

60

Director

Courtney Enghauser

46

Director

Susan L. Main

60

Director

Carsten J. Reinhardt

51

Director

Scott Tozier

53

Director

Craig Balis

54

Senior Vice President & Chief Technology Officer

Daniel Deiro

46

Senior Vice President, Global Customer Management & General Manager Japan/Korea

Alessandro Gili

47

Senior Vice President & Chief Financial Officer

Thierry Mabru

51

Senior Vice President, Integrated Supply Chain

Jerome Maironi

53

Senior Vice President, General Counsel & Corporate Secretary

Fabrice Spenninck

50

Senior Vice President & Chief Human Resources Officer

The following are brief biographies describing the backgrounds of our executive officers and directors.

Olivier Rabiller

Mr. Rabiller has served as our President & Chief Executive Officer as well as a member of our Board of Directors since the Company was spun off from Honeywell International, Inc. (“Honeywell”) on October 1, 2018 (the “Spin Off”). Prior to the Spin Off, Mr. Rabiller served as President and Chief Executive Officer of the Transportation Systems division at Honeywell since July 2016. From July 2014 to July 2016, he served as Vice President and General Manager of Transportation Systems for High Growth Regions, Business Development, and Aftermarket. From January 2012 to July 2014, he served as Vice President and General Manager of Transportation Systems Aftermarket. Earlier positions within Honeywell included roles as the Vice President, Chief Procurement Officer of Transportation Systems for three years, and prior to that Mr. Rabiller served in various roles at Honeywell Turbo Technology, including Vice President of Customer Management for Passenger Vehicles; Vice President of European and Indian Sales, Marketing and Customer Management; and Director of Marketing and Business Development for the European region. He joined Honeywell in 2002 as Senior Program Manager and Business Development Manager for Turbo Technologies EMEA. Mr. Rabiller is a director of the Swiss-American Chamber of Commerce, a non-profit organization which facilitates business relations between Switzerland and the United States. From 2016 to 2018, Mr. Rabiller was a director at Honeywell and from 2012 to 2016, he was a director of Friction Material Pacifica, Australia. He holds a Master’s degree in engineering from École Centrale Nantes and an MBA from INSEAD. We believe Mr. Rabiller is qualified to serve as a member of our Board of Directors because of his extensive experience at the Transportation Systems division at Honeywell, his background within the automotive industry and his strong leadership abilities.

Carlos Cardoso

Mr. Cardoso has served as a member of our Board of Directors since the Spin Off. Mr. Cardoso has served as the Principal of CMPC Advisors LLC, an investment advisory firm, since January 2015. Mr. Cardoso previously served as a Senior Advisor of Irving Place Capital focusing on investments in industrial manufacturing and distribution companiesfrom July 2015 to August 2018. From 2007 to 2015, Mr. Cardoso was President and Chief Executive Officer of Kennametal, a global leader in metalworking solutions and engineered components serving a diverse set of industrial and infrastructure markets, where he also served as Chairman from 2006 to 2014. Before serving as CEO, Mr. Cardoso served as Kennametal’s Vice President and Chief Operating Officer. Prior to Kennametal, he held executive roles at Flowserve and Honeywell (Allied Signal). Mr. Cardoso currently serves on the boards of public companies Stanley


Black & Decker, Inc. and Hubbell Incorporated. He previously served on the board of the Ohio TransmissionCorporation.Hehas been named one of America’s “Best ChiefExecutiveOfficers” by InstitutionalInvestorMagazine.Mr. Cardoso earneda Bachelorof SciencedegreeinbusinessadministrationfromFairfieldUniversityand a Master’s degreein managementfromthe Rensselaer PolytechnicInstitute. We believe Mr. Cardoso is qualified to serve as a member and Chairmanof our Board of Directorsbecauseof his background as a directorfor publiccompaniesand his expertisein companieswith extensivemanufacturing and distributionoperations.

Maura J. Clark

Ms. Clark has served as a member of our Board of Directors since the Spin Off. From 2005 to 2014, Ms. Clark served as President of Direct Energy Business, LLC, where she was responsible for all aspects of the North American commercial and industrial energy business, and Senior Vice President North American Strategy and Mergers and Acquisitions of Direct Energy. Her prior experience includes serving as a Managing Director of Investment Banking Services at Goldman Sachs & Co. and as Executive Vice President of Corporate Development and Chief Financial Officer of Clark USA, an independent oil refining and marketing company. She also served as Vice President of Finance of North American Life Assurance Company, a financial services company. Ms. Clark is a member of the boards of directors of Nutrien Ltd (formerly Potash Corp. of Saskatchewan and Agrium Inc., which merged to form Nutrien Ltd), Fortis Inc. and Sanctuary for Families, a New York-based not-for-profit organization. She previously served on the boards of Elizabeth Arden, Inc. and Primary Care Development Corp. She graduated from Queens University with a Bachelor of Arts in Economics. She is a Charted Professional Accountant. We believe Ms. Clark is qualified to serve as a member of our Board due to her extensive experience managing the operations of an international commercial and industrial business as well as her significant experience serving on other public company boards.

Courtney M. Enghauser

Ms. Enghauser has served as a member of the Board of Directors since the Spin Off. Ms. Enghauser currently advises private equity firms on acquisitions and transactions in a variety of industries.  Ms. Enghauser was previously the Chief Financial Officer of Sensus, now a part of Xylem, a leading global water technology company from April 2013 to June 2017. Prior to that, Ms. Enghauser was the Chief Financial Officer of Kinetek, Inc., where she was responsible for the financial management and reporting of a global portfolio company consisting of eleven operating subsidiaries and sixteen holding companies in the electric motors and controls industries located throughout the world. Ms. Enghauser also served as Director of Finance, Mergers and Acquisitions of Kinetek, Inc. and Chief Financial Officer of Finishing Services & Technologies, Inc.Exchange Commission no later than 120 days after starting her career as an auditor at PricewaterhouseCoopers. Ms. Enghauser graduated with a Bachelor of Science in Accounting from Indiana University and is a Certified Public Accountant. We believe Ms. Enghauser is qualified to serve on our Board due to her significant experience in the technology sector and her expertise in global financial strategy.

Susan L. Main

Ms. Main has served as a member of our Board of Directors since the Spin Off. Ms. Main has served as the Senior Vice President and Chief Financial Officer of Teledyne Technologies Incorporated, a leading provider of sophisticated instrumentation, digital imaging products and software, aerospace and defense electronics, and engineered systems since November 2012. Prior to her current role, Ms. Main was the Vice President and Controller since March 2004. From 1999 to 2004, Ms. Main served as Vice President and Controller for Water Pik Technologies, Inc. Ms. Main also held numerous financial roles at the former Allegheny Teledyne Incorporated in its government, industrial and commercial segments. Earlier in her career, Ms. Main held financial and auditing roles at the former Hughes Aircraft Company. Ms. Main is a member of the board of directors of Ashland Global Holdings, Inc., where she serves as the Chairperson of the Audit Committee and as a member of the Governance and Nominating Committee. Ms. Main is a member of the National Association of Corporate Directors and Women Corporate Directors. Ms. Main graduated from California State University, Fullerton with a Bachelor of Arts in business administration. We believe Ms. Main is qualified to serve on our Board based on her experience in financial management.


Carsten J. Reinhardt

Mr. Reinhardt has served as a member of our Board of Directors since the Spin Off. Mr. Reinhardt has served as an independent senior advisor since October 2016. From October 2016 to February 2019, Mr. Reinhardt served as Senior Advisor for RLE International, a development and service provider to the international engineering industries. From July 2012 to October 2016, Mr. Reinhardt was President and CEO of Voith Turbo GmbH & Co. KG, a supplier of advanced powertrain technologies to the rail, commercial vehicle, marine, power generation, oil & gas and mining industries. Prior to that, Mr. Reinhardt served as COO of Meritor Inc., a manufacturer of automobile components, from 2008 through 2011 and as President of Meritor’s Commercial Vehicle Division from 2006 until 2008. Before joining Meritor, Mr. Reinhardt served as President and CEO of Detroit Diesel Corporation, a diesel engine manufacturer, from 2003 through 2006, following 10 years in a variety of management positions at Daimler Trucks North America, a manufacturer of commercial vehicles. Mr. Reinhardt started his career as Management Trainee at Daimler AG, a multinational automotive corporation, in Stuttgart, Germany. Mr. Reinhardt currently sits on the Board of SAF-Holland S.A., where he serves as a member of the Audit Committee. He also sits on the Boards of several private companies, including GRUNDFOS Holding A/S, Rosti Group AB, Rosti Automotive AB, Tegimus Holding, GmbH, and Beinbauer GmbH. Mr. Reinhardt holds a Bachelor’s degree in Mechanical Engineering from Esslingen Technical University in Germany and a Master of Science degree in automobile engineering from the University of Hertfordshire, UK. We believe Mr. Reinhardt is qualified to serve on our Board due to his extensive experience and operational expertise in the automotive industry across global markets.

Scott Tozier

Mr. Tozier has served as a member of our Board of Directors since the Spin Off. Mr. Tozier has been the Chief Financial Officer and Executive Vice President of Albemarle Corporation, a specialty chemicals company, since January 2011. Prior to joining Albemarle, he served as Vice President of Finance, Transformation and Operations of Honeywell, where he was responsible for Honeywell’s global financial shared services and best practices management. His 16-year career with Honeywell spanned senior financial positions in the United States, Asia Pacific and Europe. Mr. Tozier currently serves as a director on the boards of directors for FCCSA and Volta Energy Technologies. He is also a trustee for Blumenthal Performing Arts and on the Board of Advisors for Junior Achievement of the Carolinas. He holds a Bachelor of Business Administration in Accounting from the University of Wisconsin-Madison and an MBA from the University of Michigan, where he graduated with honors. He is a Certified Public Accountant. We believe Mr. Tozier is qualified to serve on our Board due to his experience as a former executive within Honeywell, a global public company, as well as his financial management skills given his background as a CFO and a Certified Public Accountant.

Craig Balis

Mr. Balis has served as our Senior Vice President and Chief Technology Officer since the Spin Off. From June 2014 until the Spin-Off, Mr. Balis was the Vice President and Chief Technology Officer of Honeywell Transportation Systems. From December 2008 to June 2014, Mr. Balis was the Vice President of Engineering of Honeywell Transportation Systems. Mr. Balis has a Bachelor of Science and Master’s Degree in engineering from the University of Illinois.

Daniel Deiro

Mr. Deiro has served as our Senior Vice President, Global Customer Management, and General Manager Japan/Korea since the Spin Off. From August 2014 until the Spin-Off, Mr. Deiro was the Vice President of Customer Management and General Manager for Honeywell Transportation Systems for Japan and Korea. From April 2012 until August 2014, Mr. Deiro was a Senior Customer Management Director at Honeywell Transportation Systems. Mr. Deiro has a degree in Automotive Engineering from Haute école spécialisée bernoise, Technique et Informatique (BFH-TI), Biel, Switzerland.

Alessandro Gili

Mr. Gili has served as our Senior Vice President and Chief Financial Officer since the Spin Off. From June 2018 until the Spin-Off, Mr. Gili was the Chief Financial Officer of Honeywell Transportation Systems. From February 2015 until May 2018, Mr. Gili was the Chief Financial Officer of Ferrari N.V. In April 2015 he was also appointed as President of Ferrari Financial Services S.p.A. From June 2013 to February 2015, he was a Vice President and Chief


Accounting Officerof Fiat Chrysler AutomobilesN.V.From June 2011 to June 2013, Mr. Gili was Vice President, CorporateControllerand Chief Accounting Officerof Chrysler GroupLLC.Priorto joiningthe Fiat Group, Mr. Gili was a projectmanagerfor InnovativeRedesign Managements Consultants.Mr. Gili spent the firstyearsof his careerin Audit at Coopers & Lybrand. Mr. Gili holds a Bachelor’sdegreein financefromTurin Universityand is a CertifiedPublic Accountantand CertifiedPublic Auditor in Italy.

Thierry Mabru

Thierry Mabru has served as our Senior Vice President, Integrated Supply Chain since the Spin Off. From March 2013 until the Spin-Off, Mr. Mabru was the Vice President of Global Integrated Supply Chain for Honeywell Transportation Systems. From April 2011 until February 2013, Mr. Mabru was Senior Director of Global Advanced Manufacturing Engineering for Honeywell Transportation Systems. From September 2006 to February 2011, Mr. Mabru was Director of the Program Management Office of Honeywell Aerospace EMEAI. Mr. Mabru currently serves as director of both the Board of Friction Material Pacific (FMP) Group Australia PTY Limited and Board of Friction Material Pacific (FMP) Group PTY Limited. Mr. Mabru holds a Master of Science degree from the École Nationale de Me´canique et d’Ae´rotechniques (ISAE/ENSMA), Poitier, France.

Jerome Maironi

Jerome Maironi has served as our Senior Vice President, General Counsel and Corporate Secretary since the Spin Off.31, 2022. For the five years priorlimited purpose of providing the information necessary to comply with this Item 10, the Spin-Off, Mr. Maironi was the Vice President of Global Legal Affairs for Honeywell Performance Materials and Technologies. Mr. Maironi graduated with an Executive MBA from INSEAD, Fontainebleau, France. Mr. Maironi received a post-graduate degree in Law & Practice of International Trade and a Master of Law from the University Rene Descartes, Paris, France. Mr. Maironi is a member of the Association Francaise des Juristes d’Entreprise and has also passed the French Bar Exam.

Fabrice Spenninck

Mr. Spenninck has served as our Senior Vice President and Chief Human Resources Officer since the Spin Off. From August 2015 until the Spin-Off, Mr. Spenninck was Vice President of Human Resources of Honeywell Transportation Systems. From 2013 to 2015, Mr. Spenninck was Vice President of Labor and Employee Relations and, from 2011 to 2013, he was Senior Director of Human Resources (One Country Leader) in France and North Africa at Honeywell. Mr. Spenninck holds a Master’s degree in Human Resources and Labor Relations from the University of Montpellier, France.

Code of Business Conduct

The Board has adopted a written code of business conduct (the “Code of Conduct”), which applies to all of our directors, officers and employees, including our principal executive officer and our principal financial and accounting officer. Our Code of Conduct is available on our website www.garrettmotion.com in the “Investors” section under “Governance.” In addition, we intend to post on our website all disclosures that are required by law or New York Stock Exchange listing rules concerning any amendments to, or waivers from, any provision of our Code of Conduct.

Other

The remaining information required to be disclosed by this item will be included under the headings “Election of Directors,” “Corporate Governance,” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive proxy statement for our 2019 Annual Meeting of Stockholders, and such information2023 Proxy Statement is incorporated herein by this reference.


Item 11. Executive Compensation

The information required

Information with respect to be disclosed by this itemItem will be included under the headings “Executive Compensation” and “Compensation Committee Interlocks and Insider Participation”set forth in our definitive proxy statement for our 2019 Annual Meeting2023 Proxy Statement, which will be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2022. For the limited purpose of Stockholders, and suchproviding the information necessary to comply with this Item 11, the 2023 Proxy Statement is incorporated herein by this reference.



Item 12. Security Ownership of Certain Beneficial OwnersOwners and Management and Related Stockholder Matters

Information with respect to this Item will be set forth in our 2023 Proxy Statement, which will be filed with the Securities Authorized For Issuance under Equity Compensation Plans (As ofand Exchange Commission no later than 120 days after December 31, 2018)

Plan category:

 

Number of Securities to

be Issued Upon Exercise

of Outstanding Options,

Warrants, and Rights

 

 

Weighted-Average

Exercise Price of

Outstanding Options,

Warrants, and Rights(1)

 

Number of Securities

Available for Future

Issuance Under Equity

Compensation Plans

(excludes securities

Reflected in first column)

 

Equity compensation plans approved by

   security holders

 

 

3,369,622

 

 

n/a

 

 

6,620,619

 

Equity compensation plans not approved by

   security holders

 

 

—

 

 

n/a

 

 

—

 

Total

 

 

3,369,622

 

 

n/a

 

 

6,620,619

 

(1)

As of December 31, 2018, our outstanding stock-based compensation awards solely consist of restricted stock units without an exercise price.

Other

The remaining2022. For the limited purpose of providing the information requirednecessary to be disclosed bycomply with this item will be included underItem 12, the heading “Security Ownership of Certain Beneficial Owners and Management” in our definitive proxy statement for our 2019 Annual Meeting of Stockholders, and such information2023 Proxy Statement is incorporated herein by this reference.



Item 13. Certain RelationshipsRelationships and Related Transactions, and Director Independence

The information required

Information with respect to be disclosed by this itemItem will be included under the headings “Certain Relationships and Related Person Transactions,” “Corporate Governance” and “Director Independence”set forth in our definitive proxy statement for our 2019 Annual Meeting2023 Proxy Statement, which will be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2022. For the limited purpose of Stockholders, and suchproviding the information necessary to comply with this Item 13, the 2023 Proxy Statement is incorporated herein by this reference.

Item 14. Principal Accountant Fees and Services

The information required

Information with respect to be disclosed by this itemItem will be included under the heading “Principal Accountant Fees and Services”set forth in our definitive proxy statement for our 2019 Annual Meeting2023 Proxy Statement, which will be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2022. For the limited purpose of Stockholders, and suchproviding the information necessary to comply with this Item 14, the 2023 Proxy Statement is incorporated herein by this reference.


98

Part

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Documents filed as part of this report:

1.The following financial statements are included in Item 8 “Financial Statements and Supplementary Data” herein.

60

50

62

53

63

54

64

55

65

56

66

57

67

58


2.The following financial statement schedule should be considered in conjunction with our consolidated financial statements. All other schedules are omitted because they are not applicable, not required or the required information is shown in the consolidated financial statements or notes thereto.


GARRETT MOTION INC.
Schedule II-Valuation and Qualifying Accounts
For and as of the year ending:Balance at Beginning of PeriodAdditions Charged to Costs and ExpensesDeductionsForeign
Exchange
Translation
Adjustment		Other ActivityBalance at End of Period
(Dollars in millions)
December 31, 2022
Allowance for expected credit losses$5 $4 $— $— $— $9 
Inventory reserves29 7 (3)(2)— 31 
Tax valuation allowance32 — (1)— — 31 
December 31, 2021
Allowance for expected credit losses$13 $3 $(11)$— $— $5 
Inventory reserves41 5 (15)(2)— 29 
Tax valuation allowance34 5 (4)(3)— 32 
December 31, 2020
Allowance for expected credit losses(1)
$4 $6 $(3)$1 $5 $13 
Inventory reserves25 25 (11)2 — 41 
Tax valuation allowance27 13 — (6)— 34 
(1) Other activity relates to the adoption impact of ASU 2016-03, Financial Instruments - Credit Losses.

3.The exhibits to this report are listed below

 

 

 

Incorporated by Reference

 

Exhibit

Number

 

Description

Form

File No.

Exhibit

Filing
Date

Filed/ Furnished Herewith

2.1+

 

Indemnification and Reimbursement Agreement, dated September 12, 2018, by and among Honeywell ASASCO Inc., Honeywell ASASCO 2 Inc., and Honeywell International Inc.

8-K

001-38636

2.1

9/14/2018

 

2.2+

 

Tax Matters Agreement, dated September 12, 2018, by and between Honeywell International Inc., Garrett Motion Inc., and, solely for purposes of Section 3.02(g), 5.05 and 6.13(b), Honeywell ASASCO Inc. and Honeywell ASASCO 2 Inc.

8-K

001-38636

2.2

9/14/2018

 

2.3+

 

Separation and Distribution Agreement, dated September 27, 2018, between Honeywell and Garrett

8-K

001-38636

2.1

10/1/2018

 

2.4+

 

Transition Services Agreement, dated September 27, 2018, between Honeywell and Garrett Transportation I Inc.

8-K

001-28636

2.2

10/1/2018

 

2.5+

 

Employee Matters Agreement, dated September 27, 2018, between Honeywell and Garrett

8-K

001-28636

2.3

10/1/2018

 

2.6+

 

Intellectual Property Agreement, dated September 27, 2018, between Honeywell and Garrett

8-K

001-28636

2.4

10/1/2018

 

2.7+

 

Trademark License Agreement, dated September 27, 2018, between Honeywell and Garrett

8-K

001-28636

2.5

10/1/2018

 

3.1

 

Amended and Restated Certificate of Incorporation of Garrett Motion Inc.

S-8

333-227619

4.1

10/1/2018

 

3.2

 

Amended and Restated By-laws of Garrett Motion Inc.

8-K

333-227619

4.2

10/1/2018

 

4.1

 

Indenture, dated as of September 27, 2018, between Garrett LX I S.à r.l, Garrett Borrowing LLC, the Company, the guarantors named therein, Deutsche Trustee Company Limited, as Trustee, Deutsche Bank AG, London Branch, as Security Agent and Paying Agent, and Deutsche Bank Luxembourg S.A., as Registrar and Transfer Agent

8-K

001-38636

4.1

10/1/2018

 


Incorporated by Reference
Exhibit
Number		DescriptionFormFile No.ExhibitFiling
Date		Filed/
Furnished Herewith
2.18-K001-386362.14/27/2021 

10.1

 

Credit Agreement, dated as of September 27, 2018, by and among the Company, Garrett LX I S.à r.l., Garrett LX II S.à r.l., Garrett LX III S.à r.l., Garrett Borrowing LLC, and Honeywell Technologies Sàrl, the Lenders and Issuing Banks party hereto and JPMorgan Chase Bank, N.A., as administrative agent.

8-K

001-38636

10.1

10/1/2018

 

10.2

 

Intercreditor Agreement, dated as of September 27, 2018, among Garrett Motion Inc., Garrett LX I S.à r.l, Garrett LX II S.à r.l, Garrett LX III S.à r.l, Honeywell Technologies Sàrl, Garrett Borrowing LLC, other debtors and grantors party thereto, JPMorgan Chase Bank, N.A., Deutsche Trust Company Limited, Deutsche Bank AG, London Branch, other lenders party thereto from time to time, Honeywell ASASCO 2 Inc., and each additional representative from time to time party thereto

8-K

001-38636

10.2

10/1/2018

 

10.3†

 

2018 Stock Incentive Plan of Garrett Motion Inc. and its Affiliates

S-8

333-227619

4.3

10/1/2018

 

10.4†

 

2018 Stock Plan for Non-Employee Directors of Garrett Motion Inc.

S-8

333-227619

4.4

10/1/2018

 

10.5†

 

2018 Stock Incentive Plan of Garrett Motion Inc. and its Affiliates Form of Stock Option Award Agreement

S-8

333-227619

4.5

10/1/2018

 

10.6†

 

2018 Stock Incentive Plan of Garrett Motion Inc. and its Affiliates Form of Restricted Stock Unit Agreement

S-8

333-227619

4.6

10/1/2018

 

10.7†

 

2018 Stock Incentive Plan of Garrett Motion Inc. and its Affiliates Form of Restricted Stock Unit Agreement (for replacement awards)

S-8

333-227619

4.7

10/1/2018

 

10.8†

 

2018 Stock Incentive Plan of Garrett Motion Inc. and its Affiliates Form of Performance Stock Unit Agreement

S-8

333-227619

4.8

10/1/2018

 

10.9†

 

2018 Stock Incentive Plan of Garrett Motion Inc. and its Affiliates Form of Performance Unit Agreement

S-8

333-227619

4.9

10/1/2018

 

10.10†

 

2018 Stock Plan for Non-Employee Directors of Garrett Motion Inc. Form of Stock Option Award Agreement

S-8

333-227619

4.10

10/1/2018

 

10.11†

 

2018 Stock Plan for Non-Employee Directors of Garrett Motion Inc. Form of Restricted Stock Unit Agreement

S-8

333-227619

4.11

10/1/2018

 

10.12†

 

Offer Letter for Olivier Rabiller, dated May 2, 2018

10-12B

001-38636

10.1

8/23/2018

 

10.13†

 

Employment Contract for Alessandro Gili, dated May 2, 2018

10-12B

001-38636

10.2

8/23/2018

 

10.14†

 

Offer Letter for Daniel Deiro, dated June 1, 2018

10-12B

001-38636

10.3

8/23/2018

 

10.15†

 

Offer Letter for Thierry Mabru, dated June 1, 2018

10-12B

001-38636

10.4

8/23/2018

 

10.16†

 

Offer Letter for Craig Balis, dated June 1, 2018

10-12B

001-38636

10.5

8/23/2018

 

21.1

 

List of Subsidiaries

 

 

 

 

*

23.1

 

Consent of Independent Registered Public Accounting Firm

 

 

 

 

*

23.2

 

Consent of Independent Registered Public Accounting Firm

 

 

 

 

*

31.1

 

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

*

31.2

 

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

*

32.1

 

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

**

99

3.18-K001-386363.14/30/2021 
3.28-K001-386363.14/28/2022
3.3DEF
14C		001-386362/9/2022
3.410-Q001-386363.510/28/2021 
4.1*
10.1†10-12B001-3863610.18/23/2018 
10.2†10-12B001-3863610.48/23/2018 
10.3†10-12B001-3863610.58/23/2018 
10.4†10-Q001-3863610.17/30/2020 
10.5†10-Q001-3863610.15/11/2020 
10.6†10-K001-3863610.202/27/2020 
10.7†10-K001-3863610.212/27/2020 
10.8†8-K001-3863610.16/19/2020 
10.9†8-K001-3863610.15/28/2021
10.10†8-K001-3863610.25/28/2021
10.11†8-K001-3863610.35/28/2021
10.12†8-K001-3863610.45/28/2021
10.13†8-K001-3863610.55/28/2021
10.148-K001-3863610.14/30/2021
10.1510-K001-3863610.312/14/2022
10.16POS
AM		333-25665910.16/9/2022

32.2

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

**

101.INS

XBRL Instance Document

*

101.SCH

XBRL Taxonomy Extension Schema Document

*

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

*

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

*

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

*

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

*

100

*

Filed herewith

**

Furnished herewith

10.178-K001-3863610.24/30/2021
10.188-K001-3863610.34/30/2021
21.1*    *
23.1    *
31.1    *
31.2    *
32.1    **
32.2    **
99.18-K001-386362.14/27/2021
101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document    *
101.SCHInline XBRL Taxonomy Extension Schema Document    *
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document    *
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document    *
101.LABInline XBRL Taxonomy Extension Label Linkbase Document    *
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document    *
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)    *

+

Certain schedules and similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant hereby undertakes to furnish copies of any of the omitted schedules and similar attachments upon request by the U.S. Securities and Exchange Commission.

*    Filed herewith

†

Management contract or compensation plan or arrangement

**    Furnished herewith
†    Management contract or compensation plan or arrangement

Item 16. Form 10- K Summary

None.


101

SIGNATURES

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Garrett Motion Inc.

Date: March 1, 2019 

February 14, 2023

By:

/s/ Olivier Rabiller

Olivier Rabiller

President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Date

Signature

Title

Date

/s/ Olivier Rabiller

President, Chief Executive Officer and Director

February 14, 2023
Olivier Rabiller(Principal Executive Officer)

March 1, 2019 

Olivier Rabiller

/s/ Alessandro Gili

Sean Deason

Senior Vice President and Chief Financial Officer

February 14, 2023
Sean Deason(Principal Financial Officer)

March 1, 2019 

Alessandro Gili

/s/ Russell James

Joanne Lau

Vice President and Corporate Controller (Principal

February 14, 2023
Joanne Lau(Principal Accounting Officer)

March 1, 2019 

Russell James

/s/ Carlos M. Cardoso

Daniel Ninivaggi

Chairman of the Board and Director

March 1, 2019 

February 14, 2023

Carlos M. Cardoso

Daniel Ninivaggi

/s/ Maura J. Clark

D'aun Norman

Director

March 1, 2019 

February 14, 2023

Maura J. Clark

D'aun Norman

/s/ Courtney M. Enghauser

John Petry

Director

March 1, 2019 

February 14, 2023

Courtney M. Enghauser

John Petry

/s/ Susan L. Main

Tina Pierce

Director

March 1, 2019 

February 14, 2023

Susan L. Main

Tina Pierce

/s/ Carsten J. Reinhardt

Robert Shanks

Director

March 1, 2019 

February 14, 2023

Carsten J. Reinhardt

Robert Shanks

/s/ Scott A. Tozier

Kevin Mahoney

Director

March 1, 2019 

February 14, 2023

Scott A. Tozier

Kevin Mahoney

/s/ Julia SteynDirectorFebruary 14, 2023
Julia Steyn
/s/ Steven TesoriereDirectorFebruary 14, 2023
Steven Tesoriere

116

102