Garrett Motion Inc.

02/19/2026 | Press release | Distributed by Public on 02/19/2026 06:04

Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

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 independent aftermarket distributors in the mobility and industrial fields.
We have significant expertise in delivering highly engineered products at scale for internal combustion engines using gasoline, diesel, natural gas and hydrogen, as well as for zero-emission vehicles. Our products are key enablers for fuel economy, energy efficiency, thermal management, and compliance with greenhouse gas and other emission reduction targets.
In 2025, turbocharger production increased globally from approximately 49 million units in 2024 to nearly 50 million units in 2025, and is expected to decrease from 2026 onward based on current expectations of electric vehicle penetration. We effectively navigated through macroeconomic and geopolitical challenges, including a very dynamic trade environment as a result of tariff actions, 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 $310 million and Adjusted EBIT of $510 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 (including hybrid and range extended electric vehicle technologies), and commercial vehicle applications. Additionally, we were awarded our first E-Powertrain application in early 2025 and have made significant progress in our air and cooling compression technologies, as evidenced with various partnerships and pre-development contracts throughout 2025 and into early 2026.
During 2025, we repaid $50 million on our 2025 Dollar Term Facility and paid cash dividends of $52 million. We also repurchased $208 million of Common Stock under our share repurchase program. These repurchases include a total of 7.5 million shares of Common Stock for $103 million from funds affiliated with Oaktree Capital Management, L.P., a related party. The repurchased shares are held as treasury stock.
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 2026. 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, 2025 and 2024.
By Region
Year Ended December 31,
2025 2024
(Dollars in millions)
United States $ 694 19 % $ 700 20 %
Europe 1,745 49 % 1,642 47 %
Asia 1,044 29 % 1,056 31 %
Other International 101 3 % 77 2 %
$ 3,584 $ 3,475
By Product Line
Year Ended December 31,
2025 2024
(Dollars in millions)
Diesel $ 837 23 % $ 827 24 %
Gas 1,592 45 % 1,505 43 %
Commercial Vehicle 654 18 % 629 18 %
Aftermarket 438 12 % 459 13 %
Other 63 2 % 55 2 %
$ 3,584 $ 3,475
Results of Operations
Year Ended December 31, 2025 Compared with Year Ended December 31, 2024
Net Sales
Year Ended December 31,
2025 2024
(Dollars in millions)
Net sales $ 3,584 $ 3,475
% change compared with prior period 3.1 % (10.6) %
The change in net sales compared to the prior year is attributable to the following:
For the year ended December 31, 2025, net sales increased compared to prior year by $109 million or 3%, including a favorable impact of $62 million or 2% due to foreign currency translation primarily driven by fluctuations in global exchange rates. This increase was primarily related to favorable foreign currency impacts, and higher demand in gasoline and commercial vehicles, partially offset by weaker demand for replacement parts on aftermarket sales. Net sales also includes $40 million of recoveries on import tariffs, partially offset by unfavorable product mix.
Gasoline product sales increased by $87 million or 6% (including a favorable impact of $24 million or 2% due to foreign currency translation), primarily driven by new application launches and program ramp-ups in Europe, North America, South America and India.
Diesel product sales increased by $10 million or 1% (including a favorable impact of $24 million or 3% due to foreign currency translation), primarily driven by passenger vehicles in Europe pursuing transition to gasoline hybrids, partially offset by demand for pickup trucks in North America, South America and Southeast Asia.
Commercial vehicle sales increased by $25 million or 4% (including a favorable impact of $6 million or 1% due to foreign currency translation), primarily driven by growth in off-highway programs across regions.
Aftermarket sales decreased by $21 million or 5% (including a favorable impact of $7 million or 1% due to foreign currency translation), primarily driven by softer demand for off-highway replacement parts in North America, partially offset by stronger demand in Europe and China.
Cost of Goods Sold and Gross Profit
Year Ended December 31,
2025 2024
(Dollars in millions)
Cost of goods sold $ 2,853 $ 2,770
% change compared with prior period 3.0 % (11.5) %
Gross profit percentage 20.4 % 20.3 %
Cost of Goods Sold Gross Profit
(Dollars in millions)
Cost of Goods Sold / Gross Profit for year ended December 31, 2024 $ 2,770 $ 705
Volume 65 29
Product mix 12 (70)
Price, net of inflation pass-through - (30)
Commodity, transportation and energy deflation (24) 24
Productivity, net (24) 24
Import tariffs 41 (1)
Research, development & engineering (20) 20
Foreign exchange rate impacts 33 30
Cost of Goods Sold / Gross Profit for year ended December 31, 2025 $ 2,853 $ 731
For the year ended December 31, 2025, cost of goods sold increased by $83 million, primarily driven by higher sales volumes which contributed to an increase of $65 million. Cost of goods sold further increased from $41 million of import tariffs, $33 million of foreign currency impacts from transactional, translational, and hedging effects and $12 million of unfavorable product mix. These increases were partially offset by $24 million of commodity, transportation and energy deflation, $24 million of productivity, net of labor inflation and repositioning costs, and $20 million of lower RD&E costs, net of customer reimbursements.
Gross profit increased by $26 million, mainly driven by higher sales volumes which contributed an increase of $29 million. Gross profit further increased from $30 million of foreign currency impacts from transactional, translational, and hedging effects, $24 million of commodity, transportation and energy deflation, $24 million of productivity, net of labor inflation and repositioning costs, and $20 million of lower RD&E costs, net of customer reimbursements. These increases were partially offset by $70 million of unfavorable impact from product mix, $30 million of price, net of inflation pass-through and $1 million of import tariffs.
Selling, General and Administrative Expenses
Year Ended December 31,
2025 2024
(Dollars in millions)
Selling, general and administrative expense $ 240 $ 240
% of sales 6.7 % 6.9 %
Selling, general and administrative ("SG&A") expenses remained at the same level compared with the prior year. A $7 million reduction in personnel costs related to cost measures implemented in current and prior years and $5 million of lower outsourced activities were offset by $7 million of unfavorable foreign currency impacts and $6 million in professional fees related to merger and acquisition activity.
Other Expense, Net
Year Ended December 31,
2025 2024
(Dollars in millions)
Other expense, net $ 10 $ 6
For the year ended December 31, 2025, other expense, net amounted to $10 million compared to $6 million in the prior year. This increase was primarily due to professional fees incurred related to the Restatement Agreement (as defined herein).
Interest expense
Year Ended December 31,
2025 2024
(Dollars in millions)
Interest expense $ 108 $ 156
Interest expense decreased by $48 million in 2025 compared to prior year. This reduction was primarily due to a $30 million reduction in debt issuance cost amortization, driven by accelerated amortization in the prior year, and $25 million of lower interest expense resulting from the amendment and restatement and repricing of our Credit Agreement. In addition, we recorded net gains of $7 million on our designated and undesignated interest derivatives in the current year, in comparison to net gains of $14 million in the prior year.
Non-operating income, net
Year Ended December 31,
2025 2024
(Dollars in millions)
Non-operating income, net $ (19) $ (13)
For the year ended December 31, 2025, non-operating income, net amounted to $19 million compared to $13 million in the prior year. The increase was primarily driven by $5 million in higher foreign exchange transactional gains, a $2 million increase in the non-service cost components of net periodic pension benefits and a $1 million increase in interest income, partially offset by $2 million of lower equity income due to the sale of an equity interest in an unconsolidated joint venture in the second quarter of 2024.
Tax Expense
Year Ended December 31,
2025 2024
(Dollars in millions)
Tax expense $ 82 $ 61
Effective tax rate 20.9 % 17.8 %
The effective tax rate increased by 3.1 percentage points in 2025 compared to 2024. The increase was primarily due to additional unrecognized tax benefits in Switzerland and China as well as prior year benefits associated with the release of valuation allowance related to deferred tax assets in Brazil (net of U.S. branch taxes) and prior year benefits associated with statute of limitation expiration and settlement of audits in Switzerland and Korea. These increases were partially offset by the revaluation of deferred tax assets related to intellectual property transferred within China which was subject to tax at different rates.
Net Income
Year Ended December 31,
2025 2024
(Dollars in millions)
Net Income $ 310 $ 282
For the year ended December 31, 2025, net income increased by $28 million compared with the prior year, primarily due to $48 million of lower interest expense, $26 million of increased gross profit and $6 million of increased non-operating income. These were partially offset by $21 million of higher tax expenses, the prior year gain of $27 million on the sale of an equity interest in an unconsolidated joint venture and $4 million of higher other expense, net.
Year Ended December 31, 2024 Compared with Year Ended December 31, 2023
For a discussion of our results of operations for the year ended December 31, 2024 compared with the year ended December 31, 2023, refer to our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 20, 2025, under Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
Non-GAAP Measures
Management provides non-GAAP financial information to supplement the understanding of our business operations and performance, and it should be considered 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.
In 2025, we revised our non-GAAP reporting metric, transitioning from Adjusted EBITDA to Adjusted EBIT. This change is intended to better reflect our core operating performance and align with industry practices. We believe this change will provide investors with a clearer understanding of our operational performance.
We define "EBIT" as our net income calculated in accordance with U.S. GAAP, plus the sum of (i) interest expense net of interest income and (ii) tax expense. We define "Adjusted EBIT" as EBIT, plus the sum of (i) repositioning costs, (ii) foreign exchange (gain) loss on debt net of related hedging (gains) losses, (iii) discounting costs on factoring, (iv) gain on sale of equity investment, (v) acquisition and divestiture expenses, (vi) other non-operating income, (vii) capital structure transformation expenses, (viii) debt refinancing and redemption costs, and (ix) loss on extinguishment of debt (if any).
We believe that EBIT and Adjusted EBIT are important indicators of operating performance and provide useful information for investors because EBIT and Adjusted EBIT exclude the effects of income taxes, as well as the effects of financing activities by eliminating the effects of interest. Certain adjustment items, while periodically affecting our results, may also vary significantly from period to period and have disproportionate effect in a given period, which affects the comparability of our results.
EBIT and Adjusted EBIT (non-GAAP)
Year Ended December 31,
2025 2024 2023
(Dollars in millions)
Net income - GAAP $ 310 $ 282 $ 261
Interest expense, net of interest income (1)
104 153 152
Tax expense 82 61 86
EBIT (Non-GAAP) $ 496 $ 496 $ 499
Repositioning costs 12 21 13
Foreign exchange gain on debt, net of related hedging gain - - (1)
Factoring and notes receivables discount fees 3 4 4
Capital structure transformation expenses (2)
- - 22
Gain on sale of equity investment - (27) -
Other non-operating income (3)
(14) (12) (6)
Debt refinancing and redemption costs (4)
7 2 -
Acquisition and divestiture expenses 6 1 -
Adjusted EBIT (Non-GAAP) $ 510 $ 485 $ 531
(1)Reflects interest income of $4 million, $3 million and $7 million for the year ended December 31, 2025, 2024 and 2023, respectively.
(2)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.
(3)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.
(4)Reflects the third-party costs directly attributable to the refinancing of our credit facilities and any amendments.
Adjusted EBIT for the year ended December 31, 2025 compared with year ended December 31, 2024
For the year ended December 31, 2025, net income increased by $28 million versus the prior year as discussed above within "Results of Operations".
Adjusted EBIT increased by $25 million compared to the prior year, mainly from $29 million of higher sales volumes from gasoline and commercial vehicles, $29 million of productivity, net of labor inflation and stock based compensation, $24 million of commodity, transportation, and energy deflation, $23 million of favorable foreign exchange impacts and $20 million of lower RD&E costs. These increases were partially offset by $70 million of unfavorable product mix and $30 million of price net of inflation pass through.
For the year ended December 31, 2025, we saw increased demand in gasoline due to new application launches and program ramp-ups in Europe, North America and India. We also saw increased demand in commercial vehicles from off-highway applications that continue to recover from prior year softness in Europe, North America, India and China. These volume increases were partially offset by lower demand in diesel driven by the impact of lower industry production mainly in Europe and aftermarket off-highway applications in North America.
The increased productivity from our ability to flex our variable cost structure while driving sustained fixed cost productivity was partially offset by labor inflation and higher stock-based compensation. Gains in foreign currency from translational, transactional, and hedging effects in the year ended December 31, 2025, primarily driven by a higher Euro-to-U.S. dollar and CNY-to-U.S. dollar versus the prior period, accounted for a $23 million increase in Adjusted EBIT.
Adjusted EBIT 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 "Results of Operations".
Adjusted EBIT decreased by $46 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 and unfavorable foreign exchange impacts further reduced Adjusted EBIT versus prior year. These declines were partially offset by operational productivity, net of labor inflation and repositioning costs, commodity, transportation, and energy deflation year-over-year and lower RD&E costs net of customer reimbursements.
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 EBIT margin.
Losses in foreign currency from translational, transactional, and hedging effects accounted for $23 million of the decrease in Adjusted EBIT.
Liquidity and Capital Resources
Overview
December 31,
2025 2024
(Dollars in millions)
Cash and cash equivalents $ 177 $ 125
Restricted cash 2 1
Revolving Facility - available borrowing capacity 630 600
Revolving Facility - borrowings or letters of credit outstanding - -
Term Loan Facilities - principal outstanding 637 692
Senior Notes - principal outstanding 800 800
Bilateral letter of credit facility - utilized capacity 10 8
On January 30, 2025, the Company entered into a Restatement Agreement (the "Restatement Agreement"), which amends and restates 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., as borrowers, the lenders and issuing banks party thereto from time to time, and JPMorgan Chase Bank, N.A., as administrative agent. (as amended from time to time, the "Existing Credit Agreement" and as amended and restated by the Restatement Agreement, the "Credit Agreement"), under which we refinanced in full our $692 million 2021 Dollar Term Facility with a new 2025 Dollar Term Facility for the same aggregate principal amount. The 2025 Dollar Term Facility will mature on January 30, 2032, and initially bore interest at a spread equal to, at our option, the Adjusted Term SOFR Rate plus 2.25% per annum in the case of Term Benchmark Loans and the Alternate Base Rate plus 1.25% per annum in the case of ABR Loans (each as defined in the Credit Agreement). We also replaced our existing $600 million revolving facility under the Existing Credit Agreement with the New Revolving Facility under the Credit Agreement in an aggregate principal amount of $630 million. The maturity date of the New Revolving Facility is January 30, 2030.
On August 6, 2025, we entered into the First Amendment to the Credit Agreement, which reduced the Applicable Rate (as defined in the Credit Agreement) to the Adjusted Term SOFR Rate plus 2.00% per annum in the case of Term Benchmark Loans and the Alternate Base Rate plus 1.00% per annum in the case of ABR Loans.
During the year ended December 31, 2025, we repaid $50 million on our 2025 Dollar Term Facility and paid cash dividends of $52 million. For more information, see Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Dividends.
For 2026, we expect capital spending to increase as compared to 2025. We expect to make net repayments of $7 million on our term loan borrowings and contributions of approximately $5 million on our non-U.S. pension plans. We expect to pay approximately $45 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. Finally, we also expect to continue to declare and pay quarterly dividends on our Common Stock.
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 revolving credit facilities that are committed until 2030, will provide us with adequate liquidity to support the Company's operations.
Share Repurchase Program
On December 4, 2024, the Board of Directors authorized a $250 million share repurchase program valid from January 1, 2025, until December 31, 2025. 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, 2025, the Company repurchased $208 million of its Common Stock. The share repurchase program expired on December 31, 2025.
On December 3, 2025, the Board of Directors authorized a new $250 million share repurchase program valid from January 1, 2026, until December 31, 2026.
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, 2025 and 2024.
Cash Flow Summary for the Years Ended December 31, 2025 and 2024
Our cash flows from operating, investing and financing activities for the years ended December 31, 2025 and 2024, as reflected in the Consolidated Financial Statements included in this Annual Report, are summarized as follows:
Year Ended December 31,
2025 2024
(Dollars in millions)
Cash provided by (used for):
Operating activities $ 413 $ 408
Investing activities (41) (14)
Financing activities (326) (520)
Effect of exchange rate changes on cash 7 (8)
Net increase (decrease) in cash and cash equivalents $ 53 $ (134)
Cash Flow Summary for the year ended December 31, 2025
Cash provided by operating activities increased by $5 million for the year ended December 31, 2025 versus the prior year. The increase was driven by a $28 million increase in net income, a $8 million increase in non-cash charges and a $6 million change in working capital. These increases were partially offset by an unfavorable change in other assets and liabilities of $37 million.
Cash used for investing activities increased by $27 million for the year ended December 31, 2025 versus the prior year. The increase is due to $46 million of proceeds received in the prior year from the sale of our unconsolidated joint venture, and $3 million of lower proceeds from cross currency swap contracts that have been designated as net investment hedges of our Euro-denominated operations. These impacts were partially offset by $19 million in lower capital expenditures on property, plant and equipment versus the prior year and $3 million received for the first deferred payment on the sale of our unconsolidated joint venture.
Cash used for financing activities decreased by $194 million for the year ended December 31, 2025 compared with the prior year. During 2025, we made an aggregate of $139 million in debt repayments on our term loan facilities. We also made payments of $208 million for the repurchase of Common Stock under our share repurchase program, $52 million for dividends, $3 million for excise taxes related to Common Stock repurchases, $2 million for debt issuance costs and $2 million for other financing activities during the current year. These payments were partially offset by proceeds of $80 million, net of deferred financing costs, following the amendment and restatement of our Credit Agreement as further discussed in Note 15, Long-term Debt and Credit Agreementsof the Notes to the Consolidated Financial Statements. In addition we borrowed and repaid $70 million from our revolving credit facilities. In comparison, cash used for financing activities in the prior year was primarily related to 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 2024. These payments were partially offset by proceeds of $794 million, net of deferred financing costs, from the issuance of our 2032 Senior Notes.
Cash Flow Summary for the year ended December 31, 2024
For a comparison of our cash flows for the year ended December 31, 2024 compared with the year ended December 31, 2023, refer to our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 20, 2025, under Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
Capital Expenditures
We believe our recent capital spending has been sufficient to maintain efficient production capacity, support key product and process redesigns and expand capacity to meet increased demand. For 2026, we expect capital expenditures to increase relative to 2025, primarily due to new or additional investments in our zero emissions technology portfolio.
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, 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 23, Commitments and Contingenciesof 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 23, Commitments and Contingenciesof 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 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 23, Commitments and Contingenciesof the Notes to the Consolidated Financial Statements for a discussion of material litigation and environmental matters.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policiesof the Notes to the Consolidated Financial Statements for a discussion of recent accounting pronouncements.
Garrett Motion Inc. published this content on February 19, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on February 19, 2026 at 12:05 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]