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Garrett Motion Inc.

Garrett Motion Inc.GTXEarnings & Financial Report

Nasdaq · Industrials · Motor Vehicle Parts & Accessories

Garrett Motion Inc., formerly Honeywell Transportation Systems and Honeywell Turbo Technologies, is an American company primarily involved in engineering, development and manufacturing of turbochargers and related forced induction systems for ground vehicles from small passenger cars to large trucks and industrial equipment and construction machinery. It originated as part of Garrett AiResearch's Industrial Division in Phoenix, Arizona, in 1954, after which they entered a contract to provide ...

What changed in Garrett Motion Inc.'s 10-K — 2022 vs 2023

Top changes in Garrett Motion Inc.'s 2023 10-K

371 paragraphs added · 414 removed · 245 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

78 edited+33 added−74 removed29 unchanged
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.
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 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.
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.
Be well, work well 14 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.
We manufacture, and ship based on customer 14 release schedules, normally provided on a weekly basis, which can vary due to cyclical automobile production or inventory levels throughout the supply chain.
We manufacture, and ship based on customer release schedules, normally provided on a weekly basis, which can vary due to cyclical automobile production or inventory levels throughout the supply chain.
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.
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 hybrids and electric powertrains.
Grow our aftermarket business We have an opportunity to strengthen our global network of more than 250 distributors in 165 countries by deepening our channel penetration, leveraging our well-recognized Garrett brand, utilizing new online technologies for customer engagement and sales, and widening the product portfolio.
Grow our aftermarket business We have an opportunity to strengthen our global network of more than 300 distributors in 165 countries by deepening our channel penetration, leveraging our well-recognized Garrett brand, utilizing new online technologies for customer engagement and sales, and widening the product portfolio.
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.
We pride ourselves that diversity is represented from the top of the organization, for example 26 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.
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 2022 were with six different OEMs. OEM sales were approximately 86% of our 2022 revenues while our aftermarket and other products contributed 14%.
Our 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 2023 were with six different OEMs. OEM sales were approximately 86% of our 2023 revenues while our aftermarket and other products contributed 14%.
As of December 31, 2022, we have not experienced any significant shortage of raw materials and we 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.
As of December 31, 2023, we have not experienced any significant shortage of raw materials and we 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.
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 9 a key technology for automakers to meet future tough fuel economy and emissions standards without sacrificing performance. Turbocharger penetration.
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 a key technology for automakers to meet future tough fuel economy and emissions standards without sacrificing performance.
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.
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.
A key to our strategy for gasoline growth is thus to leverage our technology strengths in high-temperature materials and variable geometry as well as our scale, global footprint and in-market capabilities to meet the volume on technology demands of global OEMs. • Diesel: We have a long history of technology leadership in diesel engine turbochargers.
A key to our strategy for gasoline growth is thus to leverage our technological leadership in high-temperature materials and variable geometry, as well as our scale, global footprint and in-market capabilities to meet the volume of technological demands of global OEMs. • Diesel: We have a long history of technology leadership in diesel engine turbochargers.
Diesel maintains a unique advantage in terms of fuel consumption, hence cost of ownership, and towing capacity makes it the powertrain of choice for heavier vehicle applications.
Diesel maintains a unique advantage in terms of fuel consumption, cost of ownership, and towing capacity which makes it the powertrain of choice for heavier vehicle applications.
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.
As of December 31, 2023, Garrett's Board of Directors had 33% female representation. In 2023, the Company continued to strengthen and develop its approach to diversity, equity and inclusion.
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, 2022, we employed approximately 1,260 engineers.
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, 2023, we employed approximately 1,300 engineers.
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.
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, potentially reducing our profit margins and increasing the risk of losing future sales under those purchase contracts.
The table below shows the evolution of our gender diversity representation over the last four years and our 2025 ambition: 2019 2020 2021 2022 2025 Ambition % Women in total workforce 20.6% 20.8% 22.2% 21.8% 25.0% % Women in Senior Management 16.7% 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.
The table below shows the evolution of our gender diversity representation over the last four years and our 2025 ambition: 2020 2021 2022 2023 2025 Ambition % Women in total workforce 20.8% 22.2% 21.8% 22.8% 25.0% % Women in Senior Management 19.5% 20.0% 19.0% 19.5% 25.0% Talent management At Garrett, we encourage our employees to develop their skills and capabilities through a comprehensive Performance and Talent Management system.
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.
Our learning environment offers employees access to approximately 1,800 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.
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 electric vehicles. Connected vehicles, software and controls.
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 opportunities, raised by the electrification trend, where our differentiated technology can bring benefits related to lighter, more compact and more energy efficient components for electric vehicles.
Garrett works closely with leading Universities globally on over 10 collaboration projects that push the envelope of technical innovation. 18 Seasonality Our business is typically moderately seasonal.
Garrett works closely with leading Universities globally on over 12 collaboration projects that push the envelope of technical innovation. Seasonality Our business is typically moderately seasonal.
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, 2022, the undiscounted reserve for environmental investigation and remediation was $17 million.
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, 2023, the undiscounted reserve for environmental investigation and remediation was $18 million.
We operate through a distribution network of more than 250 distributors covering 165 countries. Our aftermarket business has historically provided a stable stream of revenue supported by our large installed base, currently estimated at over 120 million vehicles. As turbocharger penetration rates continue to increase, we expect that our installed base and aftermarket opportunities will continue to grow.
We operate through a distribution network of more than 300 distributors covering 165 countries. Our aftermarket business has historically provided a stable stream of revenue supported by our large installer base, currently estimated at over 130 million vehicles. As turbocharger penetration rates continue to increase, we expect that our installer base and aftermarket opportunities will continue to grow.
Our largest customer is Bayerische Motoren Werke AG (“BMW”). In 2022, 2021 and 2020, BMW accounted for 12%, 13%, and 11%, respectively, of our total sales. In 2022, 2021 and 2020, our sales to Ford Motor Company (“Ford”) were 10%, 10%, and 10%, respectively, of our total sales.
Our largest customer is Bayerische Motoren Werke AG (“BMW”). In 2023, 2022 and 2021, BMW accounted for 12%, 12%, and 13%, respectively, of our total sales. In 2023, 2022 and 2021, our sales to Ford Motor Company (“Ford”) were 9%, 10%, and 10%, respectively, of our total sales.
Garrett articulates its commitments to social and environmental considerations in the 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".
Garrett articulates its commitments to social and environmental considerations in the 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 – Investors – Leadership & Governance".
S&P estimates that hybrid vehicles produced globally will grow from a total of approximately 17.4 million vehicles in 2023 to 28.6 million vehicles by 2026, representing a CAGR of 17%. The electrified powertrain of hybrid vehicles enables the usage of highly synergistic electric-boosting technologies which augment standard turbochargers with electrically assisted boosting and electrical-generation capability.
S&P estimates that hybrid vehicles produced globally will grow from a total of approximately 17 million vehicles in 2023 to 27 million vehicles by 2027, representing a CAGR of 12%. The electrified powertrain of hybrid vehicles enables the usage of highly synergistic electric-boosting technologies which augment standard turbochargers with electrically assisted boosting and electrical-generation capability.
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, 2022, we employed approximately 7,300 permanent employees and 2,000 temporary and contract workers globally. Diversity, equity and inclusion Diversity and Inclusion is one of Garrett’s four fundamentals.
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, 2023, we employed approximately 7,600 permanent employees and 2,100 temporary and contract workers globally. 13 Diversity, equity and inclusion Diversity and Inclusion is one of Garrett’s four fundamentals.
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.
The Company closely monitors employee turnover to measure retention and define improvement actions as and where necessary. As of December 31, 2023, the Company’s annual voluntary turnover for 2023 was 10.3%, which reflects the trends of the current global marketplace for talent.
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.
Outside of our turbocharger product lines, we apply this culture of continuous innovation to meet the needs of our customers in new areas.
Installer Connect, a global web-based platform providing self-service tools aimed at connecting garage technicians generated more than 15 thousand additional technicians certified, and our Turbo Service Replacement website attracted more than 800 thousand visitors. Additionally, the Garrett Web Racing & Performance section of our website attracted more than 1.4 million visitors in 2022.
Installer Connect, a global web-based platform providing self-service tools aimed at connecting garage technicians generated more than 24,000 additional technicians certified, and our Turbo Service Replacement website attracted more than 800,000 visitors. Additionally, the Garrett Web Racing & Performance section of our website attracted nearly 1 million visitors in 2023.
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.
A variety of instructor led virtual programs were deployed during 2023 to support employees' development and a number of dedicated programs for emerging and experienced leaders were successfully held. More than 68,500 hours of online training was delivered during 2023. We use regular talent reviews to strengthen the Company’s internal development processes and to calibrate assessment of individual performance.
Despite diesel industry weakness for some vehicle segments, the majority of our diesel turbochargers revenue comes from heavier and bigger vehicles like SUVs, pickup trucks and light commercial vehicles (such as delivery vans), which remain a stable part of the diesel industry.
Despite the diesel industry's weakness for some vehicle segments, the majority of our diesel turbocharger revenues come from heavier and bigger vehicles like SUVs, pickup trucks and light commercial vehicles (such as delivery vans), which remain a stable part of the diesel industry.
Furthermore, the application of electric boosting extends the requirement for engineering collaboration with OEMs to include electrical integration, software controls, and advanced sensing. Overall, this move to electric boosting further increases the role and value of turbocharging in improving vehicle fuel economy and exhaust emissions. 10 Battery electric and fuel cell technologies .
Furthermore, the application of electric boosting extends the requirement for engineering collaboration with OEMs to include electrical integration, software controls, and advanced sensing. Overall, the move to electric boosting further increases the role and value of turbocharging by improving vehicle fuel economy and reducing exhaust emissions.
Our total R&D expenses were $153 million, $136 million and $111 million for the years ended December 31, 2022, 2021 and 2020, respectively, with more than 50% of our total R&D spend in 2022 focused on electrification technologies.
Our total R&D expenses were $175 million, $153 million and $136 million for the years ended December 31, 2023, 2022 and 2021, respectively, with more than 50% of our total R&D spend in 2023 focused on zero emission technologies.
Diesel also remains essential for OEMs to meet their CO2 fleet average regulatory target going forward, as diesel vehicles produce less CO2 on average than gasoline vehicles. • Electrified vehicles: We provide a comprehensive portfolio of turbocharger and electric-boosting technologies to manufacturers of hybrid-electric and fuel cell vehicles.
Diesel also remains essential for OEMs to meet their CO2 fleet average regulatory target going forward, as diesel vehicles produce less CO2 on average than gasoline vehicles. • Hybrid vehicles: We provide a comprehensive portfolio of turbocharger and electric-boosting technologies to manufacturers of hybrid-electric powertrains. OEMs have increased their adoption of hybrid technologies given regulatory standards.
Electrification . To address stricter fuel economy standards, OEMs also have been increasing the electrification of their vehicle offerings, primarily with the addition of hybrid vehicles, which have powertrains equipped with a gasoline or diesel internal combustion engine in combination with an electric motor.
Source: S&P, KGP 7 Electrification and hybrids In order to address stricter fuel economy standards, OEMs also have been increasing the electrification of their vehicle offerings, primarily with the addition of hybrid powertrains equipped with a gasoline or diesel internal combustion engine in combination with an electric motor.
We are developing solutions and increasing our research and development ("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 developing solutions and increasing our research and development (“R&D”) spend, focusing more than 50% of total R&D expenditure in 2024 on technologies for electrification including zero emission technologies, fuel cell compressors for a broad range of cell stack power (40kW to 250kW) and high value electric vehicle components including E-Powertrain and E-Cooling Compressor technologies.
Light Vehicles • Gasoline: The global adoption of turbochargers by OEMs on gasoline engines has increased rapidly from approximately 14% in 2013 to approximately 47% in 2022 and is forecasted by S&P to increase to 51% by 2025.
Internal combustion light vehicle products • Gasoline: The global adoption of turbochargers by OEMs on gasoline engines has increased rapidly from approximately 14% in 2013 to approximately 48% in 2023 and is forecasted by S&P to increase to 51% by 2025.
We believe global uniformity and operational excellence across facilities is a key competitive advantage in our industry given that OEM engine platforms are often designed centrally but manufactured locally, requiring suppliers to meet the exact same specifications across all locations.
We believe global uniformity and operational excellence across facilities is a key competitive advantage in our industry given that OEM powertrain platforms are often designed centrally but manufactured locally, requiring suppliers to meet the exact same specifications across all locations. Our Strategy Garrett invests in innovative technologies that address the needs of our customers in the ongoing auto industry transformation.
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.
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.
Our top ten customers accounted for approximately 59% of net sales and our largest customer represented approximately 12% of our net sales in 2022. With over 60 years in the turbocharger industry, we have developed strong capabilities working with all major OEMs.
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 61% of net sales and our largest customer represented approximately 12% of our net sales in 2023. With over 60 years in the turbocharger industry, we have developed strong capabilities working with all major OEMs.
S&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 22 million vehicles in 2022 to approximately 60 million vehicles by 2027, representing an annualized growth rate of approximately 18%.
S&P estimates that the global production of electrified vehicles (battery and fuel cell electric) will increase from approximately 11 million vehicles in 2023 to approximately 31 million vehicles by 2027, representing an annualized growth rate of approximately 29%.
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. We have a long-standing culture of lean manufacturing excellence and continuous productivity improvement.
We have invested heavily to bring differentiated local capabilities to our customers in high-growth regions, including China and India. In 2023, we manufactured more than 89% of our products in low-cost countries, including seven manufacturing facilities in China, India, Mexico, Romania and Slovakia. We have a long-standing culture of lean manufacturing excellence and continuous productivity improvement.
We expect to benefit from this higher growth given the gasoline platforms we have been awarded over the past several years. We have launched the first modern 1.5L VNT gasoline application with a major OEM and we expect to see increasing adoption of this technology in years to come.
We have launched the first modern 1.5L VNT gasoline application with a major OEM and expect to see increasing adoption of this technology in the future years.
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.
Compliance with our standards and local regulatory requirements is monitored through a company-wide self-assessment process assured through annual audits. In 2023 we continued a rolling 4-year compliance audit against local regulations by a global service provider.
In 2016, we launched our first high volume VNT gasoline application, and this technology is expected to experience increased adoption in years to come. According 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 2016, we launched our first high volume VNT gasoline application, and this technology is expected to experience increased adoption in years to come. According to a forecast by S&P, VNT represented 24% of global turbo gasoline production in 2023, reaching 36% by 2028.
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.
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 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.
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 significant competitive advantage.
It is built on two main pillars - investing in a culture of innovation and operating responsibly to ensure long-term impact. We embed sustainability in our governance structure. Our Sustainability Committee, composed of the 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.
We embed sustainability in our governance structure. Our Sustainability Committee, composed of the 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.
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 as commodity or foreign exchange escalation/de-escalation clauses or for cost reductions achieved by us.
Prices are negotiated with respect to each business award, which may be subject to adjustments under certain circumstances, such as commodity or foreign exchange escalation/de-escalation clauses or for cost reductions achieved by us. The terms and conditions typically provide that we are subject to a warranty on the products supplied.
Energy efficiency increases (including how to best address thermal management challenges), battery price (and consequently vehicle price), weight reduction through increases in power density, and shorter recharging times are all critical problems to solve.
Consumer adoption hinges on future "cost of range", tightly linked to the 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 power density, and shorter recharging times are all critical problems to solve.
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.
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.
This continued investment into differentiated technology, coupled with our relentless focus on customer relations and our global capabilities, allows us to drive the following business strategies: Strengthen industry leadership across powertrain technologies We are focused on strengthening our industry position in light vehicles: • Gasoline turbochargers, which historically lagged adoption of diesel turbochargers, are expected to increase at a 2.1% annual CAGR from 2022 to 2025, according to S&P.
This continued investment into differentiated technology, coupled with our relentless focus on customer relationships and our global capabilities, allows us to drive the following business strategies: • Strengthen our leadership in the turbocharger industry within the light vehicle, commercial vehicle and industrial space; • Use of our differentiated technology to solve key challenges for zero emission vehicles; • Grow our aftermarket business Strengthen our leadership in the turbocharger industry within the light vehicle, commercial vehicle and industrial space We are focused on strengthening our industry position in the light vehicle, commercial vehicle and industrial turbocharger industries: • Light vehicle gasoline turbochargers, which have historically lagged the adoption of diesel turbochargers, after reaching a peak in 2023, are now expected to decrease at a 4% annual CAGR from 2023 to 2026, according to S&P.
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.
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.
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 1,700 patents and patents pending. Our current patents are expected to expire between 2023 and 2041.
Additionally, the Company incurred engineering-related expenses, net of customer (reimbursements) which are also included in Cost of goods sold of $(12) million , $11 million and $22 million for the years ended December 31, 2023, 2022 and 2021, respectively.
OEMs are investing in full BEVs to comply with increasingly tight regulatory targets across regions. S&P, KGP and PSR expect that BEVs will compose 26% of total light and commercial vehicle production globally by 2026. Consumer adoption hinges on future "cost of range”, tightly linked to the energy capacity of the battery, but also how well that energy is used.
Battery electric and fuel cell technologies OEMs are investing in full battery electric vehicles ("BEV"s) to comply with increasingly tight regulatory targets across regions. S&P and KGP expect that BEVs will compose 26% of total light and commercial vehicle production globally by 2026.
Our engineering expertise and transformative technologies help optimize fuel efficiency, reduce harmful emissions and manage growing vehicle complexity, all of which are critical areas on the road to a clean transportation future. Our corporate sustainability framework, called WeCare4, starts from our mission to enable cleaner, more efficient vehicles by spearheading technology development and continuing to deliver industry-first innovations.
Our engineering expertise and transformative technologies help optimize fuel efficiency, reduce emissions and manage growing vehicle complexity, all of which are critical areas on the road to a clean transportation future.
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.
We expect to continue to invest in product innovation and new technologies, and by leveraging our capabilities and expertise to develop selected offerings for electric vehicles, we believe that we are well positioned to remain a technology leader in the field of electrified vehicles.
The terms and conditions typically provide that we are subject to a warranty on the products supplied. We may also be obligated to share in all or a part of recall costs if the OEM recalls its vehicles for defects attributable to our products.
We may also be obligated to share in all or a part of recall costs if the OEM recalls its vehicles for defects attributable to 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.
The Company published its fiscal year 2021 Sustainability Report in 2022, the content of which is not incorporated by reference into this Annual Report or in any other report or document we file with the SEC. 15 Human Capital At Garrett, we place a high value on developing the right working environment and the right skillsets to advance our performance culture, support our growth strategy and ensure that the world at large can continue to benefit from breakthroughs in sustainable mobility.
Human Capital At Garrett, we place a high value on developing the right working environment and skill sets to advance our performance culture, support our growth strategy and ensure that the world at large can continue to benefit from breakthroughs in sustainable mobility.
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).
In 2023, Garrett welcomed 205 Interns in 11 countries, versus 261 internships in 2022 (approximately 44% in Engineering, 18% in Integrated Supply Chain, 16% in IT and the remainder in Finance, HR, Marketing and Sales, Legal and Internal Audit).
Key to our strategy for gasoline growth is our plan to leverage our technology strengths in high temperature materials and variable geometry technologies as well as our scale, global footprint and in-region capabilities to meet the volume demands of global OEMs. • We believe growth in our share of the diesel turbochargers industry will be driven by new product introductions focused on emissions-enforcement technologies and supported by our favorable positioning with large vehicles and high-growth regions within this industry.
A major key to our strategy for gasoline growth is our plan to leverage our strengths in high temperature materials and variable geometry technologies as well as our scale, global footprint and in-region capabilities to meet the volume demands of global OEMs.
We are developing solutions and 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 developing solutions and increasing our R&D spend, focusing almost 60% of total research, development and engineering expenditures in 2024 on zero emission technologies for mobility and beyond, 9 such as fuel cell compressors for a broad range of cell stack power (40kW to 250kW) and high value electric products including E-Powertrain and E-Cooling compressor technologies.
Leverage our differentiated technology to solve key challenges in electrification 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.
Use of our differentiated technology to solve key challenges for zero emission vehicles We stand to benefit from the increased adoption of electric (battery or fuel cell) vehicles.
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.
We have a globally deployed team of approximately 1,300 engineers across five R&D centers and 11 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.
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. 16 The percentage of female employees in Garrett was 21.8% in 2022.
Actions during the year included: • Regular reporting and review of existing diversity and inclusion metrics and initiatives • Work by our team of 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 • Training for all managers on Unconscious Bias • Holding Garrett’s annual Diversity and Inclusion Week in December, where the focus was engagement around three new Employee Resource Groups ("ERGs"), Cultural Mosaic, LGBTIQ+ and Diverse Abilities, in addition to the long-standing Garrett Women's Network ERG.
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.
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. 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 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. 17 As part of our commitment to the well-being of our employees, the Company offers an Employee Assistance Program.
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.
However, considering our past experience and existing reserves, we do not expect that environmental matters will have a material adverse effect on our consolidated financial position. 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.
However, considering our past experience and existing reserves, we do not expect that environmental matters will have a material adverse effect on our consolidated financial position. Corporate Responsibility Our sustainability approach Garrett is a cutting-edge technology leader delivering differentiated solutions for emission reduction and energy efficiency. We are passionate about innovating for mobility and beyond.
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 percentage of female employees in Garrett was 22.8% in 2023 (an increase from 21.8% in 2022). The percentage of female employees in Senior Management roles was 19.5% in 2023.
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 Note - Years 2020 - 2022 represent actual data and years 2023 - 2027 represent forecasted data. Source: S&P, KGP, PSR Engine size and complexity .
S&P forecasts turbocharger penetration on ICE-based powertrains to grow in light vehicles from 52% in 2021 to approximately 57% in 2025 and to then come back to approximately 51% in 2030. Medium-Term Powertrain Trends Note: Years 2021 - 2023 represent actual data and years 2024 - 2028 represent forecasted data.
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.
Our Products We are a global leader in the $11 billion OEM turbocharger industry. We believe we will continue to benefit from global technology leadership in the turbocharger industry through our deep-seated relationships with all global OEMs.
We have maintained our strategic relationship with key commercial vehicle OEMs for over 60 years as well as industry-leading positions across both on- and off-highway use. Our products improve engine performance and lower emissions on trucks, buses, agriculture equipment, construction equipment and mining equipment with engine sizes ranging 1.8L to 105L. High-growth regions.
Internal combustion commercial vehicles & industrial products Our Company traces its roots to the 1950s when we helped develop a turbocharged commercial vehicle for Caterpillar. We have maintained our strategic relationship with key commercial vehicle OEMs for over 60 years as well as industry-leading positions for both on- and off-highway use.
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 is involved in the community supporting STEM activities for high schools worldwide and in 2023, Garrett sponsored a high school team from the Czech Republic competing in hydrogen-powered racing. The Company continues to enhance the engagement with global organizations with a focus on growing diversity interest in STEM and automotive engineering as well as intern and full time recruiting.
We are a global technology leader with significant expertise in delivering products for internal combustion engines ("ICE") using gasoline, diesel, natural gas and electrified powertrains (hybrid and fuel cell). 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.
We have significant expertise in delivering products at scale for internal combustion engines ("ICE") using gasoline, diesel, natural gas and hydrogen, as well as for zero emission technologies using hydrogen fuel cell systems, both for mobility and industrial use.
Our products provide OEMs with solutions that further optimize engine performance and position us well to serve OEMs as they add more electrified vehicles into their fleets. Commercial vehicles. Our Company traces its roots to the 1950s when we helped develop a turbocharged commercial vehicle for Caterpillar.
Similar to turbochargers for gasoline and diesel engines, turbochargers for hybrid vehicles are an essential component of maximizing fuel efficiency and overall engine performance. Our products provide 8 OEMs with solutions that further optimize engine performance and position us well as they add more hybrid-electric vehicles into their fleets.
This annual sales estimate would add 230 million new turbocharged vehicles on the road globally between 2023 and 2027. Key trends affecting our industry 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.
Key trends affecting our industry Current global economic conditions due to geopolitical conflicts, high inflation in Europe and China's slow pace of recovery, all have adversely affected and may continue to adversely affect many industries including the automotive sector. Growth in overall vehicle production Light vehicle production increased 9% in 2023, compared to prior year.
The shift from pure gasoline and diesel ICE to hybridized powertrains is expected to continue in response to increasingly strict fuel efficiency and regulatory standards. In parallel, the share of pure electric vehicles is expected to continue to increase from a low base as technology and supporting infrastructure continue to improve. Global vehicle fuel efficiency and emissions standards.
Moreover, significant uncertainty remains on global economic growth, with some supply chain disruptions, geopolitical tensions, and China facing low inflation and job market deterioration. The shift from pure gasoline and diesel ICE to hybridized powertrains is expected to continue in response to increasingly strict fuel efficiency and regulatory standards.
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.
In 2023, Garrett onboarded 10 graduates into our Graduate Program in China and India to join existing Graduate Program cohorts moving through their rotational cycles and 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. 15 In 2023, the Company sponsored 5 Formula SAE and Formula Student teams in several countries providing the students in the racing team with over 10 technical workshops in electrical powertrain, leadership coaching, parts for the racing vehicle and financial support.
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.
Total turbocharger production increased globally from approximately 46 million units in 2022 to 50 million units in 2023 and is expected to decrease from 2024 onward based on current expectations of electric vehicle penetration, gradually decreasing to 2022 volume levels by 2026.
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Item 1. Business Our Company Garrett designs, manufactures and sells highly engineered turbocharger and electric-boosting technologies for light and commercial vehicle original equipment manufacturers (“OEMs”) and the global vehicle independent aftermarket as well as automotive software solutions. These OEMs, in turn, ship to consumers globally.
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Item 1. Business Our Company Garrett is a cutting-edge technology leader delivering differentiated solutions for emission reduction and energy efficiency. We design, manufacture and sell highly engineered turbocharging, air and fluid compression, and high-speed electric motor technologies for original equipment manufacturers ("OEMs") and distributors within the mobility and industrial space.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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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.
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 projected estimate.
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.
If market demand for evolving vehicle technologies in these regions does not grow as quickly or materialize 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.
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 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 24 assessments of our tax exposures and various other governmental enforcement initiatives.
The automotive industry is sensitive to general economic conditions and other 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.
The automotive industry is sensitive to general economic conditions and other 19 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.
Because the Company is a U.S. holding company, one significant source of its 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.
Additionally, because the Company is a U.S. holding company, one significant source of its 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.
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, 24 integrate acquired operations into our existing operations or expand into new markets.
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, integrate acquired operations into our existing operations or expand into new markets.
If a transition to battery-electric vehicles is pursued more broadly throughout the market, 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.
If a transition to battery-electric vehicles is pursued more broadly throughout the 18 market, 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.
The launch of new business is a complex process, the success of which depends on a wide range of factors, including 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 launch of new business is a complex process, the success of which depends on a wide range of factors, including 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 considerations.
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. 26 We cannot predict with certainty the outcome of litigation matters, government proceedings and other contingencies and uncertainties.
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. We cannot predict with certainty the outcome of litigation matters, government proceedings and other contingencies and uncertainties.
While we have historically hedged foreign currency exposures with natural offsets to the fullest 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 its impact on our future financial results.
While we have historically hedged foreign currency exposures with natural offsets to the fullest 25 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 its impact on our future financial results.
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.
The costs of compliance and any changes to our operations mandated by new or amended regulations, or customer 21 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.
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.
If we issue additional equity securities, existing holders of our securities may experience dilution. 27 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 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.
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 premium for their shares as part of a sale of our Company, and consequently may affect the market price of our shares.
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 resources away from our businesses.
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 resources away from our 22 businesses.
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.
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 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.
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.
This 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 repositioning 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.
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.
If we were required to make such payments, these 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.
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.
Moreover, employee error or malfeasance, faulty 26 password management or other intentional or inadvertent non-compliance with our security protocols may result in a breach of our information systems.
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.
A further prolonged or intensified conflict could 20 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.
Finally, we generate significant cash that is invested with certain 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.
Additionally, we generate significant cash that is invested with certain 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.
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.
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 occurrence 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.
In addition, a significant disruption in the supply of a key component due to a work stoppage or other disruption at one of our suppliers or any other supplier could impact our ability to make timely deliveries to our customers and, accordingly, have a material adverse effect on our financial results.
In addition, a significant disruption in the supply of a key component due to a work stoppage or other disruption at one of our suppliers could impact our ability to make timely deliveries to our customers and, accordingly, have a material adverse effect on our financial results.
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.
Furthermore, if we do not maintain effective internal controls, the market price of our Common 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.
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.
If our cash flows were to become insufficient to cover our capital requirements and 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.
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.
Our inability to generate sufficient cash flows to satisfy our debt service payments 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.
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.
In addition, 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.
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, including those relating to activities of predecessor company.
We cannot assure that we will not incur additional 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, including those relating to activities of our predecessor company.
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 27 regulatory and environmental compliance obligations, and meet general working capital needs.
We will 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, and meet general working capital needs.
Risks Relating to our Business: 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. 19 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.
Risks Relating to our Business: 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. 16 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.
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 dilution. 31 Item 1B. Unresolved Staff Comments None.
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 Common Stock may experience dilution. Item 1B. Unresolved Staff Comments None.
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.
We have substantial consolidated indebtedness. As of December 31, 2023, we had outstanding debt of $1,696 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.
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.
We are currently, and we may in the future, be party to a number of lawsuits, investigations and disputes 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.
The Company relies on sales to major customers as 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.
We rely on sales to major customers as well as a network of independent dealers to manage the distribution of our products, and we could be adversely impacted by the loss of any such major customers or dealers, changes in their requirements for our products or changes in their financial condition.
Because a significant number of our loans are made at variable interest rates, our business results are subject to fluctuations in interest rates. If interest rates increase, our borrowing costs may also increase and could adversely impact our financial condition, operating results and cash flows.
Changes in interest rates could adversely affect our earnings and/or cash flows. Because a significant number of our loans are made at variable interest rates, our business results are subject to fluctuations in interest rates. If interest rates increase, our borrowing costs may also increase and could adversely impact our financial condition, operating results and cash flows.
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.
There has been an increase in the frequency and sophistication of cyber and other security threats we face, and our customers, partners and regulators are increasingly requiring cyber and other security protections and mandating cyber and other security standards.
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 new debt securities, the debt holders would have rights senior to holders of common 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.
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.
Our potential liabilities are subject to change over time due to new developments in legal proceedings or changes in settlement strategy, 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.
Industry and economic conditions, including a downturn, could adversely affect our business and results of operations. We are dependent on the continued growth, viability and financial stability of our customers, a substantial portion of whom are OEMs in the automotive industry.
Industry and economic conditions, including one or more downturns, could adversely affect our business and results of operations. We are dependent on the continued growth, viability and financial stability of our customers, a substantial portion of whom are OEMs in the automotive industry.
Where a customer halts production because of another supplier failing to deliver on time, or as a result of a work stoppage or other disruption, it is unlikely we will be fully compensated, if at all.
Where a customer halts production because of one of its other suppliers failing to deliver on time, or as a result of a work stoppage or other disruption, it is unlikely we will be fully compensated, if at all.
Our ability to refinance our outstanding indebtedness or future indebtedness will depend on the capital markets and our financial condition at such time. It will also depend on our credit facilities and the terms of the Series A Preferred Stock, which contain certain operating and financial restrictions that that may restrict our business and financing activities.
Our ability to refinance our outstanding indebtedness or future indebtedness will depend on the capital markets and our financial condition at such time. It will also depend on our credit facilities which contain certain operating and financial restrictions that that may restrict our business and financing activities.
The loss of any of these customers, the loss of business with respect to one or more of their vehicle models on which we have high component content, or a significant decline in the production levels of such vehicles would negatively impact our business, results of operations and financial condition. Pricing pressure from our customers also poses certain risks.
The loss of any of these customers, the loss of business with respect to one or more of their vehicle models on which we have high component content, or a significant decline in the production levels of such vehicles would negatively impact our business, results of operations and financial condition.
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.
Additionally, these 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, including if they are unable to meet the needs of their customers.
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.
We have also made, and in the future 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.
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.
If we are unable to generate sufficient cash flow to satisfy our debt service payments and other obligations, 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.
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.
Geopolitical tensions, including but not limited to armed conflict, terrorist activity and instability or general economic disruption regionally or globally, have in the past impacted, and may in the future impact our results of operations and create or exacerbate certain risks we face to our business, financial condition and results of operations.
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 options to purchase shares of common stock to our employees, officers or directors under the Long-Term Incentive Plan.
We have made, and expect to continue to make, grants of Common Stock or options to purchase shares of Common Stock to our employees, officers or directors under the Long-Term Incentive Plan.
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 bylaws.
Any declaration and payment of dividends on our 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 our debt obligations and other factors deemed relevant by the Board of Directors from time to time.
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 business.
Furthermore, if we are unable to overcome significant disruptions in the supply chain, such as those caused by global logistical constraints, it could adversely impact our business.
Certain markets in which we operate have, and are expected to continue, contemplating or undertaking multi-decade efforts to transition away from internal combustion engines in favor of hybrid or full-battery electric vehicles.
Certain markets in which we operate have contemplated or commenced undertaking multi-decade efforts to transition away from internal combustion engines in favor of hybrid or full-battery electric vehicles, and we expect this trend to continue in these and additional markets.
A significant 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.
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.
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.
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 our results of operations.
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.
A decrease in consumer demand for the specific types of vehicles that have traditionally included our turbocharger products, or lower-than-expected consumer demand for specific types of vehicles where we anticipate providing significant components as part of our strategic growth plan, could have a significant effect on our business.
A significant portion of our revenues and expenses are denominated in currencies other than the U.S. dollar. As a result, we 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.
As a result, we 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.
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.
In the event that any of our products 23 fails to perform as expected, we may face direct exposure to warranty and product liability claims or may be required to participate in government or self-imposed recall involving such products.
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.
These risks could be heightened in the case of a future merger or acquisition we may be involved in. Additionally, as a result of any such transaction, 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.
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, we may need to incur significant costs in order to remain in compliance with the terms of our licenses, including to carefully monitor and manage our use of third-party components. Proprietary and open source license terms may also require us to license or publicly disclose our intellectual property without compensation or on undesirable terms.
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.
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.
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.
Our ability to pay dividends may be 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.
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.
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.
Changes in our business relationships with any of our major customers or in the timing, size and continuation of their various programs could have a material adverse impact on us.
Changes in our business relationships with any of our major customers or in the timing, size and continuation of their various programs could have a material adverse impact on us. We may lose customers from time to time due to factors beyond our control, including due to mergers and acquisitions.
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.
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.
Economic declines that result in significant reductions in automotive sales or production, particularly with respect to light vehicles, would have an adverse effect on our business, results of operations and financial condition. 22 We are subject to the economic, political, regulatory, foreign exchange and other risks of international operations.
Economic declines that result in significant reductions in automotive sales or production, particularly with respect to light vehicles, or the failure to recover from such economic declines on timelines that we anticipate, would have an adverse effect on our business, results of operations and financial condition.
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 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.
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.
Any resulting impacts to our sales levels and margins could over time significantly reduce our revenues and adversely affect our competitive standing and prospects. 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.
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.
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, our continued success depends on our ability to innovate to keep current with and exceed the technological capabilities that our customers require.
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 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.
Failure to protect our intellectual property or allegations that we have infringed the intellectual property of others could adversely affect our business, financial condition 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.
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.
We have created a geographic footprint that emphasizes locating R&D, engineering and manufacturing capabilities in close physical proximity to our customers.
We are subject to the economic, political, regulatory, foreign exchange and other risks of international operations. We have created a geographic footprint that emphasizes locating R&D, engineering and manufacturing capabilities in close physical proximity to our customers.
Changing government regulations related to greenhouse gas emissions and energy efficiency and growing recognition among consumers of the dangers of climate change may also require changes at the product/production process level.
Additionally, changing government regulations related to greenhouse gas emissions and energy efficiency and growing recognition among consumers of the dangers of climate change may also require us to make changes at the level of our production processes, including due to demands of, and commitments to carbon neutrality by, automotive OEMs.
We have unfunded obligations under certain of our defined benefit pension and other postretirement benefit plans. The valuation of our future payment obligations under the 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.
The valuation of our future payment obligations under the 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.
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.
We face the 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. There can be no assurance that we will have adequate reserves to cover such recall, repair and replacement costs.
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.
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 will increase tax uncertainty and may adversely impact our provision for income taxes.
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.
Our inability to fill our supply needs, on terms that we expect or at all, 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.
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.
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.
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 our earnings and/or cash flows.
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.
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.
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.
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.
If we are unable to continue innovating, we may be unable to sustain our ability to meet customer requirements relative to technology, or fail to be awarded new business, each of which could adversely affect our results of operations, financial condition and future business prospects.
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 conditions, catastrophic events, and pandemics, may disrupt our business and adversely affect our results of operations and financial condition.
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. 25 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.
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” of the problem as well as expeditiously producing replacement components or products.
Furthermore, Centerbridge Investors and Oaktree Investors each have the right to designate three directors for election 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.
Furthermore, Centerbridge Investors and Oaktree Investors each have the right to designate one director for election to the Board at each meeting of stockholders of the Company.

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Item 2. Properties

Properties — owned and leased real estate

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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, 2022, we owned or leased 13 manufacturing sites, five R&D centers and 11 close-to-customer engineering sites.
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, 2023, we owned or leased 13 manufacturing sites, five R&D centers and 11 close-to-customer engineering sites.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Mine Safety Disclosures Not Applicable. 32 PART II
Mine Safety Disclosures Not Applicable. 30 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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The following graph and table illustrate the total return from April 30, 2021 (the date of Emergence) through December 31, 2022, for (i) our Common Stock, (ii) the Standard and Poor’s (“S&P”) Small Cap 600 Index, (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, 2021 (“2021 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., Tenneco Inc., Veoneer, Inc. and Visteon Corporation.
The following graph and table illustrate the total return from April 30, 2021, the date of the Company's emergence from Chapter 11 bankruptcy proceedings ("Emergence") through December 31, 2023, for (i) our Common Stock, (ii) the Standard and Poor’s (“S&P”) Small Cap 600 Index, (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, 2021 (“2021 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., Tenneco Inc., Veoneer, Inc. and Visteon Corporation, and (iv) 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.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The Common Stock trades on the Nasdaq Global Select Market under the ticker symbol "GTX". Holders of Record As of February 8, 2023, there were 29,178 stockholders of record of our Common Stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The Common Stock trades on the Nasdaq Global Select Market under the ticker symbol "GTX". Holders of Record As of February 9, 2024, there were 28,036 stockholders of record of our Common Stock.
Additionally, the terms of our Credit Facilities and the certificate of designations governing our Series A Preferred Stock each limit our ability to pay cash dividends on our Common Stock.
Additionally, the terms of our credit facilities limit our ability to pay cash dividends on our Common Stock.
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.
Dividend Policy We do not currently anticipate declaring or paying any cash dividends on our Common 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 of Directors.
These transactions did not involve any underwriters, underwriting discounts or commissions, or any public offering. Issuer Purchases of Equity Securities 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").
See "Capital Structure Transformation Transactions" under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations below. 32 Issuer Purchases of Equity Securities 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.
On November 2, 2022, the Board of Directors authorized the extension of the share repurchase program until November 15, 2023. On April 12, 2023, the Board of Directors further authorized an increase in the size of the share repurchase program to an aggregate amount of $250 million available as of that date.
The comparisons reflected in the graph and table are not intended to forecast the future performance of our Common Stock and may not be indicative of our future performance. 33 Indexed Price Performance Global Markets Intelligence Group Recent Sales of Unregistered Securities 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.
The comparisons reflected in the graph and table are not intended to forecast the future performance of our Common Stock and may not be indicative of our future performance. 31 Indexed Price Performance Global Markets Intelligence Group Recent Sales of Unregistered Securities In connection with the Transactions (as described below under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations ), on June 12, 2023, each share of our then-outstanding Series A Preferred Stock, par value $0.001 per share (the "Series A Preferred Stock"), was converted into one share of Common Stock.
Removed
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 Stock in the foreseeable future.
Added
Additionally, on June 20, 2023, all prior holders of Series A Preferred Stock received, in respect of each share of Series A Preferred Stock held immediately prior to the conversion, a payment in lieu of the accrued and unpaid dividends on the Series A Preferred Stock through June 30, 2023, plus an additional amount representing the dividends that would have accrued on the Series A Preferred Stock through September 30, 2023.
Removed
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.
Added
The 175,337,712 shares issued in the conversion and the 18,301,481 shares issued as part of the additional payment were issued pursuant to the exemption from registration contained in Section 3(a)(9) of the Securities Act.
Removed
There can however be no assurance that we will declare and pay dividends on our Series A Preferred Stock, or Common Stock, in the future in any particular amounts or at all.
Added
Additionally, on June 5, 2023, as part of the consideration paid in respect of the purchase of approximately $570 million of shares of Series A Preferred Stock from entities related to each of Centerbridge Partners, L.P. and Oaktree Capital Management, L.P., the Company issued to such entities an aggregate of 7,276,036 in shares of Common Stock, as part of the accrued and unpaid dividends and additional amounts that such entities would have received upon the conversion of the repurchased shares of Series A Preferred Stock (if they had held such shares on the conversion date).
Removed
(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.
Added
These shares were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
Removed
The following table summarizes our share repurchase activity for the three months ended December 31, 2022, and additional information regarding our share repurchase program. 34 Period Total Number of Common Shares Purchased Average Price Paid per Share Total Number of Preferred Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plan or Program Approximate 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, 2022.
Added
On November 1, 2023, the Board of Directors authorized the further extension of the share repurchase program until December 31, 2023, at which date the share repurchase program expired. The following table summarizes our share repurchase activity for the three months ended December 31, 2023, and additional information regarding our share repurchase program.
Added
Period Total Number of Common Shares Purchased Average Price Paid per Share Total Number of Preferred Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plan or Program Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan or Program October 1, 2023 - October 31, 2023 1,657,420 $ 7.29 — $ — 1,657,420 60,101,840 November 1, 2023 - November 30, 2023 2,816,714 $ 7.45 — $ — 2,816,714 39,125,995 December 1, 2023 - December 31, 2023 268,829 $ 7.82 — $ — 268,829 — (1) Total 4,742,963 $ 7.41 — $ — 4,742,963 (1) The share repurchase program expired on December 31, 2023 with an unused balance of $37 million.
Added
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, 2023. On February 13, 2024, the Board of Directors authorized a new $350 million share repurchase program valid until December 31, 2024. Item 6. Reserved Not applicable.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Financial Statements and Supplementary Data 50 Report of Independent Registered Public Accounting Firm ( PCAOB ID No. 1235 ) 50 Consolidated Statements of Operations 53 Consolidated Statements of Comprehensive Income 54 Consolidated Balance Sheets 55 Consolidated Statements of Cash Flows 56 Consolidated Statements of Equity (Deficit) 57 Notes to the Consolidated Financial Statements 58 Item 9 .
Financial Statements and Supplementary Data 48 Report of Independent Registered Public Accounting Firm ( PCAOB ID No. 1235 ) 48 Consolidated Statements of Operations 52 Consolidated Statements of Comprehensive Income 53 Consolidated Balance Sheets 54 Consolidated Statements of Cash Flows 55 Consolidated Statements of Equity (Deficit) 56 Notes to the Consolidated Financial Statements 57 Item 9 .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 97 Item 9A. Controls and Procedures 97
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 96 Item 9A. Controls and Procedures 96
Item 6. Reserved 35 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 35 Item 7A. Quantitative and Qualitative Disclosures About Market Risks 48 Item 8.
Item 6. Reserved 33 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33 Item 7A. Quantitative and Qualitative Disclosures About Market Risks 46 Item 8.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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We define “EBITDA” as our net income calculated in accordance with U.S. GAAP, plus the sum of net interest expense, tax expense and depreciation.
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.
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 our 37 Performance & Motorsport Turbo business, new distributor openings, as well as growth through new product introductions and favorable pricing impacts.
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 our Performance & Motorsport Turbo business, new distributor openings, as well as growth through new product introductions and favorable pricing impacts.
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.
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.
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.
Revenue is measured as the amount of consideration we expect to receive in 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.
These decreases were partially offset by $84 million of higher productivity which includes the benefits from value engineering that are partially 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.
These decreases were partially offset by $84 million of higher productivity which includes the benefits from value engineering 37 that are partially 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.
Non-GAAP Measures 41 Management provides non-GAAP financial information, including EBITDA and Adjusted EBITDA, to supplement the understanding of our business operations 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.
Non-GAAP Measures Management provides non-GAAP financial information, including EBITDA and Adjusted EBITDA, to supplement the understanding of our business operations 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.
(3) The Company applied ASC 852 for periods subsequent to the Petition Date to distinguish transactions and events that were directly associated with the Company’s reorganization from the ongoing operations of the business. Accordingly, certain expenses and gains incurred during the Chapter 11 Cases are recorded within Reorganization 42 items, net in the Consolidated Statements of Operations.
(2) The Company applied ASC 852 for periods subsequent to the Petition Date to distinguish transactions and events that were directly associated with the Company’s reorganization from the ongoing operations of the business. Accordingly, certain expenses and gains incurred during the Chapter 11 Cases are recorded within Reorganization items, net in the Consolidated Statements of Operations.
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.
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 zero emission technologies.
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.
Holdings, LLC, $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 the settlement of unsecured notes.
Cost of Goods Sold and Gross Profit 2022 2021 2020 (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 percentage 19.0 % 19.5 % 17.8 % Cost of Goods Sold Gross Profit (Dollars in millions) Cost of Goods Sold / Gross Profit for year ended December 31, 2021 $ 2,926 $ 707 Volume (19) (8) Product mix 124 25 Price, net of inflation pass-through — 125 Commodity, transportation and energy inflation 154 (154) Productivity, net (58) 84 Research & development 17 (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.
Cost of Goods Sold Gross Profit (Dollars in millions) Cost of Goods Sold / Gross Profit for year ended December 31, 2021 $ 2,926 $ 707 Volume (19) (8) Product mix 124 25 Price, net of inflation pass-through — 125 Commodity & transportation inflation 154 (154) Productivity, net (58) 84 Research & development 17 (17) Foreign exchange rate impacts (224) (79) Cost of Goods Sold / Gross Profit for year ended December 31, 2022 $ 2,920 $ 683 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.
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.
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.
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 and professional service costs and capital tax expense incurred in conjunction with our reorganization; and 2. 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.
We define “Adjusted EBITDA” as EBITDA, plus the sum of net reorganization items, stock compensation expense, repositioning costs, foreign exchange (gain) loss on debt net of related hedging (gain) loss, loss on extinguishment on debt, discounting costs on factoring, other non-operating income and capital structure transformation expense s; a nd 2. 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.
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 approximately $5 million related to purchase obligations which were entered into with various vendors in the normal course of business and are consistent with our expected requirements.
For 2024, we expect capital spending to increase slightly as compared to 2023. We expect to repay $7 million on our 2021 Dollar Term Facility. We also expect to pay approximately $36 million related to purchase obligations which were entered into with various vendors in the normal course of business and are consistent with our expected requirements.
Reorganization items, net 40 2022 2021 2020 (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.
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.
Tax Expense 2022 2021 2020 (Dollars in millions) Tax expense $ 106 $ 43 $ 39 Effective tax rate 21.4 % 7.9 % 32.8 % The effective tax rate increased by 13.5 percentage points in 2022 compared to 2021.
Tax Expense 2023 2022 2021 (Dollars in millions) Tax expense $ 86 $ 106 $ 43 Effective tax rate 24.8 % 21.4 % 7.9 % The effective tax rate increased by 3.4 percentage points in 2023 compared to 2022.
Net Income 2022 2021 2020 (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.
These decreases were partially offset by $73 million of increased gross profit. For the year ended December 31, 2022, net income decreased by $105 million compared to prior year primarily as a 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.
Interest Expense 2022 2021 2020 (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 issued at Emergence and fully redeemed by June 2022, and $9 million of interest expense incurred on our pre-Emergence credit facilities.
For the year ended December 31, 2022, interest expense decreased by $75 million compared to prior year, primarily due to $61 million of marked-to-market remeasurement gains on our undesignated interest rate swap contracts, $19 million less of interest accretion on the Series B Preferred Stock that was issued at Emergence and fully redeemed in June 2022, and $9 million of interest expense incurred on our pre-Emergence credit facilities.
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.
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 zero emission technologies.
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.
The 45 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.
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.
This increase was partially offset by tax benefits in the current year due to release of reserves for statute of limitation expirations.
We saw a $17 million benefit during the year from favorable foreign exchange rates compared to the 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.
For the year ended December 31, 2022, SG&A expenses remained flat compared to prior year. We saw a $17 million benefit during the year from favorable foreign exchange rates and $2 million of lower employee-related costs which mainly reflected lower incentive compensation expense partially offset by labor inflation.
As a result of many important factors, including those set forth in the "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.
As a result of many important factors, including those set forth in the "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. Executive Summary Garrett is a cutting-edge technology leader delivering differentiated solutions for emission reduction and energy efficiency.
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 shares of Series A Preferred Stock and Common Stock.
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. On November 2, 2022, the Board of Directors authorized the extension of the share repurchase program by one year, to November 15, 2023.
Adjusted EBITDA decreased by $37 million compared to the prior year mainly 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.
While we saw increased inflation on commodities, transportation and energy, and we also increased our R&D spending on zero emission technologies, this was more than offset by an improved product mix net of lower volumes, productivity, and inflation pass-through net of pricing.
Cash Flow Summary for the Years Ended December 31, 2022, 2021 and 2020 Our cash flows from operating, investing and financing activities for the years ended December 31, 2022, 2021 and 2020, as reflected in the Consolidated Financial Statements included in this Annual Report, are summarized as follows: Year Ended December 31, 2022 2021 2020 (Dollars in millions) Cash provided by (used for): Operating activities $ 375 $ (310) $ 25 Investing activities (91) (71) (80) Financing activities (482) 139 530 Effect of exchange rate changes on cash (18) 13 31 Net (decrease) increase in cash and cash equivalents $ (216) $ (229) $ 506 45 Cash Flow Summary for the year ended December 31, 2022 Cash provided by operating activities increased by $685 million for 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 net income of $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.
Cash Flow Summary for the year ended December 31, 2022 Cash provided by operating activities increased by $685 million for 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 net income of $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.
Adjusted EBITDA for the year ended December 31, 2022 compared with year ended December 31, 2021 For the year ended December 31, 2022, net income decreased $105 million versus the prior 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 prior year.
Adjusted EBITDA for the year ended December 31, 2023 compared with year ended December 31, 2022 For the year ended December 31, 2023, net income decreased by $129 million versus the prior year as discussed above within the Results of Operations section.
EBITDA and Adjusted EBITDA (non-GAAP) Year Ended December 31, 2022 2021 2020 (Dollars in millions) Net income — GAAP $ 390 $ 495 $ 80 Net interest expense 6 82 76 Tax expense 106 43 39 Depreciation 84 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 debt 5 — — Adjusted EBITDA (Non-GAAP) $ 570 $ 607 $ 607 $ 440 (1) Other expense, net includes factoring and notes receivable discount fees.
EBITDA and Adjusted EBITDA (non-GAAP) Year Ended December 31, 2023 2022 2021 (Dollars in millions) Net income — GAAP $ 261 $ 390 $ 495 Interest expense, net of interest income 152 6 82 Tax expense 86 106 43 Depreciation 90 84 92 EBITDA (Non-GAAP) $ 589 $ 586 $ 712 Discounting costs on factoring 4 2 — Non-operating (income) expense (1) (6) (41) (12) Reorganization items, net (2) — 3 (125) Stock compensation expense (3) 14 11 7 Repositioning costs 13 4 16 Foreign exchange (gain) loss on debt, net of related hedging (gain) loss (1) — 9 Capital structure transformation expenses (4) 22 — — Loss on extinguishment of debt — 5 — Adjusted EBITDA (Non-GAAP) $ 635 $ 570 $ 570 $ 607 40 (1) The adjustment for non-operating (income) expense reflects the non-service component of net periodic pension costs and other income that are non-recurring or not considered directly related to the Company's operations.
Finally, we expect to make contributions of approximately $7 million to our non-U.S. pension plans. We believe the combination of expected cash flows, the funding received from Series A Preferred Stock issuance, the term loan borrowings and the revolving credit facilities being committed until 2026, will provide us with adequate liquidity to support the Company's operations.
We believe the combination of expected cash flows, the term loan borrowings and the revolving credit facilities being committed until 2028, will provide us with adequate liquidity to support the Company's operations.
Non-operating income 2022 2021 2020 (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.
For the year ended December 31, 2022, non-operatin g income increased by $41 million compared to prior year.
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.
These decreases were partially offset by $14 million of additional interest expense in 2022 on our current credit facilities entered into at Emergence. Non-operating income 2023 2022 2021 (Dollars in millions) Non-operating income $ (2) $ (47) $ (6) For the year ended December 31, 2023, non-operating income amounted to $2 million compared to $47 million in the prior year.
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.
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. 44 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.
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.
We recovered most of these increases through customer pass-through agreements, especially on nickel, and continue to negotiate with our customers for further pass-through while actively managing our supply base and cost recovery mechanisms to minimize the impact of materials cost inflation. The increased productivity was partially offset by year-over-year 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 offset by $5 million of higher IT expenses in 2022, $4 million of increased travel expenses as Covid-19 restrictions eased, and $10 million of higher bad debt expenses due primarily to a non-recurring bad debt recovery recognized in 2021.
We also maintained our focus on productivity in 2021 as rising commodity prices led to higher raw material costs, particularly for nickel, aluminum and steel alloys.
Favorable impacts were also experienced from new product launches in gasoline, favorable aftermarket conditions such as continued high demand for replacement parts and new product launches coupled with price increases. We maintained our focus on productivity in 2023 as rising commodity prices led to higher raw material costs, particularly for steel alloys and nickel.
Selling, General and Administrative Expenses 2022 2021 2020 (Dollars in millions) Selling, general and administrative expense $ 216 $ 216 $ 260 % of sales 6.0 % 5.9 % 8.6 % For the year ended December 31, 2022, selling, general and administrative (“SG&A”) expenses remained flat compared to prior year.
Selling, General and Administrative Expenses 2023 2022 2021 (Dollars in millions) Selling, general and administrative expense $ 247 $ 216 $ 216 % of sales 6.4 % 6.0 % 5.9 % For the year ended December 31, 2023, selling, general and administrative (“SG&A”) expenses increased by $31 million compared with the prior year, primarily due to $9 million of legal and advisory fees related to the Transaction , $5 million of labor inflation impact, $6 million of employee repositioning costs, $3 million of higher incentive compensation expense and $5 million unfavorable impact from foreign exchange.
Cost of Goods Sold Gross Profit (Dollars in millions) Cost of Goods Sold / Gross Profit for year ended December 31, 2020 $ 2,495 $ 539 Volume 278 135 Product mix 74 (8) Price, net of inflation pass-through — (24) Commodity & transportation inflation 71 (71) Productivity, net (108) 120 Research & development 17 (17) Foreign exchange rate impacts 99 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.
Cost of Goods Sold and Gross Profit 2023 2022 2021 (Dollars in millions) Cost of goods sold $ 3,130 $ 2,920 $ 2,926 % change compared with prior period 7.2 % (0.2) % 17.3 % Gross profit percentage 19.5 % 19.0 % 19.5 % 36 Cost of Goods Sold Gross Profit (Dollars in millions) Cost of Goods Sold / Gross Profit for year ended December 31, 2022 $ 2,920 $ 683 Volume 217 89 Product mix 27 (79) Price, net of inflation pass-through — 38 Commodity, transportation and energy inflation 30 (30) Productivity, net (55) 60 Research & development 14 (14) Foreign exchange rate impacts (23) 9 Cost of Goods Sold / Gross Profit for year ended December 31, 2023 $ 3,130 $ 756 For the year ended December 31, 2023, cost of goods sold increased by $210 million, primarily driven by our higher sales volumes and an unfavorable product mix, which contributed to increases of $217 million and $27 million, respectively.
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.
Net Income 2023 2022 2021 (Dollars in millions) Net Income $ 261 $ 390 $ 495 39 For the year ended December 31, 2023, net income decreased by $129 million compared with the prior year, primarily due to $151 million of higher interest expense, $31 million of higher SG&A expenses and $45 million of lower non-operating income, as discussed above.
See Note 2, Plan of Reorganization of the Notes to the Consolidated Financial Statements. (4) Stock compensation expense includes only non-cash expenses. (5) Repositioning costs include severance costs related to restructuring projects to improve future productivity.
See Note 2, Plan of Reorganization of the Notes to the Consolidated Financial Statements. (3) Stock compensation expense includes only non-cash expenses. (4) Includes the loss on remeasurement of the Series A Preferred Stock Agreements as well as third-party legal and advisory fees that are directly attributable to the Transaction.
Cash used for investing activities decreased by $9 million for 2021 versus the prior year, primarily due to a decrease in Expenditures for property, plant and equipment of $8 million. Cash provided by financing activities decreased by $391 million for 2021 versus the prior year.
Cash used for investing activities decreased by $36 million for the year ended December 31, 2023 versus the prior year. The decrease is due to $28 million of proceeds from our cross-currency swap contracts which have been designated as net investment hedges of our Euro-denominated operations and $8 million of lower expenditures for property, plant and equipment.
On November 2, 2022, the Board of Directors authorized the extension of the share repurchase program by one year, to November 15, 2023. As of December 31, 2022, the Company had repurchased $26 million of its Series A Preferred Stock and Common Stock, with $74 million remaining under the share repurchase program. For more information, see Item 5.
On April 12, 2023, the Board of Directors further authorized an increase in the size of the share repurchase program to an aggregate amount of $250 million available as of that date. On November 1, 2023, the Board of Directors authorized the extension of the share repurchase program through December 31, 2023. For more information, see Item 5.
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), and repurchased $15 million of Series A Preferred Stock and $4 million of Common Stock pursuant to the share repurchase program.
In comparison, cash used for financing activities in the prior year was primarily related to the Company's payment of $381 million for the final early redemption of our Series B Preferred Stock (exclusive of $28 million attributable to interest and included in cash from operating activities) and $83 million for dividends on Series A Preferred Stock, while in the current year, there were $42 million in payments of accrued dividends on the Series A Preferred Stock through June 2023.
For 2021, Garrett’s Adjusted EBITDA of $607 million increased by $167 million compared to the prior year, mainly due to benefits from volume and productivity, partially offset by mix and commodities and transportation inflation. In 2021, our volumes totaled 13.7 million units, an increase of approximately 14% from 2020.
Our volumes for 2022 totaled 13.6 million units, representing a decrease of approximately 1% from the prior year. Adjusted EBITDA decreased by $37 million compared to the prior year mainly due to unfavorable foreign exchange impacts.
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.
We have significant expertise in delivering products at scale for ICE using gasoline, diesel, natural gas and hydrogen, as well as for zero emission vehicles using hydrogen fuel cell systems, both for mobility and industrial use.
Following our emergence from bankruptcy and during the year ended December 31, 2022, we funded our operations primarily through the cash flows from operating activities, borrowings from our credit facilities and cash and cash equivalents.
Finally, we expect to make contributions of approximately $7 million to our non-U.S. pension plans. We fund our operations primarily through cash flows from operating activities, borrowings from our credit facilities and cash and cash equivalents.
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.
The decrease in non-operating income was primarily driven by a $30 million decrease in the non-service components of net periodic pension benefits, a $13 million loss on the remeasurement of the Series A Preferred Stock Agreement during the three months ended June 30, 2023, and a $4 million increase in foreign exchange transactional losses.
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.
The increase was partially offset by our continued focus on productivity, net of labor inflation, one-time expenses and higher repositioning costs, which contributed a decrease in cost of goods sold of $55 million, and by foreign currency impacts from transactional, translational and hedging effects, which contributed a decrease in cost of goods sold of $23 million.
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.
During the year ended December 31, 2023, we repaid $200 million on our 2023 Dollar Term Facility and $7 million on our 2021 Dollar Term Facility. As previously disclosed, the Company entered into the Agreements with the C&O Investors to repurchase certain shares and convert all remaining Series A Preferred Stock.
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 improved by $14 million or 3% (including a favorable impact of $2 million or 0% due to foreign currency translation), primarily on strong demand in Europe and especially in Asia Pacific related to favorable aftermarket conditions including the continued high demand for replacement parts.
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.
These increases in interest expense were partially offset by $10 million of interest accretion in the prior year on our Series B Preferred Stock that was fully redeemed in June 2022, and $28 million of gains on our interest derivatives in the current year.
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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.
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We design, manufacture, and sell highly engineered turbocharging, air and fluid compression, and high-speed electric motor technologies for OEMs and distributors within the mobility and industrial space.
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These products are key enablers for fuel economy and emissions standards compliance.
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As our customers continue to progress on electrification, we apply our technological pillars to develop highly engineered E-Powertrain and E-Cooling compressor products to support their ambition.
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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.
Added
These products are key enablers for fuel economy, energy efficiency, thermal management, and compliance with emissions standards and overall greenhouse gas and other emission reduction targets. 33 In 2023, the turbocharger industry increased from approximately 46 million units in 2022 to approximately 50 million units in line with increased volumes in the light vehicle industry.
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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.
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This enabled us to achieve $3,886 million of Net sales for the year. 2023 was also a year of economic volatility which saw elevated interest rates and continued commodity inflation pressures globally.
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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.
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We continued to leverage our variable cost structure to successfully navigate this macroeconomic environment, while increasing our R&D investments by $22 million versus the prior year from 4.2% to 4.6% of Net sales. Our agility furthermore allowed us to achieve Net income of $261 million and Adjusted EBITDA of $635 million for the year.
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In the long-te rm, the pr oposal 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.
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We continue to build momentum with our turbocharging and zero emission technologies. During 2023, we won nine pre-development contracts for our breakthrough E-Powertrain and E-Cooling applications and six series production awards for our highly differentiated fuel cell compressors.
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In the United States, the tightening of CO2/mileage targets is expected to drive higher turbo penetration in the short to medium term.
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Capital Structure Transformation As previously announced, on April 12, 2023, we entered into separate definitive agreements (the "Agreements") with each of Centerbridge Partners, L.P. and funds managed by Oaktree Capital Management, L.P.
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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.
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(collectively, the "C&O Investors") to effect a series of integrated transactions (the "Transaction") designed to increase the attractiveness of the Company to investors, including simplifying our capital structure through a conversion of the Series A Preferred Stock into shares of Common Stock.
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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.
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Under the Transaction, the Company repurchased 69,707,719 shares of Series A Preferred Stock and converted 175,337,712 shares of Series A Preferred Stock into an equivalent number of Common Stock.
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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.
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Total consideration paid to the holders of Series A Preferred Stock under the Transaction amounted to cash payments of $605 million and the issuance of an additional 25,577,517 shares of Common Stock in settlement of accumulated and unpaid preference dividends on the Series A Preferred Stock through June 30, 2023.
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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.
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The Transaction was financed through a new $700 million Term Loan B (the "2023 Dollar Facility") under the framework of the Company's existing credit agreement.
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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.
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As part of the Agreement, the C&O Investors agreed with the Company to certain changes to each of their respective governance rights under the Company’s governance documents, including a reduction of their existing board nomination rights, as well as lock-up restrictions on their equity securities of the Company for up to twelve months, and certain limits on their ability to purchase additional equity securities of the Company and to voting limitations, in each case for a period of up to eighteen months.
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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.
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Other 2023 Events During 2023, we repaid $200 million on our 2023 Dollar Term Facility and repurchased $213 million of Common Stock in line with our capital allocation priorities. Our share repurchase program expired on December 31, 2023. Trends, Uncertainties and Opportunities The macroeconomic environment around us continues to evolve rapidly.
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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.
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Significant uncertainty remains on global economic growth, with continued supply chain disruptions and geopolitical tensions, as well as China facing deflationary pressures and job market deterioration. In 2023, an increase in BEV production has been observed globally and especially in Europe and China. We expect this trend to continue into 2024.
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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.
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We believe that turbocharger demand will continue to remain strong in the short and medium term, in part due to an expected increase in the penetration of hybrid vehicles in the light vehicle industry, which often requires the use of either a mechanical turbo or an electrical boosting solution.
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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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Under our cash flow hedging program, we designate the foreign currency forward contracts as cash flow hedges of underlying foreign currency forecasted purchases and sales, with gains and losses on the qualifying derivatives recorded in Accumulated other comprehensive income (loss) in the Consolidated Balance Sheet until the underlying forecasted transactions are recognized in earnings.
Under our cash flow hedging program, we designate certain foreign currency forward contracts as cash flow hedges of underlying foreign currency forecasted purchases and sales, with gains and losses on the qualifying derivatives recorded in Accumulated other comprehensive income in the Consolidated Balance Sheet until the underlying forecasted transactions are recognized in earnings.
As our costs change, we are contractually able to pass through a portion of the changes in commodity prices to certain of our customers in 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.
As our costs change, we may be contractually able to pass through a portion of the changes in commodity prices to certain of our customers in accordance with long-term agreements. Where long-term pass-through agreements are not in place with customers, we generally seek to negotiate additional pricing arrangements with our customers.
For our outstanding borrowings under the Credit Agreement as of December 31, 2022, a 50 basis point increase (decrease) in interest rates would have increased (decreased) our interest expense by $6 million and ($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, 2022.
For our outstanding borrowings under the Credit Agreement as of December 31, 2023, a 50 basis point increase (decrease) in interest rates would have increased (decreased) our interest expense by $9 million and ($9) 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, 2023.
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 $112 million and $(139) million, respectively, at December 31, 2022 exchange rates. The model assumes a parallel shift in currency exchange rates; however, currency exchange rates rarely move in the same direction.
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 $187 million and $(170) million, respectively, at December 31, 2023 exchange rates. The model assumes a parallel shift in currency exchange rates; however, currency exchange rates rarely move in the same direction.
We 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.
We manage this risk by entering into interest rate swap contracts to convert floating rate debt to fixed rate debt to reduce market risk associated with changes in interest rates. As of December 31, 2023, the net fair value of all financial instruments with exposure to interest rate risk was a $43 million asset.
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.
Approximately 76% 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.
These contracts have varying terms that extend through 2023. Effective with our entry into the Credit Agreement, the Company entered into floating-floating cross-currency swap contracts to limit 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.
Effective with our entry into the Credit Agreement, the Company entered into float-to-float cross-currency swap contracts to limit its exposure to investments in certain foreign subsidiaries exposed to foreign exchange fluctuations. The cross-currency swap contracts have been designated as net investment hedges of its Euro-denominated operations.
For additional information regarding our Credit Agreement, see Note 16, Long-term Debt and Credit Agreements of the Notes to the Consolidated Financial Statements. Commodity Price Risk 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.
For additional information regarding our Credit Agreement, see Note 16, Long-term Debt and Credit Agreements of the Notes to the Consolidated Financial Statements. Commodity Price Risk We do not utilize derivative contracts to manage commodity price risk and are subject to changes in our cost of sales caused by movements in underlying commodity prices.
We historically have hedged balance sheet as well as forecasted currency exposures with natural offsets to the fullest extent possible and, once these opportunities have been exhausted, through foreign currency exchange forward contracts. We hedge forecasted currency exposure to minimize the earnings exposures arising from foreign currency exchange risk on foreign currency purchases and sales.
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. 46 We historically have hedged balance sheet as well as forecasted currency exposures with natural offsets to the fullest extent possible and, once these opportunities have been exhausted, through foreign currency exchange forward contracts.
Gains and losses 48 on the derivatives qualifying as net investment hedges are recorded in Accumulated other comprehensive income (loss) within the Consolidated Balance Sheet until the net investment is liquidated or sold. As of December 31, 2022, the net fair value of all financial instruments with exposure to currency risk was a $92 million asset.
Gains and losses on the derivatives qualifying as net investment hedges are recorded in Accumulated other comprehensive income within the Consolidated Balance Sheet until the net investment is liquidated or sold. The Company also uses a float-to-fixed cross-currency swap contract to mitigate the foreign currency risk, as well as interest rate risk, on its 2023 Dollar Facility.
Assuming current levels of commodity purchases and contractually agreed customer pass-through arrangements, a 10% variation in the commodity prices would correspondingly change our earnings by approximately $24 million per year. 49
Assuming current levels of commodity purchases, a 10% variation in the commodity prices could impact our cost of sales by up to approximately $55 million per year prior to any price recovery from customers. 47
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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.
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We hedge forecasted currency exposure to minimize the earnings exposures arising from foreign currency exchange risk on foreign currency purchases and sales.
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Gains and losses on the underlying foreign currency exposures are partially offset with gains and losses on the foreign currency forward contracts.
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These contracts have varying terms that extend through 2025. We also utilize undesignated foreign currency forward contracts to partially offset gains and losses on the foreign currency remeasurement of balance sheet positions.
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The cross-currency swap contract is designated as a cash flow hedge, with changes in the fair value of the derivative recorded in AOCI and reclassified into earnings based upon changes in the spot rate remeasurement of the underlying debt.
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As of December 31, 2023, the net fair value of all financial instruments with exposure to currency risk was a $20 million asset.

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