Garrett Motion (GTX) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited interim financial statements, management's analysis, market risk disclosures, and controls and procedures - On April 30, 2021, the company emerged from Chapter 11 bankruptcy after the court confirmed its Plan of Reorganization[25] - Upon emergence, the company did not meet the criteria for fresh start accounting under ASC 852 because existing voting shareholders retained more than 50% of the voting shares of the emerging entity[28] Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated interim financial statements, reflecting post-bankruptcy performance with $63 million net income in Q3 2021 Consolidated Interim Statements of Operations This statement details interim operating results, showing $839 million net sales and $63 million net income for Q3 2021 Consolidated Interim Statements of Operations (Unaudited) | Indicator | Q3 2021 (Millions) | Q3 2020 (Millions) | YTD 2021 (Millions) | YTD 2020 (Millions) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $839 | $804 | $2,771 | $2,026 | | Gross profit | $163 | $147 | $552 | $365 | | Income before taxes | $91 | $10 | $449 | $65 | | Net income | $63 | $11 | $367 | $54 | | Net income available to common shareholders | $27 | $11 | $307 | $54 | | Diluted EPS | $0.20 | $0.14 | $1.75 | $0.71 | Consolidated Interim Balance Sheets This balance sheet reflects total assets of $2.72 billion and total liabilities of $3.35 billion as of September 30, 2021, with a $633 million total deficit Consolidated Interim Balance Sheets (Unaudited) | Account | Sep 30, 2021 (Millions) | Dec 31, 2020 (Millions) | | :--- | :--- | :--- | | Total current assets | $1,609 | $1,879 | | Total assets | $2,717 | $3,017 | | Total current liabilities | $1,499 | $1,837 | | Total liabilities | $3,350 | $5,325 | | Liabilities subject to compromise | $0 | $2,290 | | Total deficit | ($633) | ($2,308) | Consolidated Interim Statements of Cash Flows This statement details cash flows for the nine months ended September 30, 2021, with $446 million net cash used in operations and $534 million cash at period-end Consolidated Interim Statements of Cash Flows (Unaudited, Nine Months Ended Sep 30) | Cash Flow Activity | 2021 (Millions) | 2020 (Millions) | | :--- | :--- | :--- | | Net cash used for operating activities | ($446) | ($136) | | Net cash used for investing activities | ($73) | ($79) | | Net cash provided by financing activities | $362 | $340 | | Net (decrease) increase in cash | ($159) | $128 | | Cash, cash equivalents and restricted cash at end of period | $534 | $315 | Notes to Unaudited Consolidated Interim Financial Statements These notes detail the company's Chapter 11 emergence, new debt facilities, preferred stock terms, and revenue recognition, highlighting Europe as the largest market - As part of its emergence from Chapter 11 on April 30, 2021, the company cancelled old common stock, issued new common and preferred stock, paid $375 million to Honeywell, and entered into new credit facilities[33][34][35] Net Sales by Region (Nine Months Ended Sep 30, 2021) | Region | Net Sales (Millions) | % of Total | | :--- | :--- | :--- | | Europe | $1,401 | 50.6% | | Asia | $909 | 32.8% | | United States | $423 | 15.3% | | Other International | $38 | 1.4% | | Total | $2,771 | 100% | - The company entered into new secured debt facilities totaling approximately $1.24 billion, consisting of a $715 million Dollar Facility and a €450 million Euro Facility, both maturing in 2028[78][80] - Issued 834.8 million shares of mandatorily redeemable Series B Preferred Stock to Honeywell to settle claims, with scheduled redemptions totaling $835 million from 2022 to 2030[100][103] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the 36.8% increase in nine-month net sales, improved gross profit margin, and enhanced liquidity post-bankruptcy amid semiconductor shortages - The global semiconductor shortage is creating uncertainty and is expected to influence operating activity until at least mid-2022, with automotive OEMs reducing production plans[195] Net Sales Change (YTD 2021 vs YTD 2020) | Product Line | Change (Millions) | % Change | | :--- | :--- | :--- | | Gasoline | +$307 | +40% | | Diesel | +$225 | +38% | | Commercial Vehicle | +$150 | +39% | | Aftermarket | +$61 | +26% | | Total | +$745 | +36.8% | Adjusted EBITDA Reconciliation (Non-GAAP) | Metric | Q3 2021 (Millions) | Q3 2020 (Millions) | YTD 2021 (Millions) | YTD 2020 (Millions) | | :--- | :--- | :--- | :--- | :--- | | Net income — GAAP | $63 | $11 | $367 | $54 | | EBITDA (Non-GAAP) | $138 | $52 | $586 | $178 | | Adjusted EBITDA (Non-GAAP) | $134 | $120 | $478 | $291 | - As a result of improved liquidity and the removal of uncertainties surrounding the Chapter 11 Cases, substantial doubt no longer exists about the company's ability to continue as a going concern[260] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section addresses market risk exposure, primarily from floating-rate debt, noting the resumption of ordinary course hedging activities post-bankruptcy - The company's primary market risk is now tied to interest rate changes on its new Credit Agreement, which bears interest at floating rates[273][274] - The company has resumed ordinary course hedging activities for foreign currency and interest rate risks, which were previously restricted during the Chapter 11 proceedings[273] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[276] - There were no material changes in the company's internal control over financial reporting during the third quarter of 2021[277] PART II. OTHER INFORMATION This section provides information on legal proceedings, updated risk factors, equity security sales, defaults on senior securities, and other corporate information Item 1. Legal Proceedings The company is involved in various legal proceedings incidental to its business, with liabilities accrued when probable and estimable - The company is subject to various legal proceedings related to product liability, environmental, intellectual property, and commercial matters, but does not currently believe they will have a material adverse effect[280] Item 1A. Risk Factors This section details updated risks: raw material shortages, supply chain disruptions, climate impacts, post-bankruptcy relationship challenges, and substantial debt - Updated business risks include raw material price fluctuations and supply chain disruptions, specifically citing the global semiconductor shortage and potential power outages in China[290][291][292] - Climate-related risks are emphasized, including regulations promoting a transition away from internal combustion engines and the physical impacts of climate change on operations[294][295][298] - Risks related to the recent emergence from bankruptcy include potential damage to relationships with suppliers and customers, and the fact that future financial results may not be comparable to historical performance[303][304] - The company has substantial debt and payment obligations to Honeywell under the Series B Preferred Stock, which could limit operational flexibility and the ability to raise additional capital[312][315] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports the conversion of Series A Preferred Stock into Common Stock during Q3 2021, with no proceeds received from unregistered sales - In Q3 2021, a small number of Series A Preferred Stock shares were converted into Common Stock[358] Item 3. Defaults Upon Senior Securities The company did not declare or pay cumulative cash dividends on Series A Preferred Stock, resulting in $60 million of unpaid dividends as of October 1, 2021 - As of October 1, 2021, there were $60 million of unpaid cumulative preference dividends on the Series A Preferred Stock[361] Item 5. Other Information The Board of Directors amended the company's by-laws to clarify the deadline for stockholder director nominations for the 2022 annual meeting - The company amended its by-laws to clarify the timeline for stockholder director nominations for the 2022 annual meeting[363][364] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents and officer certifications