Garrett Motion Inc. (GTX) FY 2024 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations, which we refer to as our “MD&A,” should be read in conjunction with our Consolidated Financial Statements and related notes thereto and other financial information appearing elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many important factors, including those set forth in the "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. 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.

We have significant expertise in delivering products at scale for ICE-powered vehicles 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. As our customers continue to progress on electrification, we are applying our technological pillars to develop highly engineered E-Powertrain and E-Cooling compressor products to support their ambition. 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.

In 2024, turbocharger production decreased globally from approximately 50 million units in 2023 to 49 million units in 2024 and is expected to further decrease from 2025 onward based on current expectations of electric vehicle penetration. We effectively navigated through macroeconomic and geopolitical challenges by implementing strategic permanent and variable cost measures, as well as leveraging commodity deflation pass-through. Our effective management allowed us to achieve Net income of $282 million and Adjusted EBITDA of $598 million for the year.

We continue to achieve success in our turbocharging, hybrid, and zero-emission technology applications. This year, we secured additional pre-production contracts for both light vehicle and commercial vehicle applications, were awarded our first turbo application for a Range Extended Electric Vehicle with a leading Chinese technology company, and made significant progress in testing our new turbo off-highway applications.

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On April 3, 2024, we divested our equity interest in an unconsolidated joint venture for approximately $58 million, subject to customary debt and working capital adjustments. We received cash consideration on the divestiture date of $46 million, with an additional $7 million still to be received, and recognized a gain of $27 million related to this divestiture.

During the second quarter of 2024, we completed an offering of $800 million in aggregate principal amount of 7.75% Senior Unsecured Notes due 2032 (the "Senior Notes") and made early debt repayments totaling $985 million on our €450 million secured first-lien Euro Term Facility (the "Euro Term Facility") and $500 million secured first-lien U.S. Dollar term loan facility (the "2023 Dollar Term Facility"), both of which were fully repaid as of June 30, 2024.

In December 2024, the Board of Directors announced that it intends to declare and pay quarterly dividends on our Common Stock in an aggregate amount of approximately $50 million in 2025. The first quarter dividend of $0.06 per share was declared on December 5, 2024, payable to holders of our Common Stock as of January 15, 2025, and was settled in cash for $12 million on January 31, 2025.

Trends, Uncertainties and Opportunities

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 industry. We believe a global increase in BEV production will persist into 2025. We anticipate that demand for turbochargers will remain steady in the short to medium term, driven by the growing penetration of hybridized powertrains in response to strict fuel efficiency and emissions standards. While we foresee continued growth in BEV adoption, we believe it will be somewhat constrained in the short term due to the price disparity compared to ICE vehicles, geopolitical risks, and the slower-than-expected development of charging infrastructure.

Disaggregated Revenue

The following tables show our revenues by geographic region and product line for the years ended December 31, 2024, 2023 and 2022.

By Region

By Product Line

Results of Operations for the Years Ended December 31, 2024, 2023 and 2022

Net Sales

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The change in net sales compared to the prior year is attributable to the following:

For the year ended December 31, 2024, net sales decreased compared to prior year by $411 million or 11%, including an unfavorable impact of $34 million or 1% due to foreign currency translation driven by lower Chinese Yuan-to-US dollar and lower Japanese Yen-to-US dollar exchange rates, partially offset by higher Euro-to-US dollar exchange rates. This decrease was mainly driven by soft demand in gasoline, diesel, and commercial vehicle applications, partially offset by demand for replacement parts on aftermarket sales. Net sales further decreased due to price, net of inflation pass-through driven by commodity deflation and partially offset by favorable product mix.

Gasoline product sales decreased by $215 million or 13% (including an unfavorable impact of $16 million or 1% due to foreign currency translation) driven by soft demand in China and North America, partially offset by program ramp-ups in Europe, the rest of Asia and South America.

Diesel product sales decreased by $165 million or 17% (including an unfavorable impact of $6 million or 1% due to foreign currency translation), primarily driven by passenger vehicles in Europe, partially offset by sustained demand for pickup trucks in North and South America.

Commercial vehicle sales decreased by $27 million or 4% (including an unfavorable impact of $8 million or 1% due to foreign currency translation), primarily driven by soft demand in the construction and agriculture industries due to high interest rates and lower crop prices, partially offset by sustained demand in the on-highway industry, especially in China and North America.

Aftermarket sales increased by $3 million or 1% (including an unfavorable impact of $3 million or 0% due to foreign currency translation), primarily driven by favorable aftermarket conditions and continued high demand for replacement parts in China, Europe, India, Brazil and Japan, partially offset by softer sales in Australia.

For the year ended December 31, 2023, net sales increased compared to prior year by $283 million or 8%, including an unfavorable impact of $14 million or 0% due to foreign currency translation driven by lower Chinese Yuan-to-US dollar, partially offset by higher Euro-to-US dollar exchange rates. This increase was driven by higher volumes with growth of both global light vehicles and the turbocharger industry, and faster than expected recovery from China Covid-19 pressures and semiconductor shortages experienced in the prior year. Strong demand for new product launches and ramp-ups along with inflation recoveries net of pricing across all product lines also contributed to the net sales growth.

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Gasoline product sales increased by $235 million or 16% (including an unfavorable impact of $20 million or 1% due to foreign currency translation) driven by industry recovery from prior year’s global semiconductor shortages and Covid-related lockdown measures in China, combined with new product launches and ramp-ups across all regions.

Diesel product sales increased by $43 million or 5% (including a favorable impact of $10 million or 2% due to foreign currency translation), driven by strong performance in Europe where diesel remains essential to meet fleet CO2 targets in addition to strong light commercial vehicle performance on existing platforms.

Commercial vehicle sales decreased by $17 million or 3% (including an unfavorable impact of $7 million or 2% due to foreign currency translation), primarily driven by global demand softness influenced by macroeconomic headwinds such as higher interest rates and commodity inflation, partially offset by favorable regional mix.

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. Recovery in China from the end of the Chinese government's zero Covid-19 policy as well as new product introductions and favorable pricing impact also contributed to the growth.

Cost of Goods Sold and Gross Profit

For the year ended December 31, 2024, cost of goods sold decreased by $360 million, primarily driven by lower sales volumes which contributed a decrease of $290 million. Cost of goods sold further declined from $81 million of commodity, transportation and energy deflation, as well as a $98 million decrease from productivity, net of labor inflation and repositioning costs, and foreign currency impacts from transactional, translational, and hedging effects of $7 million. The decrease was partially offset by unfavorable product mix of $104 million and a $12 million increase in R&D costs, net of customer reimbursements, which reflects our continued investment in new technologies and related headcount year-over-year.

Gross profit decreased by $51 million, mainly driven by lower sales volumes which contributed a decrease of $122 million. Gross profit further declined from $50 million of price, net of inflation pass-through, $12 million higher R&D costs, net of customer reimbursements, and $27 million from foreign currency impacts from transactional, translational and hedging. These decreases were partially offset by $81 million of commodity, transportation and energy deflation, $72 million of productivity, net of labor inflation and repositioning costs, and $7 million of favorable impact from product mix.

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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. Cost of goods sold further increased due to $30 million of inflation on commodities, transportation and energy, as well as a $14 million increase in R&D costs, net of customer reimbursements, which reflects our continued investment in new technologies and related headcount year-over-year. 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.

Gross profit increased by $73 million, mainly driven by higher sales volumes of $89 million and $60 million of productivity net of labor inflation, one-time expenses and higher repositioning costs. We also saw $38 million more of inflation recoveries from customer pass-through agreements net of pricing, and positive foreign currency impacts from transactional, translational and hedging of $9 million. These increases were partially offset by $30 million of inflation on commodities, transportation and energy costs, $79 million of unfavorable impacts from product mix primarily from growth in small-engine gasoline applications, as well as $14 million of higher R&D costs, net of customer reimbursements.

Selling, General and Administrative Expenses

For the year ended December 31, 2024, selling, general and administrative (“SG&A”) expenses decreased by $7 million compared with the prior year, primarily driven by $4 million of lower repositioning costs, $8 million of lower professional service and legal fees and $3 million of lower IT-related costs. These decreases were partially offset by $8 million of higher stock-based compensation expense and $1 million of unfavorable foreign exchange impacts.

For the year ended December 31, 2023, 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 (as defined below), $5 million of labor inflation impact, $6 million of employee repositioning costs, $3 million of higher incentive compensation expense and $5 million of unfavorable impacts from foreign exchange.

Interest expense

For the year ended December 31, 2024, interest expense decreased by $3 million compared to prior year. This reduction was primarily due to $24 million of higher gains recorded on our interest derivatives, lower interest from our $715 million secured first-lien U.S. Dollar term loan facility (the "2021 Dollar Term Facility") and 2023 Dollar Term

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Facility, partially offset by $15 million of accelerated debt issuance cost amortization, $4 million of higher marked-to-market remeasurement losses recorded on our undesignated interest rate swap contracts and $2 million of interest expense from our 2032 Senior Notes.

For the year ended December 31, 2023, interest expense increased by $151 million compared to prior year. This increase was mainly due to $33 million of marked-to-market remeasurement losses recorded in 2023 on our undesignated interest rate swap contracts versus $68 million of marked-to-market remeasurement gains in the prior year. We also saw $74 million of higher interest expense due to the new $700 million 2023 Dollar Facility and higher interest rates, and $12 million of debt issuance cost amortization primarily due to a $200 million early debt repayment. 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 2023.

Non-operating income, net

For the year ended December 31, 2024, non-operating income, net amounted to $13 million compared to $2 million in the prior year. The increase in non-operating income was primarily driven by a $13 million loss on remeasurement of the Series A Preferred Stock Agreements (as defined below) during the prior year and a $6 million increase in the non-service cost components of net periodic pension benefits, partially offset by $6 million of lower equity income due to the sale of an equity interest in an unconsolidated joint venture.

For the year ended December 31, 2023, non-operating income, net amounted to $2 million compared to $47 million in the prior year. 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 Agreements during the three months ended June 30, 2023, and a $4 million increase in foreign exchange transactional losses.

Reorganization items, net

For the years ended December 31, 2024 and 2023, there were no expenses incurred for Reorganization items, net.

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

The effective tax rate decreased by 7.0 percentage points in 2024 compared to 2023. The decrease was primarily due to releases of reserves due to statute of limitation expirations and settlements with taxing authorities and release of valuation allowance related to deferred tax assets in Brazil (net of US branch taxes). In addition, there was prior year expense due to rate change impact on deferred tax assets attributable to the certification by the Chinese government of the High and New Technology Enterprise status of the Company’s China operations, which reduced the tax rate to 15% for the respective entity. These increases were partially offset by prior year tax benefits in Switzerland due to law changes (net of valuation allowance) and in Korea for prior year tax settlements.

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The effective tax rate increased by 3.4 percentage points in 2023 compared to 2022. The increase was primarily due to the rate change impact on deferred tax assets attributable to the certification by the Chinese government of the High and New Technology Enterprise status of the Company’s China operations, which reduced the tax rate to 15% for the respective entity. Further, withholding tax and other taxes on foreign earnings have comparatively increased due to one-time non-recurring benefit recorded in 2022 related to accrued taxes on distributable reserves. These increases were partially offset by 2023 tax benefits in Switzerland due to law changes (net of valuation allowance) and in Korea for prior year tax settlements.

In January 2019, the Organization for Economic Co-operation and Development (“OECD”) announced further work in continuation of its Base Erosion and Profit Shifting project, focusing on two “pillars.” Pillar One provides a framework for the reallocation of certain residual profits of multinational enterprises to market jurisdictions where goods or services are used or consumed. Pillar Two consists of two interrelated rules referred to as Global Anti-Base Erosion (“GloBE”) Rules, which operate to impose a minimum tax rate of 15% calculated on a jurisdictional basis. On December 20, 2021, the OECD published GloBE model rules and released multiple rounds of commentary on those rules over the subsequent months. More than 135 OECD member countries have agreed to the key parameters of the model rules, which allow those OECD member countries to begin implementing the GloBE rules in a manner consistent with the agreement reached. The rules were adopted by a number of countries, with an effective date for fiscal years beginning after December 31, 2023.

We do not expect that Pillar One will have an impact on our operations or effective tax rate. For 2024, Pillar Two does not have a material impact to our effective tax rate.

Net Income

For the year ended December 31, 2024, net income increased by $21 million compared with the prior year, primarily due to a $27 million gain on the sale of an equity interest in an unconsolidated joint venture, $7 million of lower SG&A expenses, $3 million of lower interest expense, $11 million of higher non-operating income, and lower income tax expense of $25 million as discussed above. These increases were partially offset by $51 million of decreased gross profit.

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. These decreases were partially offset by $73 million of increased gross profit.

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. Each non-GAAP financial measure is presented along with the most directly comparable GAAP measure so as not to imply that more emphasis should be placed on the non-GAAP measure. The non-GAAP financial information presented may be determined or calculated differently by other companies and may not be comparable to other similarly titled measures used by other companies. Additionally, the non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the Company’s operating results as reported under GAAP. We believe that EBITDA and Adjusted EBITDA are important indicators of operating performance and provide useful information for investors.

1.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, depreciation and amortization. We define “Adjusted EBITDA” as EBITDA, plus the sum of stock compensation expense, repositioning costs, foreign exchange (gain) loss on debt net of related hedging (gain) loss, discounting costs on factoring, gain on sale of equity investment, acquisition and divestiture expenses, other non-operating income, capital structure transformation expenses, debt refinancing and redemption costs, net reorganization items and loss on extinguishment of debt (if any); 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.

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For 2024, we revised our definition of Adjusted EBITDA to exclude acquisition and divestiture expenses, and debt refinancing and redemption costs. We did not revise prior years' Adjusted EBITDA because there were no such charges similar in nature.

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

EBITDA and Adjusted EBITDA (non-GAAP)

(1)Reflects interest income of $3 million, $7 million and $2 million for the year ended December 31, 2024, 2023 and 2022, respectively.

(2)The adjustment for other non-operating income reflects the non-service component of net periodic pension costs and other income that are not considered directly related to the Company's operations.

(3)On September 20, 2020 (the "Petition Date"), the Company and certain of its subsidiaries each filed a voluntary petition for relief under Chapter 11 of title 11 of the United States Code (the "Chapter 11 Cases") in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). A Revised Amended Plan of Reorganization was confirmed by the Bankruptcy Court on April 26, 2021, and the Company emerged from bankruptcy on April 30, 2021. 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. See Note 2, Plan of Reorganization of the Notes to the Consolidated Financial Statements.

(4)Stock compensation expense includes only non-cash expenses.

(5)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.

(6)Reflects third-party costs incurred for the sale of an equity interest in an unconsolidated joint venture.

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

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Adjusted EBITDA for the year ended December 31, 2024 compared with year ended December 31, 2023

For the year ended December 31, 2024, net income increased by $21 million versus the prior year as discussed above within the Results of Operations section.

Adjusted EBITDA decreased by $37 million compared to the prior year, mainly from soft demand across all product lines except aftermarket, net of favorable product mix. Additionally, price net of inflation pass-through, higher R&D investment, and unfavorable foreign exchange impacts further reduced Adjusted EBITDA versus prior year. These declines were partially offset by operational productivity, net of labor inflation and repositioning costs, and commodity, transportation, and energy deflation year-over-year.

During 2024, we saw a decline in demand for our gasoline, diesel, and commercial vehicle applications, partially offset by favorable demand in aftermarket for replacement parts in North America, China and Europe. Net sales also decreased due to price, net of inflation pass-through, driven by commodity price decreases.

We drove strong operational productivity in 2024, flexing our variable cost structure and driving fixed cost productivity of $82 million. This, coupled with commodity, transportation, and energy deflation of $81 million versus prior year, partially offset the impact of volume declines and allowed us to expand our Adjusted EBITDA margin while funding a $12 million increase in R&D expenses, net of customer reimbursements.

Losses in foreign currency from translational, transactional, and hedging effects accounted for $23 million of the decrease in Adjusted EBITDA.

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.

Adjusted EBITDA increased by $65 million compared to the prior year, mainly on higher volumes primarily in small-engine gasoline applications which drove unfavorable mix impact. Additionally, operational productivity and inflation pass-through net of pricing contributed $69 million improvement year-over-year offsetting $14 million higher R&D investment including new zero emission technologies. The impact of foreign currency impact was zero for the year.

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During 2023, we saw strong customer demand increases in diesel and gasoline product lines, in a less disruptive supply chain environment, as the industry recovered from semiconductor shortages experienced in the prior year. 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. 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.

R&D expenses increased $14 million which reflects our continued investment in new technologies, increased hiring to accelerate growth in the new technologies and year-over-year labor inflation, net of customer reimbursements.

There was no impact from foreign currency with translational and transactional impacts being offset by hedge remeasurement.

Liquidity and Capital Resources

Overview

On May 21, 2024, our wholly owned subsidiaries, Garrett Motion Holdings Inc. and Garrett LX I S.a.r.l., completed an offering of $800 million in aggregate principal amount of the 2032 Senior Notes. The 2032 Senior Notes mature on May 31, 2032 and bear interest at a rate of 7.75% per annum. We incurred $12 million of debt issuance costs, which have been capitalized and will be amortized on a straight-line basis.

On May 21, 2024, we also entered into the Fourth and Fifth Amendments to the Credit Agreement, dated as of April 30, 2021, by and among the Company, Garrett Motion Holdings Inc., Garrett Motion Sàrl and Garrett LX I S.à.r.l., the lenders and issuing banks party thereto, and JPMorgan Chase Bank, N.A., as administrative agent (as amended from time to time, the "Credit Agreement") which (i) removed the credit spread adjustment with respect to certain US dollar denominated term loan borrowings that are Term Benchmark Loans (as defined in the Credit Agreement), (ii) reduced the Applicable Rate (as defined in the Credit Agreement) on certain US dollar denominated term loans to 2.75% for Term Benchmark Loans and 1.75% for ABR Loans (as defined in the Credit Agreement), and (iii) increased the maximum borrowings available under the Revolving Facility by $30 million. During the year ended December 31, 2024, we repaid $500 million on our 2023 Dollar Term Facility, $485 million (€450 million) on our Euro Term Facility and $7 million on our 2021 Dollar Term Facility.

For 2025, we expect capital spending to increase slightly as compared to 2024. We expect to make net repayments of $7 million on our term loan borrowings following the refinancing of our term loan as discussed in Note 29, Subsequent Events of the Notes to the Consolidated Financial Statements. We expect to pay approximately $42 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. We expect to make contributions of approximately $5 million to our non-U.S. pension plans. Finally, we also expect to declare and pay quarterly dividends on our Common Stock in an aggregate amount of approximately $50 million in 2025, of which $12 million was paid on January 31, 2025.

We fund our operations primarily through cash flows from operating activities, borrowings from our credit facilities and cash and cash equivalents. We believe the combination of expected cash flows, the term loan borrowings and the

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revolving credit facilities being committed until 2030, will provide us with adequate liquidity to support the Company's operations.

Share Repurchase Program

On February 13, 2024, the Board of Directors authorized a $350 million share repurchase program valid until December 31, 2024. For more information, see Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Issuer Purchases of Equity Securities.

During the year ended December 31, 2024, the Company repurchased $296 million of its Common Stock. The share repurchase program expired on December 31, 2024.

On December 4, 2024, the Board of Directors authorized a new $250 million share repurchase program valid January 1, 2025 until December 31, 2025.

Off-Balance Sheet Arrangement

The Company did not engage in any off-balance sheet financial arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources as of December 31, 2024 and 2023.

Cash Flow Summary for the Years Ended December 31, 2024, 2023 and 2022

Our cash flows from operating, investing and financing activities for the years ended December 31, 2024, 2023 and 2022, as reflected in the Consolidated Financial Statements included in this Annual Report, are summarized as follows:

Cash Flow Summary for the year ended December 31, 2024

Cash provided by operating activities decreased by $57 million for the year ended December 31, 2024 versus the prior year. The decrease was driven by a $32 million change in working capital related primarily to inventory purchases and higher payments made during the current year, partially offset by increased collections. A decrease of $14 million in net income, excluding the effects of non-cash items, and an unfavorable change in other assets and liabilities of $11 million, also contributed to the decrease in cash provided by operating activities.

Cash used for investing activities decreased by $41 million for the year ended December 31, 2024 versus the prior year. The decrease is due to $46 million of proceeds from the sale of an equity investment, $3 million of higher proceeds from our cross-currency swap contracts which have been designated as net investment hedges of our Euro-denominated operations versus the prior year, and $8 million of lower expenditures for property, plant and equipment versus the prior year.

Cash used for financing activities increased by $117 million for the year ended December 31, 2024 compared with the prior year. During 2024, we made an aggregate of $992 million in debt repayments on our term loan facilities. We also made payments of $296 million for the repurchase of Common Stock under our share repurchase program, $8 million for debt issuance costs, $8 million for excise taxes related to Common Stock repurchases and $9 million for other financing activities during the current year. These payments were partially offset by proceeds of $794 million, net of deferred financing costs, from the issuance of our 2032 Senior Notes. In comparison, cash used for financing activities in the prior year was primarily related an aggregate amount of $605 million paid to holders of our Series A Preferred Stock, par value $0.001 per share (the "Series A Preferred Stock"), related to the Transaction, including conversion of the Series A

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Preferred Stock as discussed in Note 21, Equity of the Notes to the Consolidated Financial Statements. We also made payments of $213 million for the repurchase of Common Stock under our share repurchase program and debt repayments of $207 million.

Cash Flow Summary for the year ended December 31, 2023

Cash provided by operating activities increased by $90 million for the year ended December 31, 2023 versus the prior year. The increase was driven by $63 million of working capital contribution related primarily to build-ups of inventory in the prior year. An increase of $32 million in net income, excluding the effects of non-cash items, also contributed to the increase in cash provided by operating activities, partially offset by a decrease in other assets and liabilities of $5 million.

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.

Cash used for financing activities decreased by $79 million for the year ended December 31, 2023 compared with the prior year. Cash flows used for financing activities included $667 million from the 2023 Dollar Term Facility net of debt financing costs. We paid an aggregate amount of $605 million to holders of the Series A Preferred Stock related to the Transaction, including conversion of the Series A Preferred Stock as discussed above and in Note 21, Equity of the Notes to the Consolidated Financial Statements. We also made payments of $213 million for the repurchase of Common Stock under our share repurchase program and debt repayments of $207 million. 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 2023, there were $42 million in payments of accrued dividends on the Series A Preferred Stock through June 2023.

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 expect capital expenditures in 2025 to increase slightly as compared to 2024, primarily driven by higher investments for new product launches across our zero emission and turbo technologies.

Critical Accounting Policies and Estimates

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

Revenue Recognition — Product sales are recognized when we transfer control of the promised goods to our customer, which is based on shipping terms. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the promised goods, adjusted for any variable consideration such as price concessions or annual price adjustments as estimated at contract inception. We estimate variable consideration at the most likely amount we will receive from customers and reduce revenues recognized accordingly. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. We adjust our estimate of revenue at the earlier of when the value of consideration we expect to receive changes or when the consideration becomes fixed.

Contingent Liabilities — We are subject to lawsuits, investigations and claims that arise out of the conduct of our global business operations or those of previously owned entities, including matters relating to commercial transactions, government contracts, product liability, prior acquisitions and divestitures, employee benefit plans, intellectual property, legal and environmental, health and safety matters. We continually assess the likelihood of any adverse judgments or outcomes to our contingencies, as well as potential amounts or ranges of probable losses, and recognize a liability, if any,

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for these contingencies based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts. Such analysis includes making judgments concerning matters such as the costs associated with environmental matters, the outcome of negotiations, and the impact of evidentiary requirements. Because most contingencies are resolved over long periods of time, liabilities may change in the future due to new developments (including new discovery of facts, changes in legislation and outcomes of similar cases through the judicial system), changes in assumptions or changes in our settlement strategy. See Note 25, Commitments and Contingencies of the Notes to the Consolidated Financial Statements for a discussion of management’s judgment applied in the recognition and measurement of our most significant contingencies.

Warranties and Guarantees — Expected warranty costs for products sold are recognized based on an estimate of the amount that eventually will be required to settle such obligations. These accruals are based on factors such as past experience, length of the warranty and various other considerations. Costs of product recalls, which may include the cost of the product being replaced as well as the customer’s cost of the recall, including labor to remove and replace the recalled part, are accrued as part of our warranty accrual at the time an obligation becomes probable and can be reasonably estimated. These estimates are adjusted from time to time based on facts and circumstances that impact the status of existing claims. See Note 25, Commitments and Contingencies of the Notes to the Consolidated Financial Statements included herein for additional information.

Pension Benefits — We sponsor defined benefit pension plans covering certain employees, primarily in Switzerland, the U.S. and Ireland. The pension cost and liabilities for these plans are developed from actuarial valuations. Inherent in these valuations are key assumptions including discount rates, expected return on plan assets, mortality rates, and compensation increases. The Company is required to consider current market conditions, including changes in interest rates, and employee demographics such as retirement patterns, in making its assumptions. Changes in the related pension benefit costs or liabilities may occur in the future due to changes in the assumptions.

The discount rate reflects the market rate on December 31 (the measurement date) for high-quality fixed-income investments with maturities corresponding to our pension obligations and is subject to change each year. The discount rate can be volatile from year to year as it is determined based upon prevailing interest rates as of the measurement date. The assumptions as to the expected long-term rates of return on plan assets are based upon historical plan asset returns over varying long-term periods combined with our expectations of future market conditions and asset mix considerations.

We recognize net actuarial gains or losses in excess of 10% of the greater of the fair value of plan assets or the plans’ projected benefit obligation (the corridor) annually in the fourth quarter each year (the “MTM Adjustment”). Net actuarial gains and losses occur when the actual experience differs from any of the various assumptions used to value our pension plans or when assumptions change. The primary factors contributing to actuarial gains and losses are changes in the discount rate used to value pension obligations as of the measurement date each year and the difference between expected and actual returns on plan assets. The mark-to-market accounting method results in the potential for volatile and difficult to forecast MTM Adjustments as the adjustments are primarily driven by events and circumstances beyond the control of the Company such as changes in interest rates and the performance of the financial markets.

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

We file tax returns in multiple jurisdictions and are subject to examination by taxing authorities throughout the world. Tax authorities have the ability to review and challenge matters that could be subject to differing interpretation of applicable tax laws and regulations as they relate to the amount, character, timing or inclusion of revenue and expenses or the sustainability of tax attributes. The ultimate resolution of such uncertainties could last several years. When an uncertain tax position is identified, we consider and interpret complex tax laws and regulations in order to determine the need for recognizing a provision in our financial statements. Significant judgment is required in determining the timing and measurement of uncertain tax positions. We utilize internal and external expertise in interpreting tax laws to support our tax

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positions. We recognize the financial statement benefit of an uncertain tax position when it is more likely than not that, based on the underlying technical merits, the position will be sustained upon examination.

Although we believe the measurement of our liabilities for uncertain tax positions is reasonable, no assurance can be given that the final outcome of these matters will not be different than what is reflected in the historical income tax provisions and accruals. If additional taxes are assessed as a result of an audit or litigation, they could have a material impact on our income tax provision and net income in the period or periods for which such determination is made. A change in judgment related to the expected ultimate resolution of uncertain tax positions will be recognized in earnings in the quarter in which such change occurs.

Other Matters

Litigation and Environmental Matters

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

Recent Accounting Pronouncements

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