Garrett Motion Inc.

Previous wording

The following MD&A is intended to help you understand the results of operations and financial condition of Garrett Motion Inc. for the three and nine months ended September 30, 2024.

Current wording

The following MD&A is intended to help you understand the results of operations and financial condition of Garrett Motion Inc. for the three months ended March 31, 2025.

Previous wording

For the three and nine months ended September 30, 2024, we repurchased $52 million and $226 million, respectively, of Common Stock under our share repurchase program. As of September 30, 2024, we had $124 million of the authorized amount remaining under our share repurchase program.

Current wording

For the three months ended March 31, 2025, we repurchased $30 million of Common Stock under our share repurchase program. As of March 31, 2025, we had $220 million of the authorized amount remaining under our share repurchase program.

Previous wording

The following tables show our revenues by geographic region and product line for the three and nine months ended September 30, 2024 and 2023, respectively.

Current wording

The following tables show our revenues by geographic region and product line for the three months ended March 31, 2025 and 2024, respectively.

Previous wording

Results of Operations for the Three and Nine Months Ended September 30, 2024

Current wording

Results of Operations for the Three Months Ended March 31, 2025

Previous wording

For the nine months ended September 30, 2024, net sales compared to prior year decreased by $310 million or 11% (including an unfavorable impact of $25 million or 1% due to foreign currency translation primarily driven by lower Chinese Yuan-to-US dollar and Japanese Yen-to-US dollar exchange rates, partially offset by higher Euro-to-US dollar exchange rates) primarily due to demand softness in gasoline, diesel, and commercial vehicle applications across all regions and pricing decreases, net of inflation pass-through, driven by commodity deflation, partially offset by higher demand for replacement parts on aftermarket sales and favorable product mix.

Current wording

For the three months ended March 31, 2025, net sales compared to the prior period decreased by $37 million or 4% (including an unfavorable impact of $21 million or 2% due to foreign currency translation), primarily driven by lower Euro-to-US dollar exchange rates, soft demand in diesel and commercial vehicle applications, and lower demand for replacement parts on aftermarket sales. These decreases were partially offset by increased demand in gasoline products.

Previous wording

Diesel product sales decreased by $110 million or 15% (including an unfavorable impact of $3 million or 1% due to foreign currency translation), primarily driven by passenger vehicles in Europe, partially offset by sustained demand for pickup trucks in North and South America.

Current wording

Diesel product sales decreased by $33 million or 14% (including an unfavorable impact of $6 million or 3% due to foreign currency translation), primarily driven by passenger vehicles in Europe transitioning to gasoline hybrids, partially offset by sustained demand for pickup trucks in South America.

Previous wording

Aftermarket sales decreased by $1 million or 1% (including a favorable impact of $1 million or 0% due to foreign currency translation), primarily due to softer sales in North America, partially offset by favorable aftermarket conditions and demand for replacement parts in Asia and Europe.

Current wording

Aftermarket sales decreased by $14 million or 13% (including an unfavorable impact of $2 million or 3% due to foreign currency translation), primarily due to softer demand in North America for off-highway and lower demand in the North America independent aftermarket.

Previous wording

For the three months ended September 30, 2024, cost of goods sold decreased by $124 million, primarily driven by $113 million of lower sales volumes, $16 million of commodity, transportation, and energy deflation, and $38 million of productivity, net of labor inflation. These decreases were partially offset by $32 million of unfavorable product mix, $6 million of higher R&D costs, reflecting Garrett's continued investment in new technologies, and $5 million from foreign currency impacts.

Current wording

For the three months ended March 31, 2025, cost of goods sold decreased by $44 million, primarily driven by $15 million of lower sales volumes, $9 million of commodity, transportation and energy deflation, $14 million from foreign currency impacts, and $16 million of productivity net of labor inflation. These decreases were partially offset by $6 million of higher cost of goods sold due to unfavorable product mix and $4 million from the impact of enacted import tariffs.

Previous wording

Selling, general and administrative (“SG&A”) expenses for the three months ended September 30, 2024 decreased by $6 million compared with the prior year, mainly driven by $5 million of lower professional service and legal fees, $2 million of lower bad debt expense and $2 million of lower IT-related costs. These decreases were partially offset by $2 million of higher repositioning costs and $1 million of unfavorable foreign exchange impact.

Current wording

Selling, general and administrative (“SG&A”) expenses for the three months ended March 31, 2025, decreased by $5 million compared with the prior period, mainly driven by $2 million of lower stock-based compensation expense, $2 million of favorable foreign exchange impacts, and $1 million of lower personnel related costs.

Previous wording

For the three months ended September 30, 2024, interest expense decreased by $11 million compared to the prior year, primarily driven by $10 million lower of debt issuance cost amortization and $9 million of lower interest expense due to a different notional amount of debt outstanding during the period. In addition, we recorded $4 million of gains on our interest derivatives in the current year, in comparison to $7 million of gains in the prior year. We also recognized $9 million of marked-to-market remeasurement losses during the three months ended September 30, 2024 on our undesignated interest rate swap contracts, in comparison to $5 million of marked-to-market remeasurement losses in the prior year.

Current wording

For the three months ended March 31, 2025, interest expense decreased by $2 million compared to the prior period, primarily driven by $10 million of lower interest expense due to a different notional amount of debt outstanding during the period and $1 million of lower debt issuance cost amortization. In addition, we recorded $6 million of gains on our interest derivatives in the current year, in comparison to $8 million of gains in the prior year. We also recognized $6 million of marked-to-market remeasurement losses during the three months ended March 31, 2025, on our undesignated interest rate swap contracts, in comparison to no marked-to-market remeasurement losses in the prior year.

Previous wording

For the three months ended September 30, 2024, we had non-operating income of $1 million versus $2 million in the prior year, primarily driven by lower equity income due to the sale of an equity interest in an unconsolidated joint venture.

Current wording

For the three months ended March 31, 2025, we had non-operating income of $1 million versus $5 million in the prior period. The decrease in non-operating income was primarily driven by lower equity income due to the prior year sale of an equity interest in an unconsolidated joint venture and a decrease in foreign exchange transactional gains.

Previous wording

We do not expect that Pillar One will have an impact on our operations or effective tax rate. Based on currently enacted legislation, we do not expect Pillar Two to have a material impact to our 2024 effective tax rate. However, further enactment of legislation by countries in which we do business could have an impact on our 2024 effective tax rate.

Current wording

The Organization for Economic Cooperation and Development reached agreement among over 140 countries to implement a minimum 15% tax rate on certain multinational enterprises, commonly referred to as Pillar Two. Many countries we operate in continue to announce changes in their tax laws and regulations based on the Pillar Two framework. While we continue to evaluate the impact of these legislative changes as additional guidance becomes available, uncertainty remains regarding the timing and interpretation by tax authorities in affected jurisdictions. For 2025, Pillar Two is not expected to have a material impact to our effective tax rate. However, further enactment of legislation by jurisdictions in which we do business could have an impact on our future effective tax rate, tax liabilities, and cash tax.

Previous wording

Net income for the three months ended September 30, 2024 decreased by $5 million compared with the prior year, primarily due to $10 million of decreased gross profit and $11 million of higher tax expense. These decreases were partially offset by $11 million of lower interest expense and $6 million of lower SG&A expense.

Current wording

Net income for the three months ended March 31, 2025, decreased by $4 million compared with the prior period, primarily due to $8 million of higher tax expense, $6 million of higher other expense, net, and a $4 million decrease in non-operating income. These increases were partially offset by $7 million of increased gross profit and $5 million of lower SG&A expense.

Previous wording

We evaluate performance on the basis of EBITDA and Adjusted EBITDA. We define “EBITDA” as our net income calculated in accordance with U.S. GAAP, plus the sum of interest expense net of interest income, tax expense and depreciation. We define “Adjusted EBITDA” as EBITDA, plus the sum of stock compensation expense, repositioning costs, foreign exchange (gain) loss on debt net of related hedging gains, discounting costs on factoring, gain on sale of equity investment, acquisition and divestiture expenses, other non-operating income, capital structure transformation expenses, debt refinancing and redemption costs, net reorganization items and loss on extinguishment of debt (if any). Adjusted EBITDA now also adjusts for acquisition and divestiture expenses, and debt refinancing and redemption costs, but no adjustments were made to the prior period as there were no similar adjustments in the prior periods. We believe that EBITDA and Adjusted EBITDA are important indicators of operating performance and provide useful information for investors because:

Current wording

We define “EBIT” as our net income calculated in accordance with U.S. GAAP, plus the sum of (i) interest expense net of interest income and (ii) tax expense. We define “Adjusted EBIT” as EBIT, plus the sum of (i) repositioning costs, (ii) foreign exchange (gain) loss on debt net of related hedging (gains) losses, (iii) discounting costs on factoring, (iv) gain on sale of equity investment, (v) acquisition and divestiture expenses, (vi) other non-operating income, (vii) capital structure transformation expenses, (viii) debt refinancing and redemption costs, and (ix) loss on extinguishment of debt, if any. We believe that EBIT and Adjusted EBIT are important indicators of operating performance and provide useful information for investors because:

Previous wording

•EBITDA and Adjusted EBITDA exclude the effects of income taxes, as well as the effects of financing and investing activities by eliminating the effects of interest and depreciation expenses and therefore more closely measure our operational performance; and

Current wording

•EBIT and Adjusted EBIT exclude the effects of income taxes, as well as the effects of financing activities by eliminating the effects of interest and therefore more closely measure our operational performance; and

Previous wording

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

Current wording

•certain adjustment items, while periodically affecting our results, may vary significantly from period to period and could therefore have a disproportionate effect in a given period, affecting the comparability of our results.

Previous wording

The following table reconciles Net income under GAAP to EBITDA and Adjusted EBITDA:

Current wording

The following table reconciles Net income under GAAP to Adjusted EBIT:

Previous wording

(1)Reflects interest income of $0 million and $1 million for the three months ended September 30, 2024 and 2023, respectively, and $3 million and $6 million for the nine months ended September 30, 2024 and 2023, respectively.

Current wording

(1)Reflects interest income of $0 million and $2 million for the three months ended March 31, 2025 and 2024, respectively.

Previous wording

(3)Repositioning costs includes severance costs related to restructuring projects to improve future productivity.

Current wording

(2)Repositioning costs includes severance costs related to restructuring projects to improve future productivity.

Previous wording

(4)Reflects the non-service component of net periodic pension income.

Current wording

(3)Reflects the non-service component of net periodic pension income.

Previous wording

(7)Reflects the third-party costs directly attributable to the repricing of our 2021 Dollar Term Facility.

Current wording

(4)Reflects the third-party costs directly attributable to the Restatement Agreement.

Previous wording

For thethree months ended September 30, 2024, net income decreased by$5 million versus the prior year as discussed above within Results of Operations for Three and Nine Months Ended September 30, 2024.

Current wording

For thethree months ended March 31, 2025, net income decreased by$4 million versus the prior period as discussed above within Results of Operations for Three Months Ended March 31, 2025.

Previous wording

The increased productivity from our ability to flex our variable cost structure, while driving sustained fixed cost productivity, was partially offset by year-over-year labor inflation and lower equity income following prior quarter's sale of an equity interest in an unconsolidated joint venture.

Current wording

The increased productivity from our ability to flex our variable cost structure while driving sustained fixed cost productivity was partially offset by year-over-year labor inflation and lower equity income following the prior year sale of an equity interest in an unconsolidated joint venture.

Previous wording

Losses in foreign currency from translational, transactional, and hedging effects in the three months ended September 30, 2024, primarily driven by lower Euro-to-US dollar, Chinese Yuan-to-US dollar and Japanese Yen-to-US dollar exchange rates versus the prior year period, accounted for a $4 million decrease in Adjusted EBITDA.

Current wording

Losses in foreign currency from translational, transactional, and hedging effects in the three months ended March 31, 2025, primarily driven by a lower Euro-to-US dollar versus the prior period, accounted for a $7 million decrease in Adjusted EBIT.

Previous wording

We employ several means to manage our liquidity, and our sources of financing include cash flows from operations, cash and cash equivalents, the 2032 Senior Notes, our Term Loan Facilities, and our Revolving Facility. We expect to continue investing in our facilities as we expand our manufacturing capacity for new product launches and invest in new technologies and strategic growth opportunities, in particular in the electrification of drivetrains. We believe the combination of expected cash flows, the term loan borrowings, the 2032 Senior Notes, and the Revolving Facility being committed until 2028, will provide us with adequate liquidity to support the Company's operations.

Current wording

We employ several means to manage our liquidity, and our sources of financing include cash flows from operations, cash and cash equivalents on hand, the 2032 Senior Notes, and our Credit Agreement, including our 2025 Dollar Term Facility and our New Revolving Facility. We expect to continue investing in our facilities as we expand our manufacturing capacity for new product launches and invest in new technologies and strategic growth opportunities, in particular in connection with our zero-emission technologies. We believe the combination of expected cash flows, the term loan borrowings, the 2032 Senior Notes, and the New Revolving Facility being committed until 2030, will provide us with adequate liquidity to support the Company's operations.

Previous wording

On February 13, 2024, the Board of Directors authorized a $350 million share repurchase program valid until December 31, 2024. During the nine months ended September 30, 2024, the Company repurchased $226 million of Common Stock, with $124 million remaining under the share repurchase program as of that date. The Company may repurchase shares from time to time under the program through various methods, including in open market transactions, block trades, privately negotiated transactions, and otherwise. The timing, as well as the number and value of shares repurchased under the program, will depend on a variety of factors. The Company is not obligated to purchase any shares under the repurchase program, and the program may be suspended, modified, or discontinued at any time without prior notice. For more information, see Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Current wording

On December 4, 2024, the Board of Directors authorized a $250 million share repurchase program valid from January 1, 2025, until December 31, 2025. During the three months ended March 31, 2025, the Company repurchased $30 million of Common Stock, with $220 million remaining under the share repurchase program as of that date. The Company may repurchase shares from time to time under the program through various methods, including in open market transactions, block trades, privately negotiated transactions, and otherwise. The timing, as well as the number and value of shares repurchased under the program, will depend on a variety of factors. The Company is not obligated to purchase any shares under the share repurchase program, and the program may be suspended, modified, or discontinued at any time without prior notice. For more information, see Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Previous wording

Cash Flow Summary for the Nine Months Ended September 30, 2024

Current wording

Cash Flow Summary for the Three Months Ended March 31, 2025

Previous wording

Cash provided by operating activities decreased by $53 million for the nine months ended September 30, 2024 versus the prior year. The decrease was primarily driven by a decrease of $37 million in net income, excluding the effects of non-cash items, as well as $11 million of unfavorable impacts from changes in other assets and liabilities and $5 million of unfavorable impacts from working capital changes.

Current wording

Cash provided by operating activities decreased by $28 million for the three months ended March 31, 2025, versus the prior year. The decrease was primarily driven by $54 million of unfavorable impacts from working capital changes and $4 million of lower net income, partially offset by an increase of $21 million of non-cash charges, as well as $9 million of favorable impacts from changes in other assets and liabilities.

Previous wording

Cash flow from investing activities increased by $49 million for the nine months ended September 30, 2024 versus the prior year, mainly due to $46 million of proceeds from the sale of equity interest in an unconsolidated joint venture and a $15 million increase in proceeds on our cross currency swap contracts which have been designated as net investment hedges of our Euro-denominated operations. This was partially offset by $12 million of increased expenditures for property, plant and equipment.

Current wording

Cash flow from investing activities decreased by $6 million for the three months ended March 31, 2025, versus the prior year, mainly due to $6 million of decreased expenditures for property, plant and equipment.

Previous wording

In comparison, cash used for financing activities for the nine months ended September 30, 2023 was primarily driven by payments of $605 million in aggregate to holders of the Series A Preferred Stock related to the Transaction, including conversion of the Series A Preferred Stock, and $42 million for dividends declared on our Series A Preferred Stock. We also made payments of $178 million for the repurchase of Common Stock under our share repurchase program and debt repayments of $205 million including a $200 million early debt repayment on the 2023 Dollar Term Facility and quarterly payments for our 2021 Dollar Term Facility. These uses of cash were partially offset by proceeds of $667 million from the 2023 Dollar Term Facility net of debt financing costs.

Current wording

Cash used for financing activities was $31 million for the three months ended March 31, 2025, compared with $112 million in the prior year. During the three months ended March 31, 2025, we made debt repayments of $71 million, payments of $30 million for the repurchase of Common Stock under our share repurchase program and payments of $12 million for dividends on our Common Stock. These payments were partially offset by proceeds of $68 million from the Credit Facilities and $17 million of bank overdrafts. In comparison, cash used for financing activities in the prior year was primarily related to $107 million for the repurchase of Common Stock under our share repurchase program.

Previous wording

The preparation of our Consolidated Interim 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. Actual results could differ from our estimates and assumptions, and any such differences could be material to our financial statements. Our critical accounting policies are summarized in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our 2023 Form 10-K.

Current wording

The preparation of our Consolidated Interim Financial Statements in accordance with GAAP 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. Actual results could differ from our estimates and assumptions, and any such differences could be material to our financial statements. Our critical accounting policies are summarized in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our 2024 Form 10-K.

Previous wording

•geopolitical conditions, catastrophic events and pandemics;

Current wording

This Quarterly Report on Form 10-Q and the other reports filed by us with the SEC from time to time, as well as statements incorporated by reference herein and related comments by our management, contain forward-looking statements within the meaning of the U.S. federal securities laws. All statements other than statements of historical fact, 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 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, pending litigation, anticipated interest expense, and the plans and objectives of management for future operations and capital expenditures are forward-looking statements. In many cases, you can identify forward-looking statements by terms such as “aim,” “anticipate,” “appears,” “approximately,” “believe,” “continue,” “could,” “designed,” “effect,” “estimate,” “evaluate,” “expect,” “forecast,” “goal,” “initiative,” “intend,” “may,” “objective,” “outlook,” “plan,” “potential,” “priorities,” “project,” “pursue,” “seek,” “should,” “target,” “when,” “will,” “would,” or the negative of these terms or other similar expressions. In making these forward-looking statements, we rely on our current expectations and projections about possible future events and financial trends that we believe may affect our business, financial condition and results of operations. We believe these judgments are reasonable, but these statements are not guarantees of any future events or financial results, and our actual results may differ materially due to a variety of important factors, many of which are beyond our control. These factors, which may be revised or supplemented in subsequent reports we file with the SEC, include, among other things, risks related to the following: (1) the ongoing evolution of the automotive industry; (2) the highly competitive markets in which we operate; (3) our reliance on sales to major customers; (4) changing industry and economic conditions; (5) the unique aspects of our aftermarket business; (6) pricing pressures from our original equipment manufacturer customers; (7) the foreign markets in which we operate; (8) climate change and increased scrutiny from customers, investors, regulators and other stakeholders; (9) recruitment, development, and retention of qualified personnel; (10) program launch difficulties; (11) volatility in the cost of raw materials, components, energy, transportation, and other inputs; (12) supply shortages or supplier distress leading to a disruption of our operations; (13) realization of sales from awarded business; (14) economic, political, regulatory, foreign exchange and other risks of our international operations; (15) geopolitical conditions, catastrophic events and pandemics; (16) joint venture partnerships, j…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

You should read this Quarterly Report on Form 10-Q and the documents that we reference herein 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.

Current wording

You should read this Quarterly Report and the documents that we reference herein completely and with the understanding that our actual future results may be materially different from those envisioned by these forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements. These forward-looking statements speak only as of the date of this Quarterly Report. 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.