Garrett Motion Inc. — FY 2021 Form 10-K
Business context and period. This annual report covers the year ended December 31, 2021; selected fourth-quarter results are also disclosed. Garrett designs and sells turbochargers, electric-boosting technologies and automotive software to vehicle manufacturers and the aftermarket. The company emerged from Chapter 11 on April 30, 2021. Because its capital structure changed substantially at emergence, comparisons with earlier periods require caution; Garrett did not apply fresh-start accounting.
Key financial metrics
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Revenue | $3.633 billion | $3.034 billion |
| Gross profit / margin | $707 million / 19.5% | $539 million / 17.8% |
| Net income | $495 million | $80 million |
| Adjusted EBITDA (non-GAAP) / margin | $607 million / 16.7% | $440 million / 14.5% |
| Cash from operating activities | $(310) million | $25 million |
| Capital expenditures | $72 million | $80 million |
| Cash, excluding restricted cash | $423 million | $592 million |
At December 31, 2021, restricted cash was $41 million, outstanding term-loan principal was $1.223 billion, and the $300 million revolving facility had $297 million of available capacity. A January 2022 amendment increased revolving commitments to $424 million. The Series B Preferred Stock liability to Honeywell was $395 million at year-end; a further $197 million redemption was scheduled for February 2022. Series A Preferred Stock accumulated dividends were approximately $97 million at year-end.
Fourth-quarter 2021 revenue was $862 million, gross profit $155 million and net income $128 million. Cash from operations less capital expenditures, a non-GAAP measure, was negative $382 million for FY 2021.
Material changes versus prior period
- Revenue rose 19.7% year over year, reflecting recovery from 2020 pandemic disruption, new program launches and ramp-ups, and favorable foreign exchange. Reported unit volumes increased approximately 14% to 13.7 million.
- Gross margin improved 1.7 percentage points and Adjusted EBITDA margin improved 2.2 percentage points. Higher volume and productivity helped; unfavorable mix, commodity and transportation inflation, and pricing reductions partly offset those gains.
- Net income increased by $415 million. It includes a $125 million net gain in reorganization items, substantially reflecting a $502 million gain on settlement of Honeywell claims. This unusual bankruptcy-related item makes reported earnings less indicative of recurring performance.
- Operating cash flow fell to negative $310 million, primarily reflecting the $375 million payment to Honeywell under the reorganization plan. Cash declined by $169 million from year-end 2020, excluding the change in restricted cash.
- Garrett repaid pre-emergence debt and replaced it with new secured term loans and a revolving facility. The restructuring settled Honeywell claims through cash and Series B Preferred Stock, with additional scheduled redemptions.
Outlook, commentary and risks
- Garrett expects 2022 capital spending to increase by approximately $20 million versus 2021, focused on new-product capacity and strategic growth, including electrified drivetrains. The filing does not provide specific company revenue or earnings guidance.
- Management reported that semiconductor shortages and supply-chain disruption were expected to affect operations at least through mid-2022; OEMs had reduced production plans for the first two quarters. Industry forecasts cited in the filing anticipated 2022 light-vehicle production growth of 9% and commercial-vehicle growth of 3%, but management highlighted uncertainty.
- Key risks include raw-material inflation and supplier constraints, customer concentration and OEM pricing pressure, COVID-19 disruption, faster-than-expected transition to battery-electric vehicles, foreign-exchange and interest-rate exposure, and warranty, environmental and litigation liabilities.
- Series B redemption obligations and potential holder put rights could constrain liquidity. The company reported $80 million of uncertain tax positions and an unaccrued Brazilian tax contingency estimated at $28 million. Environmental investigation and remediation reserves were $18 million.
- The company reported a material weakness in internal controls over financial reporting and concluded controls were ineffective at year-end. Interim 2021 EPS had been misstated because Series A Preferred Stock was not correctly treated as a participating security; the company corrected the affected quarterly and year-to-date EPS figures. The auditor gave an adverse opinion on internal controls but an unqualified opinion on the financial statements.
Important facts for investors to verify
- How much of FY 2021 net income and cash generation reflects ongoing operations rather than the Honeywell settlement and other bankruptcy-related items.
- Current liquidity after the February 2022 Series B redemption, the revolving-facility amendment, and any subsequent cash flows or financing actions.
- Progress in remediating the material weakness and whether future filings contain further accounting corrections.
- Actual effects of semiconductor shortages, commodity inflation and vehicle-production changes on sales, margins and working capital.
- Terms, timing and cash impact of remaining Series B redemptions, Series A cumulative dividends, and the disclosed tax and environmental contingencies.