BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
See Accompanying Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION
BorgWarner Inc. (together with itits Consolidated Subsidiaries, the “Company”) is a Delaware corporation incorporated in 1987. We areThe Company is a global product leader in clean and efficient technology solutions for combustion, hybrid and electric vehicles. OurThe Company’s products help improve vehicle performance, propulsion efficiency, stability and air quality. We manufactureThe Company manufactures and sellsells these products worldwide, primarily to original equipment manufacturers (“OEMs”) of light vehicles (passenger cars, sport-utility vehicles ("SUVs"(“SUVs”), vans and light trucks). The Company's products are also sold to OEMs of commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway vehicles (agricultural and construction machinery and marine applications). WeThe Company also manufacturemanufactures and sell oursells its products to certain Tier One vehicle systems suppliers and into the aftermarket for light, commercial and off-highway vehicles. The Company operates manufacturing facilities serving customers in Europe, the Americas and Asia and is an original equipment supplier to nearly every major automotive OEM in the world. The Company's products fall into two reporting segments: Engine
COVID-19 Pandemic and Drivetrain.Other Supply Disruptions
Throughout 2020, COVID-19 materially impacted the Company’s business and results of operations. During the first quarter of 2020, the impact of COVID-19 was initially experienced primarily by operations in China. Following the declaration of COVID-19 as a global pandemic on March 11, 2020, government authorities around the world began to impose shelter-in-place orders and other restrictions. As a result, many OEMs began suspending manufacturing operations, particularly in North America and Europe. This led to various temporary closures of, or reduced operations at, the Company’s manufacturing facilities, late in the first quarter of 2020 and throughout the second quarter of 2020. During the second half of 2020, as global management of COVID-19 evolved and government restrictions were removed or lessened, production levels improved, and substantially all of the Company’s production facilities resumed closer to normal operations by the end of the third quarter of 2020.
During 2021, trailing impacts of the shutdowns and production declines related, in part, to COVID-19, created supply constraints of certain components, particularly semiconductor chips. These supply constraints have had, and are expected to continue to have, significant impacts on global industry production levels. In addition, it is possible a resurgence of COVID-19 could result in adverse impacts in the future. Management cannot reasonably estimate the full impact the ongoing supply constraints or the COVID-19 pandemic could have on the Company’s financial condition, results of operations or cash flows in the future.
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NOTE 1 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following paragraphs briefly describe the Company'sCompany’s significant accounting policies.
Basis of presentation Certain prior period amounts have been reclassified to conform to current period presentation. On October 1, 2020, and June 4, 2021, the Company completed its acquisitions of Delphi Technologies PLC (“Delphi Technologies”), and AKASOL AG (“AKASOL”), respectively. Accordingly, the Company’s Consolidated Financial Statements reflect the results of Delphi Technologies and AKASOL following the dates of acquisition. Refer to Note 2, “Acquisitions and Dispositions,” to the Consolidated Financial Statements for more information.
Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities
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and disclosure of contingent assets and liabilities as of the date of the financial statements and the accompanying notes, as well as the amounts of revenues and expenses reported during the periods covered by these financial statements and accompanying notes. Actual results could differ from those estimates.
Principles of consolidation The Consolidated Financial Statements include all majority-owned subsidiaries with a controlling financial interest. All inter-company accountsbalances and transactions have been eliminated in consolidation. Investments
Joint ventures and equity securities The Company has investments in 20% to3 unconsolidated joint ventures: NSK-Warner K.K., Turbo Energy Private Limited and Delphi-TVS Diesel Systems Ltd of which the Company owns 50% owned, 32.6% and 52.5%, respectively. These joint ventures are non-controlled affiliates in which the Company exercises significant influence but does not have a controlling financial interest and, therefore, are accounted for under the equity method whenmethod. With respect to the Company’s 52.5% owned joint venture, although the Company is the majority owner, it does not have the ability to control significant decisions or management of the entity. Generally, under the equity method, the Company’s original investments in these joint ventures are recorded at cost and subsequently adjusted by the Company’s share of equity in income or losses. The Company monitors its equity method investments for indicators of other-than-temporary declines in fair value on an ongoing basis. If such a controlling financial interest.decline has occurred, an impairment charge is recorded, which is measured as the difference between the carrying value and the estimated fair value. The Company’s investment in these non-controlled affiliates is included within Investments and long-term receivables in the Consolidated Balance Sheets. The Company’s share of equity in income or losses is included in Equity in affiliates’ earnings, net of tax in the Consolidated Statements of Operations.
Revenue recognition The Company also has certain investments for which it does not have the ability to exercise significant influence (generally when ownership interest is less than 20%). The Company’s investment in these equity securities is included within Investments and long-term receivables in the Consolidated Balance Sheet. Refer to Note 10, “Other Current and Non-Current Assets,” to the Consolidated Financial Statements for more information.
Interests in privately held companies that do not have readily determinable fair values, are accounted for using the measurement alternative under ASC Topic 321, which includes monitoring on an ongoing basis for indicators of impairments or upward adjustments. These equity securities are measured at cost less impairments, adjusted for observable price changes in orderly transactions for the identical or similar investment of the same issuer. If the Company determines that an indicator of impairment or upward adjustment is present, an adjustment is recorded, which is measured as the difference between carrying value and estimated fair value. Estimated fair value is generally determined using an income approach on discounted cash flows or negotiated transaction values.
Equity securities that have readily determinable fair values are measured at fair value with changes in fair value recorded in Unrealized (loss) gain on equity securities in the Consolidated Statements of Operations.
Business combinations In accordance with ASC Topic 805, “Business Combinations,” acquisitions are recorded using the acquisition method of accounting. The Company includes the operating results of acquired entities from their respective dates of acquisition. The Company recognizes and measures the identifiable assets acquired, liabilities assumed, and any non-controlling interest at the acquisition date fair value. Various valuation techniques are used to determine the fair value of intangible assets, with the primary techniques being forms of the income approach, specifically the relief-from-royalty and multi-period excess earnings valuation methods. Under these valuation approaches, the Company is required to make estimates and assumptions from a market participant perspective that may include revenue growth rates, estimated earnings, royalty rates, obsolescence factors, contributory asset charges, customer attrition and discount rates. The excess, if any, of total consideration transferred in a business combination over the fair value of identifiable assets acquired, liabilities assumed and any non-controlling interest is recognized as goodwill. Costs incurred as a result of a business combination other than costs
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related to the issuance of debt or equity securities are recorded in the period the costs are incurred. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to assets acquired and liabilities assumed with the corresponding offset to goodwill.
Revenue recognition Revenue is recognized when performance obligations under the terms of a contract are satisfied, which generally occurs with the transfer of control of ourthe products. For most products, transfer of control occurs upon shipment or delivery; however, a limited number of customer arrangements for highly customized products with no alternative use provide the Company with the right to payment during the production process. As a result, for these limited arrangements, revenue is recognized as goods are produced and control transfers to the customer using the input cost-to-cost method. Revenue is measured at the amount of consideration the Company expects to receive in exchange for transferring the goods. Although the Company may enter into long-term supply arrangements with its major customers, the prices and volumes are not fixed over the life of the arrangements, and a contract does not exist for purposes of applying ASC Topic 606 until volumes are contractually known. For most
Sales incentives and allowances (including returns) are recognized as a reduction to revenue at the time of our products, transferthe related sale. The Company estimates the allowances based on an analysis of control occurs upon shipment or delivery, however,historical experience. Taxes assessed by a governmental authority collected by the Company concurrent with a specific revenue-producing transaction are excluded from net sales. Shipping and handling fees billed to customers are included in sales, while costs of shipping and handling are included in cost of sales. The Company has elected to apply the accounting policy election available under ASC Topic 606 and accounts for shipping and handling activities as a fulfillment cost.
The Company has a limited number of ourarrangements with customers where the price paid by the customer is dependent on the volume of product purchased over the term of the arrangement. In other arrangements, for our highly customizedthe Company will provide a rebate to customers based on the volume of products with no alternative use provide us with the right to paymentpurchased during the production process. As a result, for these limited arrangements,course of the arrangement. The Company estimates the volumes to be sold over the term of the arrangement and recognizes revenue is recognized as goods are produced and control transfers tobased on the customer. Revenue is measured at theestimated amount of consideration we expect to receive in exchange for transferring the good.be received from these arrangements.
The Company continually seeks business development opportunities and at times provides customer incentives for new program awards. Customer incentive payments are capitalized whenThe Company evaluates the underlying economics of each amount of consideration payable to a customer to determine the proper accounting by understanding the reasons for the payment, the rights and obligations resulting from the payment, the nature of the promise in the contract, and other relevant facts and circumstances. When the Company determines that the payments are incremental and incurred only if the new business is obtained and expects to recover these amounts are expected to be recovered from the customer over the term of the new business arrangement.arrangement, the Company capitalizes these amounts. The Company recognizes a reduction to revenue as products that the upfront payments are related to are transferred to the customer, based on the total amount of products expected to be sold over the term of the arrangement (generally 3
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to 7 years). The Company evaluates the amounts capitalized each period end for recoverability and expenses any amounts that are no longer expected to be recovered over the term of the business arrangement.
Refer to Note 3, “Revenue from Contracts with Customers,” to the Consolidated Financial Statements for more information.
Cost of sales The Company includes materials, direct labor and manufacturing overhead within cost of sales. Manufacturing overhead is comprised of indirect materials, indirect labor, factory operating costs, warranty costs and other such costs associated with manufacturing products for sale.
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Cash and cash equivalents Cash isand cash equivalents are valued at fair market value. It is the Company's policy to classify all highly liquid investments with original maturities of three months or less as cash.cash and cash equivalents. Cash isand cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions of reputable credit and, therefore, bear minimal risk.
Restricted cash Restricted cash includes amounts designated for uses other than current operations and is related to the Company’s commitment to invest in a certain privately-held company.
Receivables, net and long-term receivables Accounts receivable and long-term receivables are stated at cost less an allowance for bad debts.credit losses. An allowance for doubtful accountscredit losses is recorded when itfor amounts that may become uncollectible in the future. The allowance for credit losses is probable amounts will not be collectedan estimate based on specific identification of customer circumstances or ageexpected losses, current economic and market conditions, and a review of the current status of each customer’s accounts receivable.
Sales of receivables are accounted for in accordance with the ASC Topic 860. Agreements which result in true sales of the transferred receivables, as defined in ASC Topic 860, which occur when receivables are transferred to a third party without recourse to the Company, are excluded from amounts reported in the consolidated balance sheets. Cash proceeds received from such sales are included in operating cash flows. The expenses associated with receivables factoring are recorded in the consolidated statements of operations within interest expense. Refer to Note 6, "Balance Sheet Information,"8, “Receivables, Net,” to the Consolidated Financial Statements for more information.
Inventories, net CostThe majority of certain U.S. inventoriesinventory is determinedmeasured using the last-in, first-out (“LIFO”) method at the lower of cost or market, while other U.S. and foreign operations use the first-in, first-out (“FIFO”) or average-cost methods at the lower of cost or net realizable value.value, with the exception of certain U.S. inventories that are determined using the last-in, first-out (“LIFO”) method at the lower of cost or market. Inventory held by U.S. operations using the LIFO method was $137.9$178 million and $147.4$186 million at December 31, 20182021 and 2017,2020, respectively. Such inventories, if valued at current cost instead of LIFO, would have been greater by $16.7$25 million and $13.1$15 million at December 31, 20182021 and 2017,2020, respectively.
Refer to Note 6, "Balance Sheet Information,"9, “Inventories, net,” to the Consolidated Financial Statements of this report for more information.
Pre-production costs related to long-term supply arrangementsEngineering, research and development and other design and development costs for products sold on long-term supply arrangements are expensed as incurred unless the Company has a contractual guarantee for reimbursement from the customer. Costs for molds, dies and other tools used to make products sold on long-term supply arrangements for which the Company has title to the assets are capitalized in property, plant and equipment and amortized to cost of sales over the shorter of the term of the arrangement or over the estimated useful lives of the assets, typically three3 to five5 years. Costs for molds, dies and other tools used to make products sold on long-term supply arrangements for which the Company has a contractual guarantee for lump sum reimbursement from the customer are capitalized in prepayments and other current assets.
Property, plant and equipment, netProperty, plant and equipment is valued at cost less accumulated depreciation. Expenditures for maintenance, repairs and renewals of relatively minor items are generally charged to expense as incurred. Renewals of significant items are capitalized. Depreciation is generally computed on a straight-line basis over the estimated useful lives of the assets. Useful lives for buildings range from 15 to 40 years and useful lives for machinery and equipment range from three to 12 years. For income tax purposes, accelerated methods of depreciation are generally used.
Refer to Note 6, "Balance Sheet Information,"11, “Property, Plant and Equipment, Net,” to the Consolidated Financial Statements for more information.
Impairment of long-lived assets, including definite-lived intangible assets The Company reviews the carrying value of its long-lived assets, whether held for use or disposal, including other amortizing intangible assets, when events and circumstances warrant such a review under Accounting Standards
ASC Topic 360. In
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Codification ("ASC") Topic 360. In assessing long-lived assets for an impairment loss, assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. In assessing long-lived assets for impairment, management generally considers individual facilities to be the lowest level for which identifiable cash flows are largely independent. A recoverability review is performed using the undiscounted cash flows if there is a triggering event. If the undiscounted cash flow test for recoverability identifies a possible impairment, management will perform a fair value analysis. Management determines fair value under ASC Topic 820 using the appropriate valuation technique of market, income or cost approach. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value.
Management believes that the estimates of future cash flows and fair value assumptions are reasonable; however, changes in assumptions underlying these estimates could affect the valuations. Significant judgments and estimates used by management when evaluating long-lived assets for impairment include:include (i) an assessment as to whether an adverse event or circumstance has triggered the need for an impairment review; (ii) undiscounted future cash flows generated by the asset; and (iii) fair valuation of the asset.
Goodwill and other intangible assets During the fourth quarter of each year, the Company qualitatively assesses its goodwill assigned to each of its reporting units. This qualitative assessment evaluates various events and circumstances, such as macroeconomic conditions, industry and market conditions, cost factors, relevant events and financial trends, that may impact a reporting unit's fair value. Using this qualitative assessment, the Company determines whether it is more-likely-than-not the reporting unit's fair value exceeds its carrying value. If it is determined that it is not more-likely-than-not the reporting unit's fair value exceeds the carrying value, or upon consideration of other factors, including recent acquisition, restructuring or disposal activity or to refresh the fair values, the Company performs a quantitative goodwill impairment analysis. In addition, the Company may test goodwill in between annual test dates if an event occurs or circumstances change that could more-likely-than-not reduce the fair value of a reporting unit below its carrying value.
The Company has definite-lived intangible assets related to patents and developed technology, customer relationships and trade names. The Company amortizes definite-lived intangible assets over their estimated useful lives. The Company also has intangible assets related to acquired trade names that are classified as indefinite-lived when there are no foreseeable limits on the periods of time over which they are expected to contribute cash flows. Costs to renew or extend the term of acquired intangible assets are recognized as expense as incurred.
Similar to goodwill, the Company can elect to perform the impairment test for indefinite-lived intangibles other than goodwill (primarily trade names) using a qualitative analysis, considering similar factors as outlined in the goodwill discussion in order to determine if it is more-likely-than-not that the fair value of the trade names is less than the respective carrying values. If the Company elects to perform or is required to perform a quantitative analysis, the test consists of a comparison of the fair value of the indefinite-lived intangible asset to the carrying value of the asset as of the impairment testing date. The Company estimates the fair value of indefinite-lived intangibles using the relief-from-royalty method, which it believes is an appropriate and widely used valuation technique for such assets. The fair value derived from the relief-from-royalty method is measured as the discounted cash flow savings realized from owning such trade names and not being required to pay a royalty for their use.
Refer to Note 12, “Goodwill and Other Intangibles,” to the Consolidated Financial Statements for more information.
Assets and liabilities held for saleThe Company classifies assets and liabilities (disposal groups) to be sold as held for sale in the period in which all of the following criteria are met: management, having the
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authority to approve the action, commits to a plan to sell the disposal group; the disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such disposal groups; an active program to locate a buyer and other actions required to complete the plan to sell the disposal group have been initiated; the sale of the disposal group is probable, and transfer of the disposal group is expected to qualify for recognition as a completed sale within one year, except if events or circumstances beyond the Company'sCompany’s control extend the period of time required to sell the disposal group beyond one year; the disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
The Company initially measures a disposal group that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale of a disposal group until the date of sale. The Company assesses the fair value of a disposal group, less any costs to sell, each reporting period it remains classified as held for sale and reports any subsequent changes as an adjustment to the carrying value of the disposal group, as long as the new carrying value does not exceed the carrying value of the disposal group at the time it was initially classified as held for sale. Additionally, depreciation is not recorded during the period in which the long-lived assets, included in the disposal group, are classified as held for sale.
Upon determining that a disposal group meets the criteria to be classified as held for sale, the Company reports the assets and liabilities of the disposal group, if material, in the line items assets held for sale and liabilities held for sale in the Consolidated Balance Sheets. Additionally, depreciation is not recorded during the period in which the long-lived assets, included in the disposal group, are classified as held for sale.Sheet.
Goodwill and other indefinite-lived intangible assets During the fourth quarter of each year, the Company qualitatively assesses its goodwill assigned to each of its reporting units. This qualitative assessment evaluates various events and circumstances, such as macro economic conditions, industry and market conditions, cost factors, relevant events and financial trends, that may impact a reporting unit's fair value. Using this qualitative assessment, the Company determines whether it is more-likely-than-not the reporting unit's fair value exceeds its carrying value. If it is determined that it is not more-likely-than-not the reporting unit's fair value exceeds the carrying value, or upon consideration of other factors, including recent acquisition, restructuring or divestiture activity, the Company performs a quantitative, "step one," goodwill impairment analysis. In addition, the Company may test goodwill in between annual test dates if an event occurs or circumstances change that could more-likely-than-not reduce the fair value of a reporting unit below its carrying value.
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Similar to goodwill, the Company can elect to perform the impairment test for indefinite-lived intangibles other than goodwill (primarily trade names) using a qualitative analysis, considering similar factors as outlined in the goodwill discussion in order to determine if it is more-likely-than-not that the fair value of the trade names is less than the respective carrying values. If the Company elects to perform or is required to perform a quantitative analysis, the test consists of a comparison of the fair value of the indefinite-lived intangible asset to the carrying value of the asset as of the impairment testing date. We estimate the fair value of indefinite-lived intangibles using the relief-from-royalty method, which we believe is an appropriate and widely used valuation technique for such assets. The fair value derived from the relief-from-royalty method is measured as the discounted cash flow savings realized from owning such trade names and not being required to pay a royalty for their use.
Refer to Note 7, "Goodwill and Other Intangibles," to the Consolidated Financial Statements for more information.
Product warranties The Company provides warranties on some, but not all, of its products. The warranty terms are typically from one to three years. Provisions for estimated expenses related to product warranty are made at the time products are sold. These estimates are established using historical information about the nature, frequency and average cost of warranty claim settlements as well as product manufacturing and industry developments and recoveries from third parties. Management actively studies trends of warranty claims and takes action to improve product quality and minimize warranty claims. 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 the Company’s warranty accrual at the time an obligation becomes probable and can be reasonably estimated. Management believes that the warranty accrual is appropriate; however, actual claims incurred could differ from the original estimates, requiring adjustments to the accrual. The product warranty accrual is allocated to current and non-current liabilities in the Consolidated Balance Sheets.
Refer to Note 8, "Product13, “Product Warranty,"” to the Consolidated Financial Statements for more information.
Other loss accruals and valuation allowances The Company has numerous other loss exposures, such as customer claims, workers'workers’ compensation claims, litigation and recoverability of certain assets. Establishing loss accruals or valuation allowances for these matters requires the use of estimates and judgment in regard to the risk exposure and ultimate realization. The Company estimates losses under the programs using consistent and appropriate methods,methods; however, changes to its assumptions could materially affect the recorded accrued liabilities for loss or asset valuation allowances.
Asbestos Like many other industrial companies that have historically operated in the United States, the Company, or parties that the Company is obligated to indemnify, continues to be named as one of many defendants in asbestos-related personal injury actions. With the assistance of a third party actuary, the Company estimates the liability and corresponding insurance recovery for pending and future claims not yet asserted through December 31, 2064 with a runoff through 2074 and defense costs. This estimate is based on the Company's historical claim experience and estimates of the number and resolution cost of potential future claims that may be filed based on anticipated levels of unique plaintiff asbestos-related claims in the U.S. tort system against all defendants. This estimate is not discounted to present value. The Company currently believes that December 31, 2074 is a reasonable assumption as to the last date on which it is likely to have resolved all asbestos-related claims, based on the nature and useful life of the Company’s products and the likelihood of incidence of asbestos-related disease in the U.S. population generally. The Company assesses the sufficiency of its estimated liability for pending and future claims not yet asserted and defense costs on an ongoing basis by evaluating actual experience regarding claims filed, settled and dismissed, and amounts paid in claim resolution costs. In addition to claims experience, the Company considers additional quantitative and qualitative factors such as changes in legislation, the legal environment, and the Company's defense strategy. The Company continues to have additional excess insurance coverage available for potential future asbestos-related claims. In connection with the Company’s ongoing review of its asbestos-related claims, the Company also reviewed the amount of its potential insurance coverage for such claims, taking into account the remaining limits of such coverage, the number
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and amount of claims on our insurance from co-insured parties, ongoing litigation against the Company’s insurance carriers, potential remaining recoveries from insolvent insurance carriers, the impact of previous insurance settlements, and coverage available from solvent insurance carriers not party to the coverage litigation.
Refer to Note 15, "Contingencies," to the Consolidated Financial Statements for more information.
Environmental contingencies The Company accounts for environmental costs in accordance with ASC Topic 450. Costs related to environmental assessments and remediation efforts at operating facilities are accrued when it is probable that a liability has been incurred and the amount of that liability can be reasonably estimated. Estimated costs are recorded at undiscounted amounts, based on experience and assessments and are regularly evaluated. The liabilities are recorded in accounts payableOther current liabilities and accrued expenses and otherOther non-current liabilities in the Company'sCompany’s Consolidated Balance Sheets.
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Refer to Note 15, "Contingencies,"21, “Contingencies,” to the Consolidated Financial Statements for more information.
Derivative financial instruments The Company recognizes that certain normal business transactions and foreign currency operations generate risk. Examples of risks include exposure to exchange rate risk related to transactions denominated in currencies other than the functional currency, changes in commodity costs and interest rates. It is the objective and responsibility of the Company to assess the impact of these transaction risks and offer protection from selected risks through various methods, including financial derivatives. Virtually all derivative instruments held by the Company are designated as hedges, have high correlation with the underlying exposure and are highly effective in offsetting underlying price movements. Accordingly, gains and losses from changes in qualifying hedge fair values are matched with the underlying transactions. All hedgeHedge instruments are carriedgenerally reported gross, with no right to offset, on the Consolidated Balance Sheets at their fair value based on quoted market prices for contracts with similar maturities. The Company does not engage in any derivative transactions for purposes other than hedging specific risks.
Refer to Note 11, "Financial17, “Financial Instruments,"” to the Consolidated Financial Statements for more information.
Foreign currency The financial statements of foreign subsidiaries are translated to U.S. dollarsDollars using the period-end exchange rate for assets and liabilities and an average exchange rate for each period for revenues, expenses and capital expenditures. The local currency is the functional currency for substantially all of the Company's foreign subsidiaries. Translation adjustments for foreign subsidiaries are recorded as a component of accumulated other comprehensive income (loss) in equity. The Company recognizes transaction gains and losses arising from fluctuations in currency exchange rates on transactions denominated in currencies other than the functional currency in earnings as incurred.
Refer to Note 14, "Accumulated20, “Accumulated Other Comprehensive Income,"Loss,” to the Consolidated Financial Statements for more information.
Pensions and other postretirement employee defined benefits The Company'sCompany’s defined benefit pension and other postretirement employee benefit plans are accounted for in accordance with ASC Topic 715. Disability, early retirement and other postretirement employee benefits are accounted for in accordance with ASC Topic 712.
Pensions and other postretirement employee benefit costs and related liabilities and assets are dependent upon assumptions used in calculating such amounts. These assumptions include discount rates, expected returns on plan assets, health care cost trends, compensation and other factors. In accordance with GAAP, actual results that differ from the assumptions used are accumulated and amortized over future periods, and accordingly, generally affect recognized expense in future periods.
Refer to Note 12, "Retirement18, “Retirement Benefit Plans,"” to the Consolidated Financial Statements for more information.
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Restructuring Restructuring costs may occur when the Company takes action to exit or significantly curtail a part of its operations or implements a reorganization that affects the nature and focus of operations. A restructuring charge can consist of severance costs associated with reductions to the workforce, costs to terminate an operating lease or contract, professional fees and other costs incurred related to the implementation of restructuring activities.
The Company generally records costs associated with voluntary separations at the time of employee acceptance. Costs for involuntary separation programs are recorded when management has approved the plan for separation, the employees are identified and aware of the benefits they are entitled to and it is unlikely that the plan will change significantly. When a plan of separation requires approval by or
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consultation with the relevant labor organization or government, the costs are recorded upon agreement. Costs associated with benefits that are contingent on the employee continuing to provide service are accrued over the required service period.
Refer to Note 16, "Restructuring,"4, “Restructuring,” to the Consolidated Financial Statements for more information.
Income taxes In accordance with ASC Topic 740, the Company'sCompany’s income tax expense is calculated based on expected income and statutory tax rates in the various jurisdictions in which the Company operates and requires the use of management'smanagement’s estimates and judgments. Accounting for income taxes is complex, in part because the Company conducts business globally and, therefore, files income tax returns in numerous tax jurisdictions. Management judgment is required in determining the Company’s worldwide provision for income taxes and recording the related assets and liabilities, including accruals for unrecognized tax benefits and assessing the need for valuation allowances.
The determination of accruals for unrecognized tax benefits includes the application of complex tax laws in a multitude of jurisdictions across the Company’s global operations. Management judgment is required in determining the gross unrecognized tax benefits’ related liabilities. In the ordinary course of the Company’s business, there are many transactions and calculations where the ultimate tax determination is less than certain. Accruals for unrecognized tax benefits are established when, despite the belief that tax positions are supportable, there remain certain positions that do not meet the minimum probability threshold, which is a tax position that is more-likely-than-not to be sustained upon examination by the applicable taxing authority.
The Company records valuation allowances to reduce the carrying value of deferred tax assets to amounts that it expects are more likely than not to be realized. The Company assesses existing deferred tax assets, net operating losses, and tax credits by jurisdiction and expectations of its ability to utilize these tax attributes through a review of past, current and estimated future taxable income and tax planning strategies.
Refer to Note 5, "Income7, “Income Taxes,"” to the Consolidated Financial Statements for more information.
New Accounting Pronouncements
In August 2018, the FinancialRecently Adopted Accounting Standards Board ("FASB")
In January 2020, the FASB issued Accounting Standards Update ("ASU"(“ASU”) No. 2018-15, "Intangibles2020-1, “Investments - GoodwillEquity Securities (Topic 321), Investments - Equity Method and Other - Internal-Use Software (Subtopic 350-40)Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)." ” It requires implementation costs incurred by customers in cloud computing arrangementsclarifies the interaction among the accounting for equity securities, equity method investments, and certain derivative instruments. Specifically, for the purposes of applying the ASC Topic 321 measurement alternative, a company should consider observable transactions immediately before applying or upon discontinuing the equity method. Additionally, when determining the accounting for certain forward contracts and purchased options entered into to be deferred and recognized overpurchase securities, a company should not consider if the term of the arrangement, if those costsunderlying securities would be capitalized by the customer in a software licensing arrangementaccounted for under the internal-use software guidance (Subtopic 350-40)equity method (ASC Topic 323) or fair value option (ASC Topic 825). This guidance iswas effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted.2020. The Company is currently assessingadopted this guidance as of January 1, 2021, and there was no impact on its Consolidated Financial Statements.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes.” It removes certain exceptions to the general principles in ASC Topic 740 and improves consistent application of and simplifies GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance. This guidance was effective for interim and annual reporting periods beginning after December 15, 2020. The Company adopted this guidance as of January 1, 2021, and the impact of this guidance on its consolidated financial statements.Consolidated Financial Statements was immaterial.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In August 2018, the FASB issued Accounting Standards Update ("ASU")ASU No. 2018-14, "Compensation“Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20)." The new standard” It (i) requires the removal of disclosures that are no longer considered cost beneficial; (ii) clarifies specific requirements of certain disclosures; and (iii) adds new disclosure requirements, including the weighted average interest crediting rates for cash balance plans and other plans with promised interest crediting rates, and reasons for significant gains and losses related to changes in the benefit obligation. This guidance iswas effective for annual periods beginning after December 15, 2020 and early adoption is permitted.2020. The Company is currently assessingadopted this guidance as of January 1, 2021, and the guidance and will include enhancedCompany has included updated disclosures in these Consolidated Financial Statements. Refer to Note 18, “Retirement Benefit Plans,” to the consolidated financial statements upon adoption.Consolidated Financial Statements for more detail.
Accounting Standards Not Yet Adopted
In August 2018,November 2021, the FASB issued ASU No. 2018-13, "Fair Value Measurement2021-10, “Government Assistance (Topic 820)."832): Disclosures by Business Entities about Government Assistance.” It removes disclosure requirements on fair value measurements includingis expected to increase transparency in financial reporting by requiring business entities to disclose information about certain types of government assistance they receive. The amendments require the amount of and reasons for transfers between Level 1 and Level 2following annual disclosures about transactions with a government: (i) information about the nature of the fair value hierarchy, the policy for timing of transfers between levels,transactions and the valuation processes for Level 3 fair value measurements. It also amends and clarifies certain disclosures and adds new disclosure requirements including the changes in unrealized gains and lossesrelated accounting policy used to account for the period included in other comprehensivetransactions; (ii) the line items on the balance sheet and income for recurring Level 3 fair value measurements,statement that are affected by the transactions, and the rangeamounts applicable to each financial statement line item; and weighted average(iii) significant terms and conditions of significant unobservable inputs used to develop Level 3 fair value measurements.the transactions, including commitments and contingencies. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019. An entity is permitted to early adopt any removed or modified disclosures and delay adoption of the additional disclosures until the effective date.2021. The Company is currently assessing the guidance and does not expect this guidance to have a material impact on its consolidated financial statements.Consolidated Financial Statements.
In February 2018,October 2021, the FASB issued ASU No. 2018-07, "Compensation - Stock Compensation2021-08, “Business Combinations (Topic 718)." It expands the scope of the employee share-based payments guidance, which currently only includes share-based payments issued to employees, to also include share-based payments issued to nonemployees805): Accounting for goodsContract Assets and services. This guidance is effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The Company does not expect this guidance to have any impact on its Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In February 2018, the FASB issued ASU No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220)." It allows a reclassificationContract Liabilities from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 ("the Tax Act"). This guidance is effective for interim and annual periods beginning after December 15, 2018, but early adoption is permitted. The Company early adopted this guidance in the fourth quarter of 2018 and recorded a transition adjustment as of January 1, 2018, which increased retained earnings and decreased accumulated other comprehensive income by $14.0 million on its consolidated balance sheet.
In August 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-12, "Derivatives and Hedging (Topic 815)." It expands and refines hedge accounting for both nonfinancial and financial risk components and reduces complexity in fair value hedges of interest rate risk. It eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. It also eases certain documentation and assessment requirements and modifies the accounting for components excluded from assessment of hedge effectiveness. In addition, the new guidance requires expanded disclosures as it pertains to the effect of hedging on individual income statement lines, including the effects of components excluded from the assessment of effectiveness. The guidance is effective prospectively for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The Company adopted this guidance during the first quarter of 2018 and the impact on the consolidated financial statements was not material. Refer to Note 11, "Financial Instruments," to the Consolidated Financial Statements for more information.
In March 2017, the FASB issued ASU No. 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost."Contracts with Customers.” It requires disaggregating the service cost component from the other components of net benefit cost, provides explicit guidance on howentities to present the service cost componentapply Topic 606 to recognize and the other components of net benefit costmeasure contract assets and contract liabilities in the income statement and allows only the service cost component of net benefit cost to be eligible for capitalization when applicable. This guidance is effective for interim and annual periods beginning after December 15, 2017.During the first quarter of 2018, the Company retrospectively adopted the presentation of service cost separate from the other components of net benefit costs. As a result, Cost of sales of $4.5 million and $4.4 million and Selling, general and administrative expenses of $0.6 million and $0.5 million for the year ended December 31, 2017 and 2016, respectively, have been reclassified to Other postretirement income as a separate line item in the Condensed Consolidated Statements of Operations.
In January 2017, the FASB issued Accounting Standards Update ("ASU") No. 2017-01, "Clarifying the Definition of a Business." It revises the definition of a business combination. The amendments improve comparability after the business combination by providing consistent recognition and providesmeasurement guidance for revenue contracts with customers acquired in a framework to evaluate when an inputbusiness combination and revenue contracts with customers not acquired in a substantive process are present in an acquisition to be considered a business. This guidance is effective for annual periods beginning after December 15, 2017. The Company adopted this guidance in the first quarter of 2018 and there was no impact to the consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, "Restricted Cash." It requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.business combination. This guidance is effective for interim and annual reporting periods beginning after December 15, 2017.2022. The Company adopteddoes not expect this guidance in the first quarter of 2018 and there was noto have a material impact to the consolidated financial statements.on its Consolidated Financial Statements.
In August 2016, the FASB issued ASU No. 2016-15, "Classification of Certain Cash Receipts and Cash Payments." It provides guidance on eight specific cash flow issues with the objective of reducing the existing diversity in practice in how they are classified in the statement of cash flows. This guidance is effective for interim and annual reporting periods beginning after December 15, 2017. The Company adopted this guidance in the first quarter of 2018 and there was no impact to the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 2 ACQUISITIONS AND DISPOSITIONS
Acquisitions
AKASOL AG
On June 4, 2021, the Company completed its voluntary public takeover offer for shares of AKASOL AG (“AKASOL”), resulting in ownership of 89% of AKASOL’s outstanding shares. The Company paid approximately €648 million ($788 million) to settle the offer from current cash balances, which included proceeds received from its public offering of 1.0% Senior Notes due May 2031 completed on May 19, 2021. Refer to Note 14, “Notes Payable and Debt,” to the Consolidated Financial Statements for more information. Following the settlement of the offer, AKASOL became a consolidated majority-owned subsidiary of the Company. The Company also consolidated approximately €64 million ($77 million) of gross debt of AKASOL. Subsequent to the completion of the voluntary public takeover offer, the Company purchased additional shares of AKASOL for €28 million ($33 million) increasing its ownership to 93% as of December 31, 2021.The acquisition further strengthens BorgWarner’s commercial vehicle and industrial electrification capabilities, which positions the Company to capitalize on what it believes to be a fast-growing battery module and pack market.
On August 2, 2021, the Company initiated a merger squeeze out process under German law for the purpose of acquiring 100% of AKASOL. On December 17, 2021, the shareholders of AKASOL voted to mandatorily transfer to ABBA BidCo. AG, a wholly owned indirect subsidiary of the Company, each issued and outstanding share of AKASOL held by shareholders that did not tender their shares in the Company’s previously completed exchange offer for AKASOL shares (the “Squeeze Out”). In exchange for the AKASOL shares transferred in the Squeeze Out, the Company will pay appropriate cash compensation, in the amount of €119.16 per share, which was determined by a valuation firm and the adequacy of which was examined by an independent, court-appointed auditor. The noncontrolling interest in AKASOL of approximately €51 million ($58 million) to be acquired through the Squeeze Out was reclassified to Other current liabilities in the Company’s Consolidated Balance Sheet as it was deemed mandatorily redeemable. No shareholder objections were filed during the statutory contestation period, and on February 10, 2022, the Company completed the registration of the Squeeze Out resulting in 100% ownership. The Company expects to settle the Squeeze Out with AKASOL minority shareholders in the first quarter of 2022.
The initial purchase price was allocated on a preliminary basis as of June 2016,4, 2021. Assets acquired and liabilities assumed were recorded at estimated fair values based on management’s estimates, available information, and supportable assumptions that management considered reasonable. Certain estimated values for the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326)." It replacesacquisition, including goodwill and deferred taxes, are not yet finalized, and the preliminary purchase price allocations are subject to change as the Company completes its analysis. The final valuation of assets acquired and liabilities assumed may be different from the estimated values shown below.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of June 4, 2021, the acquisition date:
| | | | | | | | | | | | | | | | | |
(in millions) | Initial Allocation | | Measurement Period Adjustments | | Revised Allocation |
ASSETS | | | | | |
Cash and cash equivalents (including restricted cash of $16 million) | $ | 29 | | | $ | — | | | $ | 29 | |
Receivables, net | 16 | | | — | | | 16 | |
Inventories, net | 42 | | | (2) | | | 40 | |
Prepayments and other current assets | 5 | | | — | | | 5 | |
Property, plant and equipment, net | 106 | | | (3) | | | 103 | |
Goodwill | 707 | | | (3) | | | 704 | |
Other intangible assets, net | 130 | | | — | | | 130 | |
Other non-current assets | — | | | 7 | | | 7 | |
Total assets acquired | 1,035 | | | (1) | | | 1,034 | |
LIABILITIES | | | | | |
Notes payable and other short-term debt | 8 | | | — | | | 8 | |
Accounts payable | 22 | | | — | | | 22 | |
Other current liabilities | 13 | | | 6 | | | 19 | |
Long-term debt | 69 | | | — | | | 69 | |
| | | | | |
| | | | | |
Other non-current liabilities | 39 | | | (7) | | | 32 | |
Total liabilities assumed | 151 | | | (1) | | | 150 | |
Noncontrolling interests | 96 | | | — | | | 96 | |
Net assets and noncontrolling interest acquired | $ | 788 | | | $ | — | | | $ | 788 | |
Any excess of the purchase price over the estimated fair value of net identifiable assets was recognized as goodwill. Goodwill of $704 million, including the impact of measurement period adjustments, was recorded within the Company’s Air Management segment. The goodwill consists of the Company’s expected future economic benefits that will arise from acquiring this business, which is established in making next-generation products for electric vehicles and the potential development and deployment of future technologies, across a global customer base, in this market and across adjacent industries. The goodwill is not expected to be deductible for tax purposes.
The following table summarizes the other intangible assets acquired:
| | | | | | | | | | | |
(in millions) | Estimated Life | | Estimated Fair Value |
Amortized intangible assets: | | | |
Developed technology | 5 years | | $ | 70 | |
Customer relationships | 11 years | | 25 | |
Total amortized intangible assets | | | 95 | |
Unamortized trade names | Indefinite | | 35 | |
Total other intangible assets | | | $ | 130 | |
Generally accepted valuation practice indicates that assets and liabilities may be valued using a range of methodologies. The property, plant and equipment acquired were valued using a combination of cost and market approaches. Goodwill and identifiable intangible assets were valued using the income approach. Noncontrolling interests were valued using a market approach. Management used a third-party valuation firm to assist in the determination of the preliminary purchase accounting fair values; however, management ultimately oversees the third-party valuation firm to ensure that the transaction-specific assumptions are appropriate.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Following the June 4, 2021 acquisition date, AKASOL’s operations had net sales of $67 million for the year ended December 31, 2021. The impact on net earnings was immaterial for the year ended December 31, 2021. Due to its insignificant size relative to the Company, supplemental pro forma financial information of the combined entity for the current incurred loss impairment method withand prior reporting period is not provided.
Delphi Technologies PLC
On October 1, 2020, the Company completed its acquisition of 100% of the outstanding ordinary shares of Delphi Technologies PLC (“Delphi Technologies”) from the shareholders of Delphi Technologies pursuant to the terms of the Transaction Agreement, dated January 28, 2020, as amended on May 6, 2020, by and between the Company and Delphi Technologies (the “Transaction Agreement”). Pursuant to the terms of the Transaction Agreement, the Company issued, in exchange for each Delphi Technologies share, 0.4307 of a new method that reflects expected credit losses. Under this new model an entity would recognize an impairment allowance equal toshare of common stock of the Company, par value $0.01 per share and cash in lieu of any fractional share. In the aggregate, the Company delivered consideration of approximately $2.4 billion. The acquisition has strengthened the Company’s electronics and power electronics products, strengthened its current estimatecapabilities and scale, enhanced key combustion, commercial vehicle and aftermarket product offerings, and positioned the Company for greater growth as electrified propulsion systems gain momentum. Upon closing, the Company also assumed approximately $800 million (par value) in aggregate principal amount of credit losses on financial assets measured at amortized cost. This guidance is effectiveDelphi Technologies’ outstanding 5.0% Senior Notes due October 2025.
The following table summarizes the purchase price for fiscal years beginning after December 15, 2019, with early adoption permitted. Delphi Technologies:
| | | | | |
(in millions, except for share data) | |
BorgWarner common stock issued for purchase of Delphi Technologies | 37,188,819 |
BorgWarner share price at October 1, 2020 | $ | 39.54 | |
Fair value of stock consideration | $ | 1,470 | |
Stock compensation consideration | 7 |
Total stock consideration | $ | 1,477 | |
Cash consideration | 18 | |
Repayment of Delphi Technologies’ debt | 896 | |
Total consideration | $ | 2,391 | |
The Company is currently evaluatingfinalized its valuation of the assets and liabilities of the Delphi Technologies acquisition during the third quarter of 2021.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the final fair values of assets acquired and liabilities assumed as of the acquisition date and subsequent measurement period adjustments: | | | | | | | | | | | | | | | | | |
(in millions) | Initial Allocation | | Measurement Period Adjustments | | Revised Allocation |
ASSETS | | | | | |
Cash and cash equivalents | $ | 460 | | | $ | — | | | $ | 460 | |
Receivables, net | 901 | | | (4) | | | 897 | |
Inventories, net1 | 398 | | | (5) | | | 393 | |
Prepayments and other current assets | 77 | | | 2 | | | 79 | |
Property, plant and equipment, net | 1,548 | | | (31) | | | 1,517 | |
Investments and long-term receivables | 103 | | | (1) | | | 102 | |
Goodwill | 710 | | | 44 | | | 754 | |
Other intangible assets, net | 760 | | | — | | | 760 | |
Other non-current assets | 359 | | | 1 | | | 360 | |
Total assets acquired | 5,316 | | | 6 | | | 5,322 | |
LIABILITIES | | | | | |
Notes payable and other short-term debt | 2 | | | — | | | 2 | |
Accounts payable | 692 | | | 1 | | | 693 | |
Other current liabilities | 609 | | | 9 | | | 618 | |
Long-term debt | 934 | | | — | | | 934 | |
Other non-current liabilities: | | | | | |
Retirement-related | 313 | | | — | | | 313 | |
Other non-current liabilities | 286 | | | (4) | | | 282 | |
Total liabilities assumed | 2,836 | | | 6 | | | 2,842 | |
Noncontrolling interest | 89 | | | — | | | 89 | |
Net assets and noncontrolling interest acquired | $ | 2,391 | | | $ | — | | | $ | 2,391 | |
_____________________________
1 During the three months ended December 31, 2020, the Company incurred $27 million of expense related to the amortization of the inventory fair value adjustment.
Any excess of the purchase price over the estimated fair value of net assets was recognized as goodwill. At the acquisition date, goodwill of $754 million, including the impact this guidanceof measurement period adjustments, was allocated across the Company’s 4 segments, as noted in the table below. The goodwill consists of the Company’s expected future economic benefits that will arise from expected future product sales and operational synergies from combining Delphi Technologies with its existing business and is not deductible for tax purposes.
| | | | | |
(in millions) | |
Air Management | $ | 150 | |
e-Propulsion & Drivetrain | 301 | |
Fuel Injection | — | |
Aftermarket | 303 | |
Total acquisition date goodwill | $ | 754 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the other intangible assets acquired:
| | | | | | | | | | | |
(in millions) | Estimated Life | | Estimated Fair Value |
Amortized intangible assets: | | | |
Developed technology | 14 years | | $ | 270 | |
Customer relationships | 15 years | | 380 | |
Total amortized intangible assets | | | 650 | |
Unamortized trade name | Indefinite | | 110 | |
Total other intangible assets | | | $ | 760 | |
Generally accepted valuation practice indicates that assets and liabilities may be valued using a range of methodologies. The property, plant and equipment and inventory acquired were valued using a combination of cost and market approaches. Goodwill, identifiable intangible assets, noncontrolling interests and the equity method investment were valued using the income approach. Management used a third-party valuation firm to assist in the determination of the purchase accounting fair values; however, management ultimately oversees the third-party valuation firm to ensure that the transaction-specific assumptions are appropriate.
The following table summarizes the net sales and earnings related to Delphi Technologies’ operations that have been included in the Company’s Consolidated Statement of Operations for the year ended December 31, 2020, following the October 1, 2020 acquisition date:
| | | | | |
(in millions) | |
Net sales | $ | 1,120 | |
Net earnings attributable to BorgWarner Inc. | $ | 30 | |
Pro forma financial information (unaudited): The following table summarizes, on its consolidated financial statements.
In February 2016,a pro forma basis, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." Under this guidance, lessees will be required to recognize a right-of-use assetcombined results of operations of the Company and a lease liability for leases with a term more than 12 months, including operating leases defined under previous GAAP. This guidance is effective for interimDelphi Technologies business as though the acquisition and annual reporting periods beginning after December 15, 2018. The Company has elected not to restate comparative periods upon adoption, but record a cumulative-effect adjustment to the opening balancerelated financing had occurred as of retained earnings at January 1, 2019. As permittedThe pro forma results are not necessarily indicative of either the actual consolidated results had the acquisition of Delphi Technologies occurred on January 1, 2019 or of future consolidated operating results. Actual operating results for the year ended December 31, 2021 have been included in the table below for comparative purposes.
| | | | | | | | | | | | | | | | | |
| Actual | | Pro forma (unaudited) |
| Year Ended December 31, |
(in millions) | 2021 | | 2020 | | 2019 |
Net sales | $ | 14,838 | | | $ | 12,792 | | | $ | 14,529 | |
Net earnings attributable to BorgWarner Inc. | $ | 537 | | | $ | 616 | | | $ | 625 | |
These pro forma amounts have been calculated after applying the Company’s accounting policies and the results presented above primarily reflect (i) depreciation adjustments relating to fair value adjustments to property, plant and equipment; (ii) amortization adjustments relating to fair value estimates of intangible assets; (iii) incremental interest expense, net on debt related transactions; (iv) cost of goods sold adjustments relating to fair value adjustments to inventory; and (v) stock-based compensation that was accelerated and settled on the date of acquisition.
In 2020, the Company incurred $89 million of acquisition-related costs. These expenses are included in Other operating expense (income), net in the Company’s Consolidated Statement of Operations for the year ended December 31, 2020 and are reflected in the pro forma earnings for the year ended December 31, 2019, in the table above.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Romeo Power, Inc.
In May 2019, the Company invested $50 million in exchange for a 20% equity interest in Romeo Systems, Inc., now known as Romeo Power, Inc., (“Romeo”), a technology-leading battery module and pack supplier that was then privately held. The Company accounted for this investment in Series A-1 Preferred Stock of Romeo under the standard, the Company will elect the package of practical expedients, which does not require the Company to reassess whether existing contracts contain leases, classification of leases identified, nor classification and treatment of initial direct costs capitalized undermeasurement alternative in ASC 840. The Company will also elect the practical expedients to combine the lease and non-lease components. The Company will not elect the practical expedient to apply hindsight as part of the leases evaluation. Additionally, the Company will elect the practical expedient under ASU No. 2018-01, which allows an entity to not reassess whether any existing land easements are or contain leases.
The Company has performed an assessment, which included evaluating all forms of leasing arrangements. The majority of the Company’s global lease portfolio represents leases of real estate, such as manufacturing facilities, warehouses, and office buildings, while the remainder represents leases of personal property, such as vehicle leases, manufacturing and IT equipment. Based on the results of the assessment, the Company has refined its internal policy to include criteriaTopic 321, “Investments - Equity Securities” for evaluating the impact of the new standard and related controls to support the requirements of this new standard. The Company is currently implementing system solutions as part of the adoption process. The Company is in the process of finalizing its assessment of the impact upon adoption and estimates that the adoption of this guidance will result in the addition of right-of-use assets and corresponding lease obligations to the consolidated balance sheet between $100 million - $120 million. The adoption will not haveequity securities without a material impact to the consolidated statements of operations or cash flows.
In January 2016, the FASB issued ASU No. 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities." It requires equity investments (except those accounted for under the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair valuesvalue. Such investments are measured at cost, minusless any impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for thean identical or a similar investment of the same issuer. It also requires separate presentation
On December 29, 2020, through the business combination of Romeo Systems, Inc. and special purpose acquisition company RMG Acquisition Corporation, a new entity, Romeo Power, Inc., became a publicly listed company. The Company’s ownership in Romeo was reduced to 14%, and the investment no longer qualified for the measurement alternative under ASC Topic 321 as the investment then had a readily determinable fair value. During the year ended December 31, 2020, the Company recorded a net gain of $382 million, which primarily related to adjusting the Company’s investment carrying value to fair value. The investment is recorded at fair value on an ongoing basis with changes in fair value being recognized in Unrealized (loss) gain on equity securities in the Consolidated Statements of Operations. During the year ended December 31, 2021, the Company recorded a loss of $362 million to adjust the carrying value of the Company’s investment to fair value. As of December 31, 2021 and 2020, the investment’s fair value was $70 million and $432 million, respectively, which is reflected in Investments and long-term receivables in the Company’s Consolidated Balance Sheets.
In September 2019, the Company and Romeo contributed total equity of $10 million and formed a new joint venture, BorgWarner Romeo Power LLC (“Romeo JV”), in which the Company owned a 60% interest. Romeo JV is a variable interest entity focusing on producing battery module and pack technology. The Company was the primary beneficiary of Romeo JV and has consolidated Romeo JV in its consolidated financial assets and financial liabilitiesstatements. On October 25, 2021, the Company delivered written notice to Romeo that the Company was electing to exercise its right to put its ownership stake in Romeo JV to Romeo. Based on an independent appraisal, the Company’s interest in Romeo JV was valued at $30 million. As the estimated fair value, less costs to sell, of the Company’s investment exceeded its carrying value, no adjustment to the carrying value was required at December 31, 2021. In February 2022, the Company completed the sale of its 60% interest in Romeo JV for $29 million, the fair value of $30 million reduced by measurement category and forma 5% discount pursuant to the joint venture agreement. As a result of financial assetthe sale, the Company has no further rights in or involvement with Romeo JV. The exercise of the Romeo JV put option has no bearing on the balance sheet orCompany’s ownership stake in Romeo.
Rinehart Motion Systems LLC and AM Racing LLC
On January 2, 2019, the accompanying notes toCompany acquired Rinehart Motion Systems LLC and AM Racing LLC, 2 established companies in the financial statements. This guidance is effectivespecialty electric and hybrid propulsion market, for interim and fiscal years beginning after December 15, 2017. The Company adopted this guidanceapproximately $15 million, of which $10 million was paid in the first quarter of 2018 with no impact to2019, $2 million was paid during each of the consolidated financial statementsfirst quarter 2020 and elected2021, the measurement alternative for equity investments without readily determinable fair values.remaining $1 million will be paid in the first quarter of 2022.
In May 2014, the FASB amended the Accounting Standards Codification to add Topic 606 and issued ASU 2014-09, "Revenue from Contracts with Customers," outlining a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and superseding the then applicable revenue recognition guidance. The new guidance requires new disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. We adopted this new standard and all the related amendments (“new revenue standard”) effective January 1, 2018 and applied it to all contracts using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Water Valley Divestiture
In 2021, the Company announced its strategy to aggressively grow its electrification portfolio over time through organic investments and technology-focused acquisitions. Additionally, the Company announced a plan to dispose of certain internal combustion assets in effectsupport of that strategy. In December 2021, the Company entered into a definitive agreement to sell its Water Valley, Mississippi manufacturing facility (“Water Valley”) and the associated solenoid, transmission control module and stop/start accumulator system business for those periods. We expectan estimated $57 million. The consideration consisted of $39 million in cash and notes and up to $30 million in potential earn out payments. The Company included $18 million as contingent consideration in the impact of adoptionproceeds, which reflects its current estimate of the new standard to be immaterial to our sales and net income on an ongoing basis.
Revenue is recognized when performance obligations under the terms of a contract are satisfied, which generally occurs with the transfer of control of our products. For most of our products, transfer of control occurs upon shipment or delivery, however, a limited number of our customer arrangements for our highly customized products with no alternative use provide us with the right to payment during the production process. As a result, for these limited arrangements, under the new revenue standard, revenue is recognized as goods are produced and control transferspayout pursuant to the customer.earn out. The Company recorded a transition adjustment as of January 1, 2018, which increased retained earnings by $2.0 million related to these arrangements.
The Company also has a limited number of arrangements with customers where the price paid by the customer is dependentcontingent consideration and promissory note were included in Investments and long-term receivables on the volume of product purchased over the term of the arrangement. Under the new revenue standard, the Company estimates the volumes to be sold over the term of the arrangement and recognizes revenue based on the estimated amount of consideration to be received from these arrangements. The Company recorded a transition adjustment, which decreased the opening balance of retained earnings by $0.1 million related to these arrangements.
The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of new revenue standard was as follows: |
| | | | | | | | | | | | |
(In millions) | | Balance at December 31, 2017 | | Adjustments due to ASC 606 | | Balance at January 1, 2018 |
Inventories, net | | $ | 766.3 |
| | $ | (7.4 | ) | | $ | 758.9 |
|
Prepayments and other current assets (including contract assets) | | $ | 145.4 |
| | $ | 9.4 |
| | $ | 154.8 |
|
Accounts payable and other accrued expenses (including contract liabilities) | | $ | 2,270.3 |
| | $ | 0.1 |
| | $ | 2,270.4 |
|
Retained earnings | | $ | 4,531.0 |
| | $ | 1.9 |
| | $ | 4,532.9 |
|
The impact from adopting the new revenue standard as compared to the previous revenue guidance is immaterial to our Consolidated Statements of Operations and Consolidated Balance Sheets forSheet.
Water Valley had net sales of $177 million during the year ended December 31, 2018.2021 and was included in the Company’s e-Propulsion & Drivetrain segment. On December 31, 2021, upon the closing of the transaction, based upon the final transaction priced agreed to in the fourth quarter of 2021, the Company recorded a loss on divestiture of $22 million. As a result of this transaction, assets of $99 million, including allocated goodwill of $12 million, and liabilities of $20 million were removed from the Company’s Consolidated Balance Sheet as of December 31, 2021.
On February 15, 2022, the Company announced that it signed an equity transfer agreement under which BorgWarner will acquire Santroll Automotive Components, a carve-out of Santroll Electric Auto’s eMotor business, for up to ¥1.4 billion ($220 million), comprised of a closing payment of ¥1.1 billion ($173 million) and an earn out of ¥0.3 billion ($47 million). The transaction is expected to close in the first quarter of 2022.
NOTE 23 REVENUE FROM CONTRACTS WITH CUSTOMERS
The Company adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments to all contracts using the modified retrospective method effective January 1, 2018. The Company manufactures and sells products, primarily to OEMs of light vehicles and, to a lesser extent, to other OEMs of commercial vehicles and off-highway vehicles, to certain Tier One vehicle systems suppliers and into the aftermarket. Although theThe Company’s payment terms are based on customary business practices and vary by customer type and products offered. The Company may enter into long-term supply arrangements with its major customers, the prices and volumes are not fixed over the life of the arrangements, and a contract does not exist for purposes of applying ASC 606 until volumes are contractually known. Revenue is recognized when performance obligations underhas evaluated the terms of a contract are satisfied, which generally occurs with the transfer of control of our products. For most of our products, transfer of control occursits arrangements and determined that they do not contain significant financing components.
Generally, revenue is recognized upon shipment or delivery,delivery; however, a limited number of ourthe Company’s customer arrangements for ourits highly customized products with no alternative use provide usthe Company with the right to payment during the production process. As a result, for these limited arrangements, revenue is recognized as goods are produced and control transfers to the customer using the input cost-to-cost method. The Company recorded a contract asset of $11.4$17 million and $9.4$16 million at December 31, 20182021 and January 1, 20182020, respectively, for these arrangements. These amounts are reflected in Prepayments and other current assets in our consolidated balance sheet.
Revenue is measured at the amount of consideration we expect to receive in exchange for transferring the goods. The Company has a limited number of arrangements with customers where the price paid by the customer is dependent on the volume of product purchased over the term of the arrangement. In other limited arrangements, the Company will provide a rebate to customers based on the volume of products
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
purchased during the course of the arrangement. The Company estimates the volumes to be sold over the term of the arrangement and recognizes revenue based on the estimated amount of consideration to be received from these arrangements. As a result of these arrangements, the Company recognized a liability of $5.8 million and $18.4 million at December 31, 2018 and December 31, 2017. These amounts are reflected in Accounts payable and accrued expenses in our consolidated balance sheet.
The Company’s payment terms with customers are customary and vary by customer and geography but typically range from 30 to 90 days. We have evaluated the terms of our arrangements and determined that they do not contain significant financing components. The Company provides warranties on some of its products. Provisions for estimated expenses related to product warranty are made at the time products are sold. Refer to Note 8, "Product Warranty," to the Consolidated Financial Statements for more information. Shipping and handling fees billed to customers are included in sales, while costs of shipping and handling are included in cost of sales. The Company has elected to apply the accounting policy election available under ASC 606 and accounts for shipping and handling activities as a fulfillment cost.Balance Sheets.
In limited instances, certain customers have provided payments in advance of receiving related products, typically at the onset of an arrangement prior to the beginning of production. These contract liabilities are reflected as Accounts payable and accrued expensesOther current liabilities and Other non-current liabilities in our consolidated balance sheetthe Consolidated Balance Sheets and were $13.4$21 million and $17.3$1 million at December 31, 20182021 and $12.1$22 million and $21.9$6 million at December 31, 2017,2020, respectively. These amounts are reflected as revenue over the term of the arrangement (typically 3 to 7 years) as the underlying products are shipped.shipped and represent the Company’s remaining performance obligations as of the end of the period.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company continually seeks business development opportunities and at times provides customer incentives for new program awards. The Company evaluates the underlying economics of each amount of consideration payable to a customer to determine the proper accounting by understanding the reasons for the payment, the rights and obligations resulting from the payment, the nature of the promise in the contract, and other relevant facts and circumstances. When the Company determines that the payments are incremental and incurred only if the new business is obtained and expects to recover these amounts from the customer over the term of the new business arrangement, the Company capitalizes these amounts. TheAs of December 31, 2021 and 2020, the Company recognizes a reduction to revenue as products that the upfrontrecorded customer incentive payments are related to are transferred to the customer, based on the total amount of products expected to be sold over the term of the arrangement (generally 3 to 7 years). The Company evaluates the amounts capitalized each period end for recoverability and expenses any amounts that are no longer expected to be recovered over the term of the business arrangement. The Company had $29.4$36 million and $18.2$43 million, recordedrespectively, in Prepayments and other current assets, and $187.4$137 million and $180.4$166 million, recordedrespectively, in Other non-current assets in the consolidated balance sheet at December 31, 2018 and December 31, 2017.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Consolidated Balance Sheets.
The following table represents a disaggregation of revenue from contracts with customers by reporting segment and region:region and includes the results of Delphi Technologies and AKASOL following the dates of acquisition, for the years ended December 31, 2021, 2020, and 2019. Refer to Note 24, Reporting Segments and Related Information to the Consolidated Financial Statements for more information.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2021 |
(in millions) | Air Management | | e-Propulsion & Drivetrain | | Fuel Injection | | Aftermarket | | Total |
North America | $ | 1,908 | | | $ | 1,949 | | | $ | 58 | | | $ | 310 | | | $ | 4,225 | |
Europe | 2,952 | | | 906 | | | 924 | | | 423 | | | 5,205 | |
Asia | 2,138 | | | 2,329 | | | 592 | | | 61 | | | 5,120 | |
Other | 148 | | | 25 | | | 63 | | | 52 | | | 288 | |
Total | $ | 7,146 | | | $ | 5,209 | | | $ | 1,637 | | | $ | 846 | | | $ | 14,838 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2020 |
(in millions) | Air Management | | e-Propulsion & Drivetrain | | Fuel Injection | | Aftermarket | | Total |
North America | $ | 1,425 | | | $ | 1,559 | | | $ | — | | | $ | 73 | | | $ | 3,057 | |
Europe | 2,482 | | | 733 | | | 253 | | | 91 | | | 3,559 | |
Asia | 1,596 | | | 1,631 | | | 169 | | | 15 | | | 3,411 | |
Other | 95 | | | 17 | | | 13 | | | 13 | | | 138 | |
Total | $ | 5,598 | | | $ | 3,940 | | | $ | 435 | | | $ | 192 | | | $ | 10,165 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2019 |
(in millions) | Air Management | | e-Propulsion & Drivetrain | | Fuel Injection | | Aftermarket | | Total |
North America | $ | 1,584 | | | $ | 1,791 | | | $ | — | | | $ | — | | | $ | 3,375 | |
Europe | 2,980 | | | 830 | | | — | | | — | | | 3,810 | |
Asia | 1,468 | | | 1,365 | | | — | | | — | | | 2,833 | |
Other | 121 | | | 29 | | | — | | | — | | | 150 | |
Total | $ | 6,153 | | | $ | 4,015 | | | $ | — | | | $ | — | | | $ | 10,168 | |
NOTE 4 RESTRUCTURING
The Company’s restructuring activities are undertaken as necessary to execute management’s strategy and streamline operations, consolidate and take advantage of available capacity and resources, and ultimately achieve net cost reductions. Restructuring activities include efforts to integrate and rationalize the Company’s business and to relocate operations to best-cost locations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
| | | | | | | | | | | | |
| | Twelve months ended December 31, 2018 |
(In millions) | | Engine | | Drivetrain | | Total |
North America | | $ | 1,573.3 |
| | $ | 1,798.6 |
| | $ | 3,371.9 |
|
Europe | | 3,074.1 |
| | 947.8 |
| | 4,021.9 |
|
Asia | | 1,620.8 |
| | 1,361.9 |
| | 2,982.7 |
|
Other | | 121.7 |
| | 31.4 |
| | 153.1 |
|
Total | | $ | 6,389.9 |
| | $ | 4,139.7 |
| | $ | 10,529.6 |
|
The Company’s restructuring expenses consist primarily of employee termination benefits (principally severance and/or other termination benefits) and other costs, which are primarily professional fees and costs related to facility closures and exits.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Air Management | | e-Propulsion & Drivetrain | | Fuel Injection | | Aftermarket | | Corporate | | Total |
Year ended December 31, 2021 | | | | | | | | | | | |
Employee termination benefits | $ | 34 | | | $ | 12 | | | $ | 53 | | | $ | — | | | $ | — | | | $ | 99 | |
Other | 18 | | | 43 | | | 1 | | | — | | | 2 | | | 64 | |
Total restructuring expense | $ | 52 | | | $ | 55 | | | $ | 54 | | | $ | — | | | $ | 2 | | | $ | 163 | |
| | | | | | | | | | | |
Year ended December 31, 2020 | | | | | | | | | | | |
Employee termination benefits | $ | 50 | | | $ | 54 | | | $ | 8 | | | $ | 1 | | | $ | 44 | | | $ | 157 | |
Other | 29 | | | 16 | | | — | | | — | | | 1 | | | 46 | |
Total restructuring expense | $ | 79 | | | $ | 70 | | | $ | 8 | | | $ | 1 | | | $ | 45 | | | $ | 203 | |
| | | | | | | | | | | |
Year ended December 31, 2019 | | | | | | | | | | | |
Employee termination benefits | $ | 43 | | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | 44 | |
Other | 17 | | | 5 | | | — | | | — | | | 6 | | | 28 | |
Total restructuring expense | $ | 60 | | | $ | 6 | | | $ | — | | | $ | — | | | $ | 6 | | | $ | 72 | |
The following table displays a rollforward of the restructuring liability recorded within the Company’s Consolidated Balance Sheets and the related cash flow activity:
| | | | | | | | | | | | | | | | | |
(in millions) | Employee termination benefits | | Other | | Total |
Balance at January 1, 2020 | $ | 34 | | | $ | 1 | | | $ | 35 | |
Delphi Technologies acquisition | 73 | | | 2 | | | 75 | |
Restructuring expense, net | 157 | | | 46 | | | 203 | |
Cash payments | (113) | | | (22) | | | (135) | |
Foreign currency translation adjustment and other | 9 | | | (14) | | | (5) | |
Balance at December 31, 2020 | 160 | | | 13 | | | 173 | |
Restructuring expense, net | 99 | | | 64 | | | 163 | |
Cash payments | (128) | | | (61) | | | (189) | |
Foreign currency translation adjustment and other | (5) | | | (3) | | | (8) | |
Balance at December 31, 2021 | $ | 126 | | | $ | 13 | | | $ | 139 | |
Less: Non-current restructuring liability | 41 | | | 2 | | | 43 | |
Current restructuring liability at December 31, 2021 | $ | 85 | | | $ | 11 | | | $ | 96 | |
In February 2020, the Company announced a restructuring plan to address existing structural costs. During the years ended December 31, 2021, and 2020, the Company recorded $103 million and $148 million of restructuring charges related to this plan, respectively. Cumulatively, the Company has incurred $251 million of restructuring charges related to this plan. This plan is expected to result in a total of $300 million of restructuring costs through 2022. Nearly all of the restructuring charges are expected to be cash expenditures.
In 2019, legacy Delphi Technologies announced a restructuring plan to reshape and realign its global technical center footprint and reduce salaried and contract staff. The Company continued actions under this program post-acquisition and has recorded cumulative charges of $62 million since October 1, 2020,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
| | | | | | | | | | | | |
| | Twelve months ended December 31, 2017 |
(In millions) | | Engine | | Drivetrain | | Total |
North America | | $ | 1,509.0 |
| | $ | 1,691.2 |
| | $ | 3,200.2 |
|
Europe | | 2,783.1 |
| | 952.4 |
| | 3,735.5 |
|
Asia | | 1,614.5 |
| | 1,116.0 |
| | 2,730.5 |
|
Other | | 102.4 |
| | 30.7 |
| | 133.1 |
|
Total | | $ | 6,009.0 |
| | $ | 3,790.3 |
| | $ | 9,799.3 |
|
including approximately $60 million in restructuring charges during the year ended December 31, 2021. The majority of the actions under this program have been completed.
Additionally, the Company recorded approximately $54 million in restructuring charges during the three months ended December 31, 2020, for acquisition-related restructuring charges. In conjunction with the acquisition, there were contractually required severance and post-combination stock-based compensation cash payments to legacy Delphi Technologies executive officers and other employee termination benefits.
In April 2019, the Company announced a restructuring plan including several actions to reduce existing structural costs. These actions were primarily completed by the fourth quarter 2019 and resulted in approximately $50 million of restructuring expense.
In 2017, the Company initiated actions designed to improve future profitability and competitiveness and started exploring strategic options for the non-core product lines. As a continuation of these actions, the Company recorded restructuring expense of $18 million in the year ended December 31, 2019
The following provides details of restructuring expense incurred by the Company’s reporting segments during the years ended December 31, 2021, 2020 and 2019, related to the plans discussed above:
Air Management
•During the year ended December 31, 2021, the segment recorded $52 million of restructuring costs, of which $23 million primarily related to a voluntary termination program where approximately 140 employees accepted termination packages in 2021, $25 million related to specific actions to reduce structural costs, and $4 million primarily related to severance costs under the legacy Delphi Technologies plan.
•During the year ended December 31, 2020, the segment recorded $79 million of restructuring costs, of which $27 million related to a voluntary termination program where approximately 200 employees accepted termination packages in 2020, $33 million related to severance costs and professional fees for specific actions to reduce structural costs, and $19 million related to employee termination benefits related to the announced closure of a facility in Europe affecting approximately 200 employees.
•During the year ended December 31, 2019, the segment recorded $60 million of restructuring costs, of which $37 million related to a voluntary termination program where approximately 130 employees accepted termination packages in 2019, and $18 million related to actions related to improving future profitability and competitiveness, which includes professional fees, employee termination benefits and relocation costs. The segment also recorded $5 million primarily related to severance costs and professional fees for actions to reduce structural costs.
e-Propulsion & Drivetrain
•During the year ended December 31, 2021, the segment recorded $55 million of restructuring costs, of which $19 million primarily related to severance costs, equipment relocation and professional fees to reduce existing structural costs, and $35 million related to contractual settlements, professional fees and other costs associated with the announced closure of a facility in Europe.
•During the year ended December 31, 2020, the segment recorded $70 million of restructuring costs, of which $55 million related to the announced closure of a facility in Europe affecting approximately 350 employees, primarily for the statutory minimum benefits and incremental one-time termination benefits negotiated with local labor authorities, and $15 million primarily related to severance costs, equipment relocation and professional fees to reduce existing structural costs.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
| | | | | | | | | | | | |
| | Twelve months ended December 31, 2016 |
(In millions) | | Engine | | Drivetrain | | Total |
North America | | $ | 1,299.3 |
| | $ | 1,745.0 |
| | $ | 3,044.3 |
|
Europe | | 2,622.0 |
| | 848.1 |
| | 3,470.1 |
|
Asia | | 1,551.3 |
| | 909.4 |
| | 2,460.7 |
|
Other | | 74.7 |
| | 21.2 |
| | 95.9 |
|
Total | | $ | 5,547.3 |
| | $ | 3,523.7 |
| | $ | 9,071.0 |
|
•During the year ended December 31, 2019, the segment recorded $6 million primarily related to professional fees for actions to reduce structural costs and severance costs.
•During the year ended December 31, 2021, the segment recorded $54 million of restructuring costs, primarily for the statutory minimum benefits and incremental one-time termination benefits negotiated with local labor authorities related to the legacy Delphi Technologies restructuring plan.
•During the year ended December 31, 2020, following the Delphi Technologies acquisition, the segment recorded $8 million of restructuring costs related to the legacy Delphi Technologies restructuring plan.
Corporate
•During the year ended December 31, 2021, $2 million of net restructuring costs were recorded for various corporate restructuring actions.
•During the year ended December 31, 2020, $45 million of restructuring costs were recorded primarily related to contractually required severance and stock-based compensation cash payments associated with Delphi Technologies executive officers and other employee termination benefits.
•During the year ended December 31, 2019, $6 million of restructuring costs were recorded for various corporate restructuring actions.
Estimates of restructuring expense are based on information available at the time such charges are recorded. Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially recorded. Accordingly, the Company may record revisions of previous estimates by adjusting previously established accruals.
The Company continues to evaluate different options across its operations to reduce existing structural costs over the next few years. The Company will recognize restructuring expense associated with any future actions at the time they are approved and become probable or are incurred. Any future actions could result in significant restructuring expense.
NOTE 35 RESEARCH AND DEVELOPMENT COSTS
The Company'sCompany’s net Research & Development ("(“R&D"&D”) expenditures are primarily included in selling,Selling, general and administrative expenses of the Consolidated Statements of Operations. Customer reimbursements are netted against gross R&D expenditures as they are considered a recovery of cost. Customer reimbursements for prototypes are recorded net of prototype costs based on customer contracts, typically either when the prototype is shipped or when it is accepted by the customer. Customer reimbursements for engineering services are recorded when performance obligations are satisfied in accordance with the contract. Financial risks and rewards transfer upon shipment, acceptance of a prototype component by the customer or upon completion of the performance obligation as stated in the respective customer agreement. The Company has various customer arrangements relating to R&D activities that it performs at its various R&D locations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents the Company’s gross and net expenditures on R&D activities:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2021 | | 2020 | | 2019 |
Gross R&D expenditures | $ | 930 | | | $ | 533 | | | $ | 498 | |
Customer reimbursements | (223) | | | (57) | | | (85) | |
Net R&D expenditures | $ | 707 | | | $ | 476 | | | $ | 413 | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
(millions of dollars) | 2018 | | 2017 | | 2016 |
Gross R&D expenditures | $ | 511.7 |
| | $ | 473.1 |
| | $ | 417.8 |
|
Customer reimbursements | (71.6 | ) | | (65.6 | ) | | (74.6 | ) |
Net R&D expenditures | $ | 440.1 |
| | $ | 407.5 |
| | $ | 343.2 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net R&D expenditures as a percentage of net sales were 4.2%4.8%, 4.2%4.7% and 3.8%4.1% for the years ended December 31, 2018, 20172021, 2020 and 2016,2019, respectively. None of the Company's R&D related contracts exceeded 5% ofThe increase in gross and net R&D expenditures in any ofwas primarily due to the years presented.Delphi Technologies acquisition.
NOTE 46 OTHER OPERATING EXPENSE (INCOME), NET
Items included in otherOther operating expense (income), net consist of:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2021 | | 2020 | | 2019 |
Merger, acquisition and divestiture expense | $ | 50 | | | $ | 96 | | | $ | 11 | |
Loss on sales of businesses | 29 | | | — | | | 7 | |
Asset impairments | 14 | | | 17 | | | — | |
Net gain on insurance recovery for property damage | (3) | | | (9) | | | — | |
Intangible asset accelerated amortization (Note 12) | — | | | 38 | | | — | |
Gain on derecognition of subsidiary (Note 21) | — | | | — | | | (177) | |
Unfavorable arbitration loss | — | | | — | | | 14 | |
Other income, net | (9) | | | (4) | | | (2) | |
Other operating expense (income), net | $ | 81 | | | $ | 138 | | | $ | (147) | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
(millions of dollars) | 2018 | | 2017 | | 2016 |
Restructuring expense | $ | 67.1 |
| | $ | 58.5 |
| | $ | 26.9 |
|
Asset impairment and loss on divestiture | 25.6 |
| | 71.0 |
| | 127.1 |
|
Asbestos-related adjustments | 22.8 |
| | — |
| | (48.6 | ) |
Gain on sale of building | (19.4 | ) | | — |
| | — |
|
Merger, acquisition and divestiture expense | 5.8 |
| | 10.0 |
| | 23.7 |
|
Lease termination settlement | — |
| | 5.3 |
| | — |
|
Intangible asset impairment | — |
| | — |
| | 12.6 |
|
Gain on commercial settlement | (4.0 | ) | | — |
| | — |
|
Other income | (4.1 | ) | | (0.3 | ) | | (4.2 | ) |
Other expense, net | $ | 93.8 |
| | $ | 144.5 |
| | $ | 137.5 |
|
Merger, acquisition and divestiture expense: During the years ended December 31, 2018, 20172021, 2020 and 2016,2019, the Company recorded restructuring expense of $67.1$50 million, $58.5$96 million and $26.9$11 million respectively,of merger, acquisition and divestiture expenses. The merger, acquisition and divestiture expense incurred during the year ended December 31, 2021 was primarily related to professional fees associated with the acquisition of AKASOL, professional fees for integration and other support associated with the Company’s acquisition of Delphi Technologies and the Company’s strategic acquisition and disposition targets. The merger, acquisition and divestiture expense in the year ended December 31, 2020 was comprised primarily of professional fees associated with the Company’s acquisition of Delphi Technologies. The merger, acquisition and divestiture expense in the year ended December 31, 2019 was comprised primarily of professional fees related to the Company’s strategic acquisition and disposition activities, including the transfer of BorgWarner Morse TEC LLC (“Morse TEC”), the future acquisition of Delphi Technologies, the 20% equity interest in Romeo Systems, Inc. and the divestiture of the non-core pipes and thermostat product lines.
Loss on sales of businesses: During the year ended December 31, 2021, the Company recorded a pre-tax loss of $29 million, which included a $22 million loss in connection with the sale of the Company’s Water Valley facility and a $7 million loss on the sale of an e-Propulsion & Drivetrain and Engine segment actions designed to improve future profitability and competitiveness.technical center in Europe. Refer to Note 16, "Restructuring,"2 “Acquisitions and Dispositions,” to the Consolidated Financial Statements for more information.
In the third quarter of 2017, the Company started exploring strategic options for the non-core emission product lines. In the fourth quarter of 2017, the Company launched an active program to locate a buyer for the non-core pipe and thermostat product lines and initiated all other actions required to complete the plan to sell the non-core product lines. The Company determined that the assets and liabilities of the pipes and thermostat product lines met the held for sale criteria as of December 31, 2017. As a result, the Company recorded an asset impairment expense of $71.0 million in the fourth quarter of 2017 to adjust the net book value of this business to its fair value less cost to sell. In December 2018, the Company reached an agreement to sell its thermostat product lines for approximately $28 million subject to customary adjustment. Completion ofmillion. All closing conditions were satisfied, and the sale is expected in the first quarter of 2019, subject to satisfaction of customary closing conditions. As a result, the Company recordedwas closed on April 1, 2019. Based on an additional asset impairment expense of $25.6 million in the year ended December 31, 2018 to adjust the net book value of this business to fair value less costs to sell. Refer to Note 20, "Assets and Liabilities Held for Sale," to the Consolidated Financial Statements for more information.
During the year ended December 31, 2018, the Company recorded asbestos-related adjustments resulting in an increase to Other Expense of $22.8 million. This increase was the result of actuarial valuation changes of $22.8 million associated with the Company's estimate of liabilities for asbestos-related claims asserted but not yet resolved and potential claims not yet asserted. During the year ended December 31, 2016, the Company recorded asbestos-related adjustments resulting in a net decrease to Other Expense of $48.6 million. This net decrease was comprised of actuarial valuation changes of $45.5 million associated with the Company's estimate of liabilities for asbestos-related claims asserted but not yet resolved and potential claims not yet asserted and a gain of $6.1 million from cash received from insolvent insurance carriers, offset by related consulting fees. Refer to Note 15, "Contingencies," to the Consolidated Financial Statements for more information.
In October 2016, the Company entered into a definitive agreement to sell the light vehicle aftermarket business associated with Remy. This transaction closedreached in the fourth quarter of 2016 and2019 regarding the Company
finalization of certain
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
recorded apurchase price adjustments related to the sale, the Company recognized an additional loss on divestituresale of $127.1 million in$7 million.
Asset impairments: During the year ended December 31, 2016.2021, the Company recorded a $14 million impairment charge on an indefinite-lived trade name in the e-Propulsion & Drivetrain segment. Refer to Note 19, "Recent Transactions,"12 “Goodwill and Other Intangibles,” to the Consolidated Financial StatementsStatement for more information.
During the fourth quarter of 2018,year ended December 31, 2020, the Company recorded a gainasset impairment charges of $19.4$17 million. The impairment charges consist of $9 million in the Air Management segment and $8 million in the e-Propulsion & Drivetrain segment, related to the salewrite down of property, plant and equipment associated with the announced closures of 2 European facilities.
Net gain on insurance recovery: On April 13, 2020, a building at a manufacturingtornado struck the Company’s facility located in Europe.
Seneca, South Carolina (the “Seneca Plant”) causing damage to the Company’s assets. The Seneca Plant is one of the Company’s largest e-Propulsion & Drivetrain plants. During the years ended December 31, 2018, 20172021 and 2016,2020, the Company recorded $5.8 million, $10.0a net gain of $3 million and $23.7$9 million, respectively, from insurance recovery proceeds, which primarily represents the amount received for replacement cost in excess of merger, acquisitioncarrying value (net of deductible expense of $1 million in 2020). In addition, all clean-up and divestiture expenses. The merger, acquisition and divestiture expense in the year endedrepair costs incurred through December 31, 2018 primarily related to professional fees associated with divestiture activities for2021 have been fully recovered through these insurance proceeds, and the non-core pipe and thermostat product lines. Refer to Note 20, "Assets and Liabilities Held For Sale," to the Consolidated Financial Statements for more information. The merger and acquisition expense ininsurance claim has been fully settled. During the years ended December 31, 20172021 and 2016 primarilyDecember 31, 2020, the Company received $22 million and $145 million, respectively, in cash proceeds from insurance carriers related to the acquisition of Sevcon and Remy, respectively. Refer to Note 19, "Recent Transactions," to the Consolidated Financial Statements for more information.this event.
During the first quarter of 2017, the Company recorded a loss of $5.3 million related to the termination of a long term property lease for a manufacturing facility located in Europe.
During the fourth quarter of 2016, the Company recorded an intangible asset impairment loss of $12.6 millionrelated to Engine segment Etatech’s ECCOS intellectual technology. The ECCOS intellectual technology impairment was due to the discontinuance of interest from potential customers during the fourth quarter of 2016 that significantly lowered the commercial feasibility of the product line.
Unfavorable arbitration loss: During the year ended December 31, 2018,2019, the Company recorded a gain$14 million of approximately $4.0 millionexpense related to the settlementreceipt of a commercial contract for an entity acquired infinal unfavorable arbitration decision associated with the 2015 Remyresolution of a matter related to a previous acquisition.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 7 INCOME TAXES
Earnings before income taxes and the provision for income taxes are presented in the following table.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2021 | | 2020 | | 2019 |
Earnings (loss) before income taxes: | | | | | |
U.S.1 | $ | (423) | | | $ | 437 | | | $ | 310 | |
Non-U.S.1 | 1,212 | | | 527 | | | 955 | |
Total | $ | 789 | | | $ | 964 | | | $ | 1,265 | |
Provision for income taxes: | | | | | |
Current: | | | | | |
Federal | $ | 43 | | | $ | 19 | | | $ | 32 | |
State | 7 | | | 2 | | | 4 | |
Foreign | 276 | | | 252 | | | 245 | |
Total current expense | 326 | | | 273 | | | 281 | |
Deferred: | | | | | |
Federal | (98) | | | 70 | | | 150 | |
State | (13) | | | 11 | | | 23 | |
Foreign | (65) | | | 43 | | | 14 | |
Total deferred (benefit) expense | (176) | | | 124 | | | 187 | |
Total provision for income taxes | $ | 150 | | | $ | 397 | | | $ | 468 | |
__________________________ |
| | | | | | | | | | | |
| Year Ended December 31, |
(millions of dollars) | 2018 | | 2017 | | 2016 |
Earnings before income taxes: | | | | | |
U.S. | $ | 220.0 |
| | $ | 203.0 |
| | $ | 27.5 |
|
Non-U.S. | 975.9 |
| | 860.6 |
| | 915.2 |
|
Total | $ | 1,195.9 |
| | $ | 1,063.6 |
| | $ | 942.7 |
|
Provision for income taxes: | |
| | |
| | |
|
Current: | |
| | |
| | |
|
Federal | $ | 17.1 |
| | $ | 36.4 |
| | $ | 37.4 |
|
State | 5.4 |
| | 4.6 |
| | 6.1 |
|
Foreign | 258.8 |
| | 247.4 |
| | 251.7 |
|
Total current | 281.3 |
| | 288.4 |
| | 295.2 |
|
Deferred: | | | | | |
Federal | (39.6 | ) | | 323.7 |
| | 23.5 |
|
State | (8.5 | ) | | 2.1 |
| | (0.8 | ) |
Foreign | (21.9 | ) | | (33.9 | ) | | (11.9 | ) |
Total deferred | (70.0 | ) | | 291.9 |
| | 10.8 |
|
Total provision for income taxes | $ | 211.3 |
| | $ | 580.3 |
| | $ | 306.0 |
|
1 In 2021, the U.S. loss before income taxes was primarily related to the $362 million unrealized loss related to the Company’s investment in Romeo Power, Inc. In 2020, the Company recognized a $382 million unrealized gain related to its investment in Romeo Power, Inc.
The provision for income taxes resulted in an effective tax rate of 17.7%approximately 19%, 54.6%41% and 32.5%37% for the years ended December 31, 2018, 20172021, 2020 and 2016,2019, respectively. An analysis of the differences between the effective
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
tax rate and the U.S. statutory rate for the years ended December 31, 2018, 2017 and 2016 is presented below.
On December 22, 2017, the Tax Act was enacted into law, which significantly changed existing U.S. tax law and included many provisions applicable to the Company, such as reducing the U.S. federal statutory tax rate, imposing a one-time transition tax on deemed repatriation of deferred foreign income, and adopting a territorial tax system. The Tax Act reduced the U.S. federal statutory tax rate from 35% to 21% effective January 1, 2018. The Tax Act also includes a provision to tax Global Intangible Low-Taxed Income (“GILTI”) of foreign subsidiaries, a special tax deduction for Foreign-Derived Intangible Income (“FDII”), and a Base Erosion Anti-Abuse (“BEAT”) tax measure that may tax certain payments between a U.S. corporation and its subsidiaries. These additional provisions of the Tax Act were effective beginning January 1, 2018.
In accordance with guidance provided by Staff Accounting Bulletin No 118 (SAB 118), as of December 31, 2017, we had not completed our accounting for the tax effects of the Tax Act and had recorded provisional estimates for significant items including the following: (i) the effects on our existing deferred balances, including executive compensation, (ii) the one-time transition tax, and (iii) our indefinite reinvestment assertion. The measurement period begins in the reporting period that includes the Tax Act’s enactment date and ends when the additional information is obtained, prepared, or analyzed to complete the accounting requirements under ASC Topic 740. The measurement period should not extend beyond one year from the enactment date. In light of the treatment of foreign earnings under the Tax Act, we reconsidered our indefinite reinvestment position and concluded we would no longer assert indefinite reinvestment with respect to our foreign unremitted earnings as of December 31, 2017. We recognized income tax expense of $273.5 million for the year ended December 31, 2017 for the significant items we could reasonably estimate associated with the Tax Act. This amount was comprised of (i) a revaluation of our U.S. deferred tax assets and liabilities at December 31, 2017, resulting in a tax charge of $74.7 million, including $11.0 million for executive compensation (ii) a one-time transition tax resulting in a tax charge of $104.7 million and (iii) a tax charge of $94.1 million for additional provisional deferred tax liabilities with respect to the expected future remittance of foreign earnings.
For the year ended December 31, 2018, the Company completed its accounting for the tax effects of the Tax Act. The final SAB 118 adjustments resulted in: (i) an increase in the Company's existing deferred tax asset balances of $12.9 million, including $8.7 million for executive compensation (ii) a tax charge of $7.6 million for the one-time transition tax, and (iii) a decrease in the deferred tax liability associated with our indefinite reinvestment assertion of $7.3 million. The total impact to tax expense from these adjustments was a net tax benefit of $12.6 million. Compared to the year ended December 31, 2017, this additional tax benefit from the final adjustments was a result of further analysis performed by the Company and the issuance of additional regulatory guidance.
We have made an accounting policy election to treat the future tax impacts of the GILTI provisions of the Tax Act as a period cost to the extent applicable.
In January 2019, the U.S. Department of the Treasury and the Internal Revenue Service issued final Section 965 regulations subsequent to the reporting period which provide additional guidance related to the calculation of the one-time transition tax. The tax effect of this subsequent event will be recorded in 2019 is not material.
As discussed above, in light of the treatment of foreign earnings under the Tax Act, we reconsidered our indefinite reinvestment position with respect to our foreign unremitted earnings in 2017 and we are no longer asserting indefinite reinvestment with respect to our foreign unremitted earnings. The Company has recorded a deferred tax liability of $57.4 million with respect to our foreign unremitted earnings at December 31, 2018. With respect to certain book versus tax basis differences not represented by undistributed earnings of approximately $300 million as of December 31, 2018, the Company continues to assert indefinite reinvestment of these basis differences. These basis differences would become taxable upon the sale or
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
liquidation of the foreign subsidiaries. The Company's best estimate of the unrecognized deferred tax liability on these basis differences is approximately $30 million as of December 31, 2018.
The following table provides a reconciliation of tax expense based on the U.S. statutory tax rate to final tax expense.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2021 | | 2020 | | 2019 |
Income taxes at U.S. statutory rate of 21% | $ | 166 | | | $ | 203 | | | $ | 266 | |
Increases (decreases) resulting from: | | | | | |
Valuation allowance adjustments, net | 39 | | | 53 | | | (2) | |
Net tax on remittance of foreign earnings | 43 | | | 93 | | | 22 | |
Foreign rate differentials | 36 | | | 21 | | | 35 | |
| | | | | |
U.S. tax on non-U.S. earnings | 12 | | | 11 | | | 15 | |
| | | | | |
State taxes, net of federal benefit | 5 | | | 12 | | | 3 | |
Derecognition of Morse TEC | — | | | — | | | 137 | |
Tax credits | (5) | | | (12) | | | (17) | |
| | | | | |
Affiliates' earnings | (10) | | | (4) | | | (7) | |
Changes in accounting methods and filing positions | (18) | | | (18) | | | (7) | |
Reserve adjustments, settlements and claims | (17) | | | 45 | | | 46 | |
Impact of tax law and rate change | (20) | | | — | | | — | |
Tax holidays | (76) | | | (36) | | | (26) | |
Research and development super deduction | (27) | | | (9) | | | (5) | |
Other, net | 22 | | | 38 | | | 8 | |
Provision for income taxes, as reported | $ | 150 | | | $ | 397 | | | $ | 468 | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
(millions of dollars) | 2018 | | 2017 | | 2016 |
Income taxes at U.S. statutory rate of 21% (35% for 2016 and 2017) | $ | 251.2 |
| | $ | 372.3 |
| | $ | 330.0 |
|
Increases (decreases) resulting from: | |
| | |
| | |
|
State taxes, net of federal benefit | 5.6 |
| | 2.3 |
| | 1.8 |
|
U.S. tax on non-U.S. earnings | 36.5 |
| | 170.6 |
| | 32.2 |
|
Affiliates' earnings | (10.3 | ) | | (17.9 | ) | | (15.0 | ) |
Foreign rate differentials | 27.5 |
| | (100.2 | ) | | (93.3 | ) |
Tax holidays | (28.0 | ) | | (31.0 | ) | | (25.5 | ) |
Net tax on remittance of foreign earnings | (21.5 | ) | | 80.3 |
| | 21.8 |
|
Tax credits | (26.0 | ) | | (24.2 | ) | | (3.2 | ) |
Reserve adjustments, settlements and claims | 32.5 |
| | 8.0 |
| | 11.6 |
|
Valuation allowance adjustments | (10.6 | ) | | 12.2 |
| | (2.7 | ) |
Non-deductible transaction costs | 2.6 |
| | 10.9 |
| | 8.3 |
|
Changes in accounting methods and filing positions | (29.8 | ) | | (1.9 | ) | | 0.3 |
|
Impact of transactions | (0.1 | ) | | 4.0 |
| | 16.3 |
|
Other foreign taxes | 8.4 |
| | 8.1 |
| | 12.9 |
|
Revaluation of U.S. deferred taxes | (4.2 | ) | | 63.7 |
| | — |
|
Impact of FDII | (15.3 | ) | | — |
| | — |
|
Other | (7.2 | ) | | 23.1 |
| | 10.5 |
|
Provision for income taxes, as reported | $ | 211.3 |
| | $ | 580.3 |
| | $ | 306.0 |
|
In 2021, the Company recognized a $55 million tax benefit related to a reduction in certain unrecognized tax benefits and accrued interest for a matter in which the statute of limitations had lapsed. The changeCompany also recognized a discrete tax benefit of $20 million related to an increase in its deferred tax assets as a result of an increase in the United Kingdom (“UK”) tax rate from 19% to 25%. This rate change was enacted in June 2021 and is effective April 2023. Further, a net discrete tax benefit of $36 million was recognized, primarily related to changes to certain withholding rates applied to unremitted earnings. In the fourth quarter of 2021, the Company received approval for tax holiday status reducing the statutory tax rate for 2018, as comparedtwo of its legal entities. This resulted in a reduction in tax expense of $28 million in 2021.
In 2020, the Company recognized $49 million of income tax expense, which primarily related to 2017, was primarily due to itemsfinal U.S. Department of Treasury regulations issued in the third quarter of 2020, which impacted the net tax on remittance of foreign earnings, and certain tax law changes in India effective in the first quarter of 2020. In addition, the Company recognized incremental valuation allowances of $53 million in 2020.
In 2019, the Company recognized an increase in income tax expense of $173 million related to the Tax Act. The Tax Act includes a reduction inderecognition of the US income tax rate from 35% to 21%, as of January 1, 2018. Tax expense includes a provision for GILTI of $28.9 million, net of foreign tax credits and a tax benefit for FDII of $15.3 million that was not applicable in 2017. The one-time transition tax that resulted in a tax charge of $104.7 million in 2017 was not applicable in 2018. There was also a tax charge of $74.7 million related to a revaluation of U.S.Morse TEC asbestos-related deferred tax assets and liabilities, including $11.0$22 million for executive compensationdue to the U.S. Department of the Treasury’s issuance of the final regulations in 2017 and the initial tax chargefirst quarter of $94.1 million2019 related to the Company’s change in indefinite reinvestment assertion with respect tocalculation of the expected future remittance of undistributed foreign earnings in 2017.
one-time transition tax. The Company's provision for income taxes for the year ended December 31, 2018, includes2019 effective tax rate also included reductions of income tax expense of $15.0$19 million related to restructuring expense, $0.3$11 million for a global realignment plan, $8 million related to merger, acquisitionother one-time adjustments and divestiture expense, $5.5$6 million related to the asbestos-related adjustments, and $7.7 million related to asset impairment expense, offset by increases to tax expense of $0.9 million and $5.8 million related to a gain on commercialpension settlement and a gain on the sale of a building, respectively, discussed in Note 4, "Other Expense, Net," to the Consolidated Financial Statements. The provision for income taxes also includes reductions of income tax expense of $12.6 million related to final adjustments made to measurement period provisional estimates associated with the Tax Act, $22.0 million related to a decrease in our deferred tax liability due to a tax benefit for certain foreign tax credits now available due to actions the Company took during the year, $9.1 million related to valuation allowance releases, $2.8 million related to tax reserve adjustments, and $29.8 million related to changes in accounting methods and tax filing positions for prior years primarily related to the Tax Act.loss.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company's provision for income taxes for the year ended December 31, 2017, includes reductions of income tax expense of $10.1 million, $1.0 million, $18.2 million and $3.8 million related to the restructuring expense, merger and acquisition expense, asset impairment expense and other one-time adjustments, respectively, discussed in Note 4, "Other Expense, Net," to the Consolidated Financial Statements.
The Company's provision for income taxes for the year ended December 31, 2016, includes reductions of income tax expense of $22.7 million, $8.6 million, $6.0 million and $4.4 million associated with a loss on divestiture, other one-time adjustments, restructuring expense and intangible asset impairment loss, respectively, discussed in Note 4, "Other Expense," to the Consolidated Financial Statements. The provision also includes additional tax expenses of $17.5 million associated with asbestos-related adjustments and $2.2 million associated with a gain on the release of certain Remy light vehicle aftermarket liabilities due to the expiration of a customer contract.
A roll forward of the Company'sCompany’s total gross unrecognized tax benefits for the years ended December 31, 2018 and 2017, respectively, is presented below.below:
| | | | | | | | | | | | | | | | | |
(in millions) | 2021 | | 2020 | | 2019 |
Balance, January 1 | $ | 231 | | | $ | 146 | | | $ | 120 | |
Additions based on tax positions related to current year | 23 | | | 14 | | | 7 | |
Acquisitions | 8 | | | 54 | | | — | |
Additions for tax positions of prior years | — | | | 9 | | | 26 | |
| | | | | |
Reductions for lapse in statute of limitations | (36) | | | (5) | | | (6) | |
Translation adjustment | (5) | | | 13 | | | (1) | |
Balance, December 31 | $ | 221 | | | $ | 231 | | | $ | 146 | |
|
| | | | | | | | | | | |
(millions of dollars) | 2018 | | 2017 | | 2016 |
Balance, January 1 | $ | 92.0 |
| | $ | 91.1 |
| | $ | 127.3 |
|
Additions based on tax positions related to current year | 24.1 |
| | 16.8 |
| | 16.1 |
|
Additions/(reductions) for tax positions of prior years | 17.7 |
| | (2.4 | ) | | 1.6 |
|
Reductions for closure of tax audits and settlements | (7.7 | ) | | (19.9 | ) | | (45.7 | ) |
Reductions for lapse in statute of limitations | — |
| | (0.8 | ) | | (5.0 | ) |
Translation adjustment | (5.7 | ) | | 7.2 |
| | (3.2 | ) |
Balance, December 31 | $ | 120.4 |
| | $ | 92.0 |
| | $ | 91.1 |
|
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The amountFor the years ended December 31, 2021, 2020 and 2019, the Company recognized $16 million, $21 million and $15 million, respectively. In addition, the Company recorded a reduction in income tax expense of $34 million for 2018 and 2017 is $10.4 million and $6.4 million, respectively.previously recorded interest. The Company has an accrual of approximately $31.5$51 million and $22.6$69 million for the payment of interest and penalties at December 31, 20182021 and 2017,2020, respectively. As of December 31, 2018,2021, approximately $111.6$242 million represents the amount that, if recognized, wouldaffect the Company's effective income tax rate in future periods. This amount includes a decrease in U.S. federal income taxes whichthat would occur upon recognition of the state tax benefits and U.S. foreign tax credits included therein. The Company estimates that paymentsit is reasonably possible there could be a decrease of approximately $9.7$21 million will be madein unrecognized tax benefits and interest in the next 12 months for assessed tax liabilitiesrelated to the closure of an audit and the lapse in statute of limitations subsequent to the reporting period from certain taxing jurisdictions and has reclassified this amount to current in the balance sheet as shown in Note 6, "Balance Sheet Information," to the Consolidated Financial Statements.jurisdictions.
The Company and/or one of its subsidiaries files income tax returns in the U.S. federal, various state jurisdictions and various foreign jurisdictions. In certain tax jurisdictions, the Company may have more than one taxpayer. The Company is no longer subject to income tax examinations by tax authorities in its major tax jurisdictions as follows:
|
| | | | | | | | | | | | | | | | | | | |
Tax jurisdiction | | Years no longer subject to audit | | Tax jurisdiction | | Years no longer subject to audit |
U.S. Federal | | 20142013 and prior | | Japan | | 2018 and prior |
Barbados | | 2016 and prior | | Luxembourg | | 2016 and prior |
China | | 2015 and prior |
China | | 2012 and priorMexico | | Mexico | | 2012 and prior |
France | | 2015 and prior |
France | | Poland | | 20132015 and prior | | Poland | | 2016 and prior |
Germany | | 2011 and prior | | South Korea | | 20122016 and prior |
Hungary | | 20132015 and prior | | United Kingdom | | 2015 and prior |
In the U.S., certain tax attributes created in years prior to 20152017 were subsequently utilized. Even though the U.S. federal statute of limitations hasmay have expired for years prior to 2015,2017, the years in which these tax attributes were created could still be subject to examination, limited to only the examination of the creation of the tax attribute.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The components of deferred tax assets and liabilities as of December 31, 2018 and 2017 consist of the following:
| | | | | | | | | | | |
| December 31, |
(in millions) | 2021 | | 2020 |
Deferred tax assets: | | | |
Net operating loss and capital loss carryforwards | $ | 634 | | | $ | 656 | |
Interest limitation carryforwards | 123 | | | 111 | |
Research and development capitalization | 91 | | | 57 | |
Employee compensation | 44 | | | 39 | |
Pension and other postretirement benefits | 41 | | | 93 | |
Other comprehensive loss | 39 | | | 106 | |
Unrecognized tax benefits | 32 | | | 47 | |
Warranty | 31 | | | 27 | |
State tax credits | 28 | | | 28 | |
Foreign tax credits | 8 | | | 16 | |
Other | 167 | | | 161 | |
Total deferred tax assets | $ | 1,238 | | | $ | 1,341 | |
Valuation allowance | (554) | | | (529) | |
Net deferred tax asset | $ | 684 | | | $ | 812 | |
Deferred tax liabilities: | | | |
Goodwill and intangible assets | (274) | | | (279) | |
Unremitted foreign earnings | (146) | | | (156) | |
Fixed assets | (123) | | | (176) | |
Unrealized gain on equity securities | (5) | | | (91) | |
Other | (88) | | | (95) | |
Total deferred tax liabilities | $ | (636) | | | $ | (797) | |
Net deferred taxes | $ | 48 | | | $ | 15 | |
|
| | | | | | | |
| December 31, |
(millions of dollars) | 2018 | | 2017 |
Deferred tax assets: | |
| | |
|
Employee compensation | 23.9 |
| | 26.4 |
|
Other comprehensive loss | 63.9 |
| | 54.5 |
|
Research and development capitalization | 91.8 |
| | 76.4 |
|
Net operating loss and capital loss carryforwards | 83.8 |
| | 74.6 |
|
Pension and other postretirement benefits | 18.8 |
| | 19.1 |
|
Asbestos-related | 172.7 |
| | 167.1 |
|
Other | 155.2 |
| | 146.6 |
|
Total deferred tax assets | $ | 610.1 |
| | $ | 564.7 |
|
Valuation allowance | (86.3 | ) | | (95.9 | ) |
Net deferred tax asset | $ | 523.8 |
| | $ | 468.8 |
|
Deferred tax liabilities: | |
| | |
|
Goodwill and intangible assets | (183.3 | ) | | (193.9 | ) |
Fixed assets | (117.5 | ) | | (104.6 | ) |
Unremitted foreign earnings | (57.4 | ) | | (98.5 | ) |
Other | (19.2 | ) | | (12.0 | ) |
Total deferred tax liabilities | $ | (377.4 | ) | | $ | (409.0 | ) |
Net deferred taxes | $ | 146.4 |
| | $ | 59.8 |
|
At December 31, 2018,2021, certain non-U.S. subsidiaries have net operating loss carryforwards totaling $222.7 million$2.4 billion available to offset future taxable income. Of the total $222.7 million, $155.1 million$2.4 billion, $1.5 billion expire at various dates from 20192022 through 20382041, and the remaining $67.6$870 million have no expiration date. The Company has a valuation allowance recorded of $474 million against $143.3 million of the $222.7 million$2.4 billion of non-U.S. net operating loss carryforwards. Certain U.S. subsidiaries have state net operating loss carryforwards totaling $824.9$619 million, of which are partially offset bythe Company has a valuation allowance of $756.8 million.$16 million recorded against the carryforwards. The state net operating loss carryforwards expire at various dates from 20192022 to 2038.2041. Certain U.S. subsidiaries also have state tax credit carryforwards of $19.8$28 million, which are partially offset by a valuation allowance of $17.9$28 million. Certain non-U.S. subsidiaries located in China had tax exemptions or tax holidays, which reduced local tax expense approximately $28.0$76 million and $31.0$36 million in 20182021 and 2017,2020, respectively. The tax holidays for these subsidiaries are issued in three yearthree-year terms with expirations for certain subsidiaries ranging from 20182021 to 2020. 2023.
The Company reviews the likelihood that the benefit of its deferred tax assets will be realized and, therefore, the need for valuation allowances on a quarterly basis. The Company assesses existing deferred tax assets, net operating loss carryforwards, and tax credit carryforwards by jurisdiction and expectations of its ability to utilize these tax attributes through a review of past, current, and estimated future taxable income and tax planning strategies. If, based upon the weight of available evidence, it is more likely than not the deferred tax assets will not be realized, a valuation allowance is recorded. Due to recent restructurings, the Company concluded that the weight of the negative evidence outweighs the positive evidence in certain foreign jurisdictions. As a result, the process of renewing the tax holidays for certain subsidiaries that expired as of December 31, 2018.
Company believes it is more likely than
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
NOTE 6 | BALANCE SHEET INFORMATION |
not that the net deferred tax assets in certain foreign jurisdictions that include entities in Luxembourg, Sweden, Hungary, France, Ireland and the U.K. will not be realized in the future.
Detailed balance sheet data
As of December 31, 2021, the Company recorded deferred tax liabilities of $146 million with respect to foreign unremitted earnings. The Company did not provide deferred tax liabilities with respect to certain book versus tax basis differences not represented by undistributed earnings of approximately $1.1 billion as of December 31, 2021, because the Company continues to assert indefinite reinvestment of these basis differences. These basis differences would become taxable upon the sale or liquidation of the foreign subsidiaries. The Company’s best estimate of the unrecognized deferred tax liability on these basis differences is approximately $70 million as follows:of December 31, 2021.
NOTE 8 RECEIVABLES, NET
The table below provides details of receivables as of December 31, 2021 and 2020:
| | | | | | | | | | | |
| December 31, |
(in millions) | 2021 | | 2020 |
Receivables, net: | | | |
Customers | $ | 2,522 | | | $ | 2,636 | |
Indirect taxes | 240 | | | 177 | |
Other | 149 | | | 117 | |
Gross receivables | 2,911 | | | 2,930 | |
Allowance for credit losses | (13) | | | (11) | |
Total receivables, net | $ | 2,898 | | | $ | 2,919 | |
The table below summarizes the activity in the allowance for credit losses for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2021 | | 2020 | | 2019 |
Beginning balance, January 1 | $ | (11) | | | $ | (6) | | | $ | (7) | |
Provision | (3) | | | (11) | | | (1) | |
Write-offs | — | | | 7 | | | 2 | |
| | | | | |
Translation adjustment and other | 1 | | | (1) | | | — | |
Ending balance, December 31 | $ | (13) | | | $ | (11) | | | $ | (6) | |
Factoring
The Company assumed arrangements entered into by Delphi Technologies with various financial institutions to sell eligible trade receivables from certain Aftermarket customers in North America and Europe. These arrangements can be terminated at any time subject to prior written notice. The receivables under these arrangements are sold without recourse to the Company and are therefore accounted for as true sales. During the year ended December 31, 2021 and fourth quarter ended December 31, 2020, $156 million and $41 million of receivables were sold under these arrangements, and expenses of $3 million and $1 million, respectively, were recognized within interest expense.
|
| | | | | | | |
| December 31, |
(millions of dollars) | 2018 | | 2017 |
Receivables, net: | |
| | |
|
Customers | $ | 1,727.7 |
| | $ | 1,735.7 |
|
Indirect taxes | 114.1 |
| | 152.1 |
|
Other | 152.2 |
| | 136.8 |
|
Gross receivables | 1,994.0 |
| | 2,024.6 |
|
Bad debt allowance (a) | (6.6 | ) | | (5.7 | ) |
Total receivables, net | $ | 1,987.4 |
| | $ | 2,018.9 |
|
Inventories, net: | |
| | |
|
Raw material and supplies | $ | 485.0 |
| | $ | 469.7 |
|
Work in progress | 113.6 |
| | 126.7 |
|
Finished goods | 198.9 |
| | 183.0 |
|
FIFO inventories | 797.5 |
| | 779.4 |
|
LIFO reserve | (16.7 | ) | | (13.1 | ) |
Total inventories, net | $ | 780.8 |
| | $ | 766.3 |
|
Prepayments and other current assets: |
|
| |
|
|
Prepaid tooling | $ | 82.9 |
| | $ | 81.9 |
|
Prepaid taxes | 84.4 |
| | 5.3 |
|
Other | 82.7 |
| | 58.2 |
|
Total prepayments and other current assets | $ | 250.0 |
| | $ | 145.4 |
|
Property, plant and equipment, net: | |
| | |
|
Land and land use rights | $ | 107.9 |
| | $ | 115.7 |
|
Buildings | 762.6 |
| | 783.5 |
|
Machinery and equipment | 2,851.2 |
| | 2,734.4 |
|
Capital leases | 2.6 |
| | 1.5 |
|
Construction in progress | 425.8 |
| | 410.5 |
|
Property, plant and equipment, gross | 4,150.1 |
| | 4,045.6 |
|
Accumulated depreciation | (1,473.5 | ) | | (1,391.7 | ) |
Property, plant & equipment, net, excluding tooling | 2,676.6 |
| | 2,653.9 |
|
Tooling, net of amortization | 227.2 |
| | 209.9 |
|
Property, plant & equipment, net | $ | 2,903.8 |
| | $ | 2,863.8 |
|
Investments and other long-term receivables: | |
| | |
|
Investment in equity affiliates | $ | 243.5 |
| | $ | 239.6 |
|
Other long-term asbestos-related insurance receivables | 303.3 |
| | 258.7 |
|
Other long-term receivables | 44.9 |
| | 49.1 |
|
Total investments and other long-term receivables | $ | 591.7 |
| | $ | 547.4 |
|
Other non-current assets: | |
| | |
|
Deferred income taxes | $ | 197.7 |
| | $ | 121.2 |
|
Deferred asbestos-related insurance asset | 83.1 |
| | 127.7 |
|
Other | 221.5 |
| | 209.8 |
|
Total other non-current assets | $ | 502.3 |
| | $ | 458.7 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 9 INVENTORIES, NET
A summary of Inventories, net is presented below: | | | | | | | | | | | |
| December 31, |
(in millions) | 2021 | | 2020 |
Raw material and supplies | $ | 1,057 | | | $ | 827 | |
Work-in-progress | 175 | | | 150 | |
Finished goods | 327 | | | 324 | |
FIFO inventories | 1,559 | | | 1,301 | |
LIFO reserve | (25) | | | (15) | |
Inventories, net | $ | 1,534 | | | $ | 1,286 | |
NOTE 10 OTHER CURRENT AND NON-CURRENT ASSETS
|
| | | | | | | |
| December 31, |
(millions of dollars) | 2018 | | 2017 |
Accounts payable and accrued expenses: | |
| | |
|
Trade payables | $ | 1,485.4 |
| | $ | 1,545.6 |
|
Payroll and employee related | 232.6 |
| | 239.7 |
|
Indirect taxes | 72.9 |
| | 111.0 |
|
Product warranties | 56.2 |
| | 69.0 |
|
Customer related | 49.2 |
| | 75.7 |
|
Asbestos-related liability | 50.0 |
| | 52.5 |
|
Severance | 25.0 |
| | 5.8 |
|
Interest | 19.1 |
| | 22.9 |
|
Dividends payable to noncontrolling shareholders | 17.2 |
| | 17.7 |
|
Retirement related | 15.9 |
| | 17.2 |
|
Insurance | 11.7 |
| | 10.1 |
|
Derivatives | 1.8 |
| | 5.0 |
|
Other | 107.3 |
| | 98.1 |
|
Total accounts payable and accrued expenses | $ | 2,144.3 |
| | $ | 2,270.3 |
|
Other non-current liabilities: | |
| | |
|
Deferred income taxes | $ | 51.4 |
| | $ | 61.4 |
|
Product warranties | 47.0 |
| | 42.5 |
|
Other | 258.9 |
| | 251.6 |
|
Total other non-current liabilities | $ | 357.3 |
| | $ | 355.5 |
|
|
| | | | | | | | | | | |
(a) Bad debt allowance: | 2018 | | 2017 | | 2016 |
Beginning balance, January 1 | $ | (5.7 | ) | | $ | (2.9 | ) | | $ | (1.9 | ) |
Provision | (5.3 | ) | | (2.7 | ) | | (3.2 | ) |
Write-offs | 4.2 |
| | 0.1 |
| | 0.2 |
|
Business divestiture | — |
| | — |
| | 2.0 |
|
Translation adjustment and other | 0.2 |
| | (0.2 | ) | | — |
|
Ending balance, December 31 | $ | (6.6 | ) | | $ | (5.7 | ) | | $ | (2.9 | ) |
As of December 31, 2018 and December 31, 2017, accounts payable of $103.7 million and $106.5 million, respectively, wereAdditional detail related to property,assets is presented below:
| | | | | | | | | | | |
| December 31, |
(in millions) | 2021 | | 2020 |
Prepayments and other current assets: | | | |
Prepaid tooling | $ | 81 | | | $ | 84 | |
Prepaid taxes | 64 | | | 64 | |
Customer incentive payments (Note 3) | 36 | | | 43 | |
Prepaid engineering | 27 | | | 33 | |
Contract assets (Note 3) | 17 | | | 16 | |
Other | 96 | | | 72 | |
Total prepayments and other current assets | $ | 321 | | | $ | 312 | |
| | | |
Investments and long-term receivables: | | | |
Investment in equity affiliates | $ | 298 | | | $ | 297 | |
Equity securities | 130 | | | 472 | |
Long-term receivables | 102 | | | 51 | |
Total investments and long-term receivables | $ | 530 | | | $ | 820 | |
| | | |
Other non-current assets: | | | |
Deferred income taxes (Note 7) | $ | 254 | | | $ | 291 | |
Operating leases (Note 22) | 185 | | | 211 | |
Customer incentive payments (Note 3) | 137 | | | 166 | |
Other | 107 | | | 60 | |
Total other non-current assets | $ | 683 | | | $ | 728 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 11 PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, purchases.net is stated at cost less accumulated depreciation and amortization, and consisted of:
| | | | | | | | | | | |
| December 31, |
(in millions) | 2021 | | 2020 |
Land, land use rights and buildings | $ | 1,358 | | | $ | 1,375 | |
Machinery and equipment | 4,462 | | | 4,333 | |
Finance lease assets | 13 | | | 13 | |
Construction in progress | 471 | | | 432 | |
Total property, plant and equipment, gross | 6,304 | | | 6,153 | |
Less: accumulated depreciation | 2,222 | | | 1,925 | |
Property, plant and equipment, net, excluding tooling | 4,082 | | | 4,228 | |
Tooling, net of amortization | 313 | | | 363 | |
Property, plant and equipment, net | $ | 4,395 | | | $ | 4,591 | |
Interest costs capitalized for the years ended December 31, 2018, 20172021, 2020 and 20162019 were $22.3$12 million, $19.7$8 million and $14.1$16 million, respectively.
NSK-Warner KK ("NSK-Warner")
The Company has two equity method investments, the largest is a 50% interest in NSK-Warner, a joint venture based in Japan that manufactures automatic transmission components. The Company's share of the earnings reported by NSK-Warner is accounted for using the equity method of accounting. NSK-Warner is the joint venture partner with a 40% interest in the Drivetrain Segment's South Korean subsidiary, BorgWarner Transmission Systems Korea Ltd. Dividends from NSK-Warner were $40.5 million, $20.2 million and $34.3 million in calendar years ended December 31, 2018, 2017 and 2016, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NSK-Warner has a fiscal year-end of March 31. The Company's equity in the earnings of NSK-Warner consists of the 12 months ended November 30. Following is summarized financial data for NSK-Warner, translated using the ending or periodic rates, as of and for the years ended November 30, 2018, 2017 and 2016 (unaudited):
|
| | | | | | | | | | | |
| | | November 30, |
(millions of dollars) | | | 2018 | | 2017 |
Balance sheets: | | | |
| | |
|
Cash and securities | | | $ | 116.6 |
| | $ | 104.6 |
|
Current assets, including cash and securities | | | 316.9 |
| | 289.2 |
|
Non-current assets | | | 283.3 |
| | 231.9 |
|
Current liabilities | | | 215.3 |
| | 154.9 |
|
Non-current liabilities | | | 88.9 |
| | 68.1 |
|
Total equity | | | 296.0 |
| | 298.1 |
|
| | | | | |
| Year Ended November 30, |
(millions of dollars) | 2018 | | 2017 | | 2016 |
Statements of operations: | |
| | |
| | |
|
Net sales | $ | 731.8 |
| | $ | 669.6 |
| | $ | 601.8 |
|
Gross profit | 152.3 |
| | 149.2 |
| | 134.1 |
|
Net earnings | 86.4 |
| | 85.2 |
| | 71.7 |
|
Purchases by the Company from NSK-Warner were $9.7 million, $12.3 million and $23.9 million for the years ended December 31, 2018, 2017 and 2016, respectively.
| |
NOTE 7 | NOTE 12 GOODWILL AND OTHER INTANGIBLES |
During the fourth quarter of each year, the Company qualitatively assesses its goodwill assigned to each of its reporting units. This qualitative assessment evaluates various events and circumstances, such as macro economic conditions, industry and market conditions, cost factors, relevant events and financial trends, that may impact a reporting unit's fair value. Using this qualitative assessment, the Company determines whether it is more-likely-than-not the reporting unit's fair value exceeds its carrying value. If it is determined that it is not more-likely-than-not the reporting unit's fair value exceeds the carrying value, or upon consideration of other factors, including recent acquisition, restructuring or divestiture activity, the Company performs a quantitative, "step one," goodwill impairment analysis. In addition, the Company may test goodwill in between annual test dates if an event occurs or circumstances change that could more-likely-than-not reduce the fair value of a reporting unit below its carrying value.
During the fourth quarter of 2018,2021, the Company performed an analysis on each reporting unit. ForGiven the reporting unit with restructuring activities,macroeconomic environment, the Company performed a quantitative "step one," goodwill impairment analysis, whichanalyses for the majority of reporting units to refresh their respective fair values. This requires the Company to make significant assumptions and estimates about the extent and timing of future cash flows, discount rates and growth rates. The basis of this goodwill impairment analysis is the Company'sCompany’s annual budget and long-range plan (“LRP”). The annual budget and LRP includes a five-year projection of future cash flows based on actual new products and customer commitments and assumes the last year of the LRP data is a fair indication of the future performance.commitments. Because the LRP isprojections are estimated over a significant future period of time, those estimates and assumptions are subject to a high degree of uncertainty. Further, the market valuation models and other financial ratios used by the Company require certain assumptions and estimates regarding the applicability of those models to the Company'sCompany’s facts and circumstances.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company believes the assumptions and estimates used to determine the estimated fair value are reasonable. Different assumptions could materially affect the estimated fair value. The primary assumptions affecting the Company's December 31, 2018Company’s 2021 goodwill quantitative "step one," impairment review are as follows:
•Discount rate: rates: the Company used a 10.9%range of 12.4% to 13.6% weighted average cost of capital (“WACC”) as the discount raterates for future cash flows. The WACC is intended to represent a rate of return that would be expected by a market participant.
•Operating income margin: the Company used historical and expected operating income margins, which may vary based on the projections of the reporting unit being evaluated.
•Revenue growth rate:the Company used a global automotive market industry growth rate forecast adjusted to estimate its own market participation for product lines.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In addition to the above primary assumptions, the Company notes the following risks to volume and operating income assumptions that could have an impact on the discounted cash flow models:
•The automotive industry is cyclical, and the Company'sCompany’s results of operations would be adversely affected by industry downturns.
•The automotive industry is evolving, and if the Company does not respond appropriately, its results of operations would be adversely affected.
•The Company is dependent on market segments that use ourits key products and would be affected by decreasing demand in those segments.
•The Company is subject to risks related to international operations.
Based on the assumptions outlined above, the impairment testing conducted in the fourth quarter of 20182021 indicated the Company'sCompany’s goodwill assigned to the respective reporting unit with restructuring activity that was quantitatively assessedunits was not impaired and contained a fair value substantially higher than the reporting unit's carrying value. Additionally, for the reporting unit quantitatively assessed, sensitivity analyses were completed indicating that a one percent increaseimpaired. Future changes in the judgments, assumptions and estimates from those used in acquisition-related valuations and goodwill impairment testing, including discount rate, a one percent decreaserates or future operating results and related cash flow projections, could result in significantly different estimates of the fair values in the operating margin, or a one percent decrease infuture. Due to the revenue growth rate assumptions would not result inCompany’s recent acquisitions, there is less headroom (the difference between the carrying value exceedingand the fair value.value) associated with several of the Company’s reporting units. An increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated fair values, which may result in impairment charges that could materially affect the Company’s financial statements in any given year.
TheA summary of the changes in the carrying amount of goodwill foris as follows: | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 |
(in millions) | Air Management | | e-Propulsion & Drivetrain | | | | Aftermarket | | Total |
Gross goodwill balance, January 1 | $ | 1,517 | | | $ | 1,313 | | | | | $ | 299 | | | $ | 3,129 | |
Accumulated impairment losses, January 1 | (502) | | | — | | | | | — | | | (502) | |
Net goodwill balance, January 1 | $ | 1,015 | | | $ | 1,313 | | | | | $ | 299 | | | $ | 2,627 | |
Goodwill during the year: | | | | | | | | | |
Acquisitions1 (Note 2) | 707 | | | — | | | | | — | | | 707 | |
Measurement period adjustments (Note 2) | (4) | | | 29 | | | | | 16 | | | 41 | |
| | | | | | | | | |
Disposition2 (Note 2) | — | | | (12) | | | | | — | | | (12) | |
| | | | | | | | | |
Other, primarily translation adjustment | (51) | | | (29) | | | | | (4) | | | (84) | |
Net goodwill balance, December 31 | $ | 1,667 | | | $ | 1,301 | | | | | $ | 311 | | | $ | 3,279 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 |
(in millions) | Air Management | | e-Propulsion & Drivetrain | | | | Aftermarket | | Total |
Gross goodwill balance, January 1 | $ | 1,337 | | | $ | 1,007 | | | | | $ | — | | | $ | 2,344 | |
Accumulated impairment losses, January 1 | (502) | | | — | | | | | — | | | (502) | |
Net goodwill balance, January 1 | $ | 835 | | | $ | 1,007 | | | | | $ | — | | | $ | 1,842 | |
Goodwill during the year: | | | | | | | | | |
Acquisitions1 (Note 2) | 151 | | | 272 | | | | | 287 | | | 710 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Other, primarily translation adjustment | 29 | | | 34 | | | | | 12 | | | 75 | |
Net goodwill balance, December 31 | $ | 1,015 | | | $ | 1,313 | | | | | $ | 299 | | | $ | 2,627 | |
_____________________________
1 Acquisitions relate to the years ended December 31, 2018Company’s 2021 purchase of AKASOL and 2017 are as follows:2020 purchase of Delphi Technologies.
2 Disposition relates to the Company’s 2021 sale of Water Valley.
95
|
| | | | | | | | | | | | | | | |
| 2018 | | 2017 |
(millions of dollars) | Engine | | Drivetrain | | Engine | | Drivetrain |
Gross goodwill balance, January 1 | $ | 1,359.6 |
| | $ | 1,024.2 |
| | $ | 1,324.0 |
| | $ | 880.2 |
|
Accumulated impairment losses, January 1 | (501.8 | ) | | (0.2 | ) | | (501.8 | ) | | (0.2 | ) |
Net goodwill balance, January 1 | $ | 857.8 |
| | $ | 1,024.0 |
| | $ | 822.2 |
| | $ | 880.0 |
|
Goodwill during the year: | |
| | |
| | |
| | |
|
Acquisitions* | — |
| | 1.7 |
| | — |
| | 125.8 |
|
Held for sale | — |
| | — |
| | (7.3 | ) | | — |
|
Translation adjustment and other | (16.5 | ) | | (13.6 | ) | | 42.9 |
| | 18.2 |
|
Ending balance, December 31 | $ | 841.3 |
| | $ | 1,012.1 |
| | $ | 857.8 |
| | $ | 1,024.0 |
|
________________
| |
* | Acquisitions relate to the Company's 2017 purchase of Sevcon. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company’s other intangible assets, primarily from acquisitions, consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2021 | | December 31, 2020 |
(in millions) | Estimated useful lives (years) | | Gross carrying amount | | Accumulated amortization | | Net carrying amount | | Gross carrying amount | | Accumulated amortization | | Net carrying amount |
Amortized intangible assets: | | | | | | | | | | | | | |
Patented and unpatented technology | 5 - 15 | | $ | 443 | | | $ | 105 | | | $ | 338 | | | $ | 383 | | | $ | 77 | | | $ | 306 | |
Customer relationships | 7 - 15 | | 877 | | | 310 | | | 567 | | | 893 | | | 272 | | | 621 | |
Miscellaneous | 2 - 13 | | 14 | | | 7 | | | 7 | | | 10 | | | 7 | | | 3 | |
Total amortized intangible assets | | | 1,334 | | | 422 | | | 912 | | | 1,286 | | | 356 | | | 930 | |
Unamortized trade names | | | 179 | | | — | | | 179 | | | 166 | | | — | | | 166 | |
Total other intangible assets | | | $ | 1,513 | | | $ | 422 | | | $ | 1,091 | | | $ | 1,452 | | | $ | 356 | | | $ | 1,096 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 | | December 31, 2017 |
(millions of dollars) | Gross carrying amount | | Accumulated amortization | | Net carrying amount | | Gross carrying amount | | Accumulated amortization | | Net carrying amount |
Amortized intangible assets: | |
| | |
| | |
| | |
| | |
| | |
|
Patented and unpatented technology | $ | 151.9 |
| | $ | 60.7 |
| | $ | 91.2 |
| | $ | 157.7 |
| | $ | 52.9 |
| | $ | 104.8 |
|
Customer relationships | 489.7 |
| | 201.2 |
| | 288.5 |
| | 507.6 |
| | 181.0 |
| | 326.6 |
|
Miscellaneous | 8.3 |
| | 3.9 |
| | 4.4 |
| | 8.7 |
| | 3.2 |
| | 5.5 |
|
Total amortized intangible assets | 649.9 |
| | 265.8 |
| | 384.1 |
| | 674.0 |
| | 237.1 |
| | 436.9 |
|
Unamortized trade names | 55.4 |
| | — |
| | 55.4 |
| | 55.8 |
| | — |
| | 55.8 |
|
Total other intangible assets | $ | 705.3 |
| | $ | 265.8 |
| | $ | 439.5 |
| | $ | 729.8 |
| | $ | 237.1 |
| | $ | 492.7 |
|
Amortization of other intangible assets was $40.1$88 million, $40.0$89 million and $40.4$39 million for the years ended December 31, 2018, 20172021, 2020 and 2016,2019, respectively. The estimated useful lives ofAmortization for the Company's amortized intangible assets range from threeyear ended December 31, 2020 includes $38 million related to 20 years.accelerated amortization for certain intangibles, discussed further below. The Company utilizes the straight linestraight-line method of amortization recognized over the estimated useful lives of the assets. The estimated future annual amortization expense, primarily for acquired intangible assets, is as follows: $38.8 million in 2019, $38.5 million in 2020, $38.0 million in 2021, $36.8$94 million in 2022, and $31.0$87 million in 2023.2023, $86 million in 2024, $85 million in 2025, $77 million in 2026 and $483 million thereafter.
A roll forward of the gross carrying amounts and related accumulated amortization of the Company'sCompany’s other intangible assets is presented below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Gross carrying amounts | | Accumulated amortization |
(in millions) | 2021 | | 2020 | | 2021 | | 2020 |
Beginning balance, January 1 | $ | 1,452 | | | $ | 700 | | | $ | 356 | | | $ | 298 | |
Acquisitions1 (Note 2) | 130 | | | 760 | | | — | | | — | |
Impairment/Abandonment2 | (14) | | | (56) | | | — | | | (56) | |
Amortization2 | — | | | — | | | 88 | | | 89 | |
Translation adjustment | (55) | | | 48 | | | (22) | | | 25 | |
Ending balance, December 31 | $ | 1,513 | | | $ | 1,452 | | | $ | 422 | | | $ | 356 | |
|
| | | | | | | |
(millions of dollars) | 2018 | | 2017 |
Beginning balance, January 1 | $ | 729.8 |
| | $ | 649.6 |
|
Acquisitions* | — |
| | 72.6 |
|
Held for sale | — |
| | (32.7 | ) |
Translation adjustment | (24.5 | ) | | 40.3 |
|
Ending balance, December 31 | $ | 705.3 |
| | $ | 729.8 |
|
_____________________________________________
| |
* | Acquisitions primarily relate to the Company's 2017 purchase of Sevcon. |
1 Acquisitions relate to the Company’s 2021 purchase of AKASOL and 2020 purchase of Delphi Technologies
A roll forward2 In 2021, the Company performed a quantitative impairment test over its indefinite-lived trade names, which indicated that for one trade name the fair value was less than the carrying value. Therefore, the Company recorded an impairment charge to reduce the carrying value to the fair value. In 2020, as a result of an evaluation of the underlying technologies and management of the business subsequent to the acquisition of Delphi Technologies, the Company reduced the useful life of certain intangible assets during the fourth quarter of 2020 as they no longer provided future economic benefit. This resulted in accelerated amortization expense of $38 million and the removal of the related gross carrying amount and accumulated amortization associated with the Company's other intangible assets is presented below:of these assets.
|
| | | | | | | |
(millions of dollars) | 2018 | | 2017 |
Beginning balance, January 1 | $ | 237.1 |
| | $ | 186.1 |
|
Amortization | 40.1 |
| | 40.0 |
|
Held for sale | — |
| | (11.6 | ) |
Translation adjustment | (11.4 | ) | | 22.6 |
|
Ending balance, December 31 | $ | 265.8 |
| | $ | 237.1 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 13 PRODUCT WARRANTY
The changesfollowing table summarizes the activity in the carrying amount of the Company’s total product warranty liabilityaccrual accounts:
| | | | | | | | | | | |
(in millions) | 2021 | | 2020 |
Beginning balance, January 1 | $ | 253 | | | $ | 116 | |
Acquisitions/dispositions | 4 | | | 110 | |
Provisions for current period sales | 83 | | | 83 | |
Adjustments of prior estimates1 | 142 | | | 22 | |
Payments1 | (240) | | | (86) | |
Other, primarily translation adjustment | (6) | | | 8 | |
Ending balance, December 31 | $ | 236 | | | $ | 253 | |
_____________________________
1 In December 2021, the Company settled and paid a warranty claim for $130 million. This resulted in an adjustment to prior estimates of $124 million during the yearsyear ended December 31, 2018 and 2017 were as follows:
|
| | | | | | | |
(millions of dollars) | 2018 | | 2017 |
Beginning balance, January 1 | $ | 111.5 |
| | $ | 95.3 |
|
Provisions | 69.0 |
| | 73.1 |
|
Acquisitions | 0.2 |
| | 1.0 |
|
Held for sale | — |
| | (3.6 | ) |
Payments | (73.4 | ) | | (60.6 | ) |
Translation adjustment | (4.1 | ) | | 6.3 |
|
Ending balance, December 31 | $ | 103.2 |
| | $ | 111.5 |
|
Acquisition activity in 2018 and 2017 of $0.2 million and $1.0 million relates2021. Refer to Note 21, “Contingencies,” to the warranty liability associated with the Company's purchase of Sevcon.Consolidated Financial Statements for more information.
The product warranty liability is classified in the Consolidated Balance Sheets as follows:
| | | | | | | | | | | |
| December 31, |
(in millions) | 2021 | | 2020 |
Other current liabilities | $ | 128 | | | $ | 164 | |
Other non-current liabilities | 108 | | | 89 | |
Total product warranty liability | $ | 236 | | | $ | 253 | |
NOTE 14 NOTES PAYABLE AND DEBT
|
| | | | | | | |
| December 31, |
(millions of dollars) | 2018 | | 2017 |
Accounts payable and accrued expenses | $ | 56.2 |
| | $ | 69.0 |
|
Other non-current liabilities | 47.0 |
| | 42.5 |
|
Total product warranty liability | $ | 103.2 |
| | $ | 111.5 |
|
| |
NOTE 9 | NOTES PAYABLE AND LONG-TERM DEBT |
As of December 31, 2018 and 2017, theThe Company had short-term and long-term debt outstanding as follows:
| | | | | | | | | | | |
| December 31, |
(in millions) | 2021 | | 2020 |
Short-term debt | | | |
Short-term borrowings | $ | 62 | | | $ | 45 | |
| | | |
Long-term debt | | | |
1.800% Senior notes due 11/07/22 (€500 million par value) | — | | | 609 | |
3.375% Senior notes due 03/15/25 ($500 million par value) | 498 | | | 498 | |
5.000% Senior notes due 10/01/25 ($800 million par value)1 | 889 | | | 912 | |
2.650% Senior notes due 07/01/27 ($1,100 million par value) | 1,092 | | | 1,088 | |
7.125% Senior notes due 02/15/29 ($121 million par value) | 119 | | | 119 | |
1.000% Senior notes due 05/19/31 (€1,000 million par value) | 1,117 | | | — | |
4.375% Senior notes due 03/15/45 ($500 million par value) | 494 | | | 494 | |
Term loan facilities, finance leases and other | 56 | | | 22 | |
Total long-term debt | 4,265 | | | 3,742 | |
Less: current portion | 4 | | | 4 | |
Long-term debt, net of current portion | $ | 4,261 | | | $ | 3,738 | |
_____________________________ |
| | | | | | | |
| December 31, |
(millions of dollars) | 2018 | | 2017 |
Short-term debt | | | |
Short-term borrowings | $ | 32.8 |
| | $ | 68.8 |
|
| | | |
Long-term debt | | | |
8.00% Senior notes due 10/01/19 ($134 million par value) | 135.4 |
| | 137.4 |
|
4.625% Senior notes due 09/15/20 ($250 million par value) | 250.9 |
| | 251.4 |
|
1.80% Senior notes due 11/7/22 (€500 million par value) | 570.0 |
| | 595.7 |
|
3.375% Senior notes due 03/15/25 ($500 million par value) | 496.6 |
| | 496.1 |
|
7.125% Senior notes due 02/15/29 ($121 million par value) | 119.1 |
| | 118.9 |
|
4.375% Senior notes due 03/15/45 ($500 million par value) | 493.7 |
| | 493.5 |
|
Term loan facilities and other | 14.8 |
| | 26.5 |
|
Total long-term debt | $ | 2,080.5 |
| | $ | 2,119.5 |
|
Less: current portion | 139.8 |
| | 15.8 |
|
Long-term debt, net of current portion | $ | 1,940.7 |
| | $ | 2,103.7 |
|
In July 2016,1 These notes are reflected at their fair value as of the Company terminated interest rate swaps which haddate of the effect of converting $384.0 million of fixed rate notesacquisition. The fair value step-up was calculated based on observable market data and will be amortized as a reduction to variable rates. The gain on the termination is being amortized into interest expense over the remaining termslife of the notes. The value related to these swap terminations as of December 31, 2018 was $1.9 million and $0.4 million oninstrument using the 4.625% and 8.00% notes, respectively, as an increase toeffective interest method.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the notes. The valueCompany may utilize uncommitted lines of these interest rate swaps ascredit for short-term working capital requirements. As of December 31, 2017 was $2.92021 and 2020, the Company had $62 million and $0.8$45 million, respectively, in borrowings under these facilities, which are reported in Notes payable and short-term debt on the 4.625% and 8.00% notes, respectively, as a decrease to the notes.Consolidated Balance Sheets.
The Company terminated fixed to floating interest rate swaps in 2009. The gain on the termination is being amortized into interest expense over the remaining term of the note. The value related to this swap termination at December 31, 2018 was $1.2 million on the 8.00% note as an increase to the note. The value related to these swap terminations at December 31, 2017 was $2.7 million on the 8.00% note as an increase to the note.
The weighted average interest rate on short-term borrowings outstanding as of December 31, 20182021 and 20172020 was 4.3%1.0% and 3.1%1.7%, respectively. The weighted average interest rate on all borrowings outstanding, including the effects of outstanding swaps, as of December 31, 20182021 and 20172020 was 3.4%2.5% and 3.8%2.8%, respectively. The following table provides details on Interest expense, net included in the Consolidated Statements of Operations:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2021 | | 2020 | | 2019 |
Interest expense | $ | 105 | | | $ | 73 | | | $ | 55 | |
Interest income | (12) | | | (12) | | | (12) | |
Interest expense, net | $ | 93 | | | $ | 61 | | | $ | 43 | |
On May 19, 2021, in anticipation of the acquisition of AKASOL and to refinance the Company’s €500 million 1.8% senior notes due in November 2022, the Company issued €1.0 billion in 1.0% senior notes due May 2031. Interest is payable annually in arrears on May 19 of each year. These senior notes are not guaranteed by any of the Company’s subsidiaries. On June 18, 2021, the Company repaid its €500 million 1.8% senior notes due November 2022 and incurred a loss on debt extinguishment of $20 million, which is reflected in Interest expense, net in the Consolidated Statement of Operations.
On February 19, 2021, the Company entered into a $900 million, 364-day delayed-draw term loan facility to satisfy certain cash confirmation requirements in support of the proposed acquisition of AKASOL. The facility was cancelled on May 19, 2021 in accordance with its terms, following the Company’s issuance of the €1.0 billion in senior notes.
Annual principal payments required as of December 31, 20182021 are as follows :follows:
| | | | | |
(in millions) | |
2022 | $ | 66 | |
2023 | 41 | |
2024 | 3 | |
2025 | 1,302 | |
2026 | 2 | |
After 2026 | 2,863 | |
Total payments | $ | 4,277 | |
Add: unamortized premiums, net of discount | 50 | |
Total | $ | 4,327 | |
|
| | | |
(millions of dollars) | |
2019 | $ | 172.6 |
|
2020 | 257.3 |
|
2021 | 1.3 |
|
2022 | 573.7 |
|
2023 | 0.1 |
|
After 2023 | 1,120.7 |
|
Total payments | $ | 2,125.7 |
|
Less: unamortized discounts | 12.4 |
|
Total | $ | 2,113.3 |
|
The Company'sCompany’s long-term debt includes various covenants, none of which are expected to restrict future operations.
The Company has a $1.2$2 billion multi-currency revolving credit facility which includes a feature that allows the Company's borrowingsCompany the ability to be increased to $1.5 billion.increase the facility by $1 billion with bank group approval. This facility matures in March 2025. The facility provides for borrowings through June 29, 2022. The Company hascredit agreement contains customary events of default and one key financial covenant, as part of the credit agreement which is a debt to EBITDA ("Earningsdebt-to-EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization")Amortization) ratio. The Company was in compliance with the financial covenant at December 31, 2018.2021. At December 31, 20182021 and December 31, 2017,2020, the Company had no outstanding borrowings under this facility.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company'sCompany’s commercial paper program allows the Company to issue $2 billion of short-term, unsecured commercial paper notes up to a maximum aggregate principal amount outstandingunder the limits of $1.2 billion.its multi-currency revolving credit facility. Under this program, the Company may issue notes from time to time and will use the proceeds for general corporate purposes. The Company had no outstanding borrowings under this program as of December 31, 20182021 and December 31, 2017. 2020.
The total current combined borrowing capacity under the multi-currency revolving credit facility and commercial paper program cannot exceed $1.2$2 billion.
As of December 31, 20182021 and 2017,2020, the estimated fair values of the Company'sCompany’s senior unsecured notes totaled $2,058.1$4,421 million and $2,209.1$4,052 million, respectively. The estimated fair values were $7.6$212 million lesshigher than carrying value at December 31, 20182021 and $116.1$332 million higher than their carrying value at December 31, 2017.2020. Fair market values of the senior unsecured notes are developed using observable values for similar debt instruments, which are considered Level 2 inputs as defined by ASC Topic 820. The carrying values of the Company'sCompany’s multi-currency revolving credit facility, and commercial paper program approximates
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and other debt facilities approximate fair value. The fair value estimates do not necessarily reflect the values the Company could realize in the current markets.
The Company had outstanding letters of credit of $42.7$35 million and $31.4$33 million at December 31, 20182021 and 2017,2020, respectively. The letters of credit typically act as guarantees of payment to certain third parties in accordance with specified terms and conditions.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 15 OTHER CURRENT AND NON-CURRENT LIABILITIES
Additional detail related to liabilities is presented in the table below:
| | | | | | | | | | | |
| December 31, |
(in millions) | 2021 | | 2020 |
Other current liabilities: | | | |
Payroll and employee related | $ | 330 | | | $ | 301 | |
Customer related | 220 | | | 198 | |
Product warranties (Note 13) | 128 | | | 164 | |
Indirect taxes | 106 | | | 69 | |
Income taxes payable | 105 | | | 102 | |
Employee termination benefits (Note 4) | 85 | | | 101 | |
Mandatorily redeemable noncontrolling interest liability (Note 2) | 58 | | | — | |
Accrued freight | 46 | | | 41 | |
Deferred engineering | 44 | | | 62 | |
Operating leases (Note 22) | 43 | | | 47 | |
Interest | 23 | | | 18 | |
Other non-income taxes | 22 | | | 15 | |
Contract liabilities (Note 3) | 21 | | | 22 | |
Insurance | 19 | | | 20 | |
Dividends payable | 18 | | | 6 | |
Supplier related | 18 | | | 6 | |
Retirement related (Note 18) | 16 | | | 16 | |
Other | 154 | | | 221 | |
Total other current liabilities | $ | 1,456 | | | $ | 1,409 | |
| | | |
Other non-current liabilities: | | | |
Other income tax liabilities | $ | 274 | | | $ | 300 | |
Deferred income taxes (Note 7) | 206 | | | 276 | |
Operating leases (Note 22) | 152 | | | 172 | |
Product warranties (Note 13) | 108 | | | 89 | |
Deferred income | 68 | | | 55 | |
Derivative instruments (Note 17) | 54 | | | 162 | |
Employee termination benefits (Note 4) | 41 | | | 59 | |
Other | 61 | | | 68 | |
Total other non-current liabilities | $ | 964 | | | $ | 1,181 | |
NOTE 1016 FAIR VALUE MEASUREMENTS
ASC Topic 820 emphasizes that fair value is a market-based measurement, not an entity specificentity-specific measurement. Therefore, a fair value measurement should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC Topic 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair values as follows:
| |
Level 1: | Observable inputs such as quoted prices for identical assets or liabilities in active markets; |
| |
Level 2: | Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and |
| |
Level 3: | Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
Level 1:Observable inputs such as quoted prices for identical assets or liabilities in active markets;
Level 2:Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Level 3:Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Assets and liabilities measured at fair value are based on one or more of the following three valuation techniques noted in ASC Topic 820:
| |
A. | Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets or liabilities, such as a business.
|
| |
B. | Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost).
|
| |
C. | Income approach: Techniques to convert future amounts to a single present amount based upon market expectations (including present value techniques, option-pricing and excess earnings models).
|
A.Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets or liabilities, such as a business.
86B.Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost).
C.Income approach: Techniques to convert future amounts to a single present amount based upon market expectations (including present value techniques, option-pricing and excess earnings models).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following tables classify assets and liabilities measured at fair value on a recurring basis as of December 31, 20182021 and 2017:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Basis of fair value measurements | | |
| Balance at December 31, 2021 | | Quoted prices in active markets for identical items (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Valuation technique |
(in millions) | | | | |
Assets: | | | | | | | | | |
Long-term receivables | $ | 35 | | | $ | — | | | $ | 17 | | | $ | 18 | | | C |
Investment in equity securities | $ | 70 | | | $ | 70 | | | $ | — | | | $ | — | | | A |
Foreign currency contracts | $ | 13 | | | $ | — | | | $ | 13 | | | $ | — | | | A |
Net investment hedge contracts | $ | 8 | | | $ | — | | | $ | 8 | | | $ | — | | | A |
Liabilities: | | | | | | | | | |
Foreign currency contracts | $ | 8 | | | $ | — | | | $ | 8 | | | $ | — | | | A |
| | | | | | | | | |
| | | | | | | | | |
Net investment hedge contracts | $ | 54 | | | $ | — | | | $ | 54 | | | $ | — | | | A |
| | | | | | | | | | | | | | | Basis of fair value measurements | | |
(in millions) | | (in millions) | Balance at December 31, 2020 | | Quoted prices in active markets for identical items (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Valuation technique |
Assets: | | Assets: | | | | | | | | | |
Investment in equity securities | | Investment in equity securities | $ | 432 | | | $ | 432 | | | $ | — | | | 0 | | A |
Foreign currency contracts | | Foreign currency contracts | $ | 5 | | | $ | — | | | $ | 5 | | | $ | — | | | A |
Liabilities: | | Liabilities: | | | | |
Foreign currency contracts | | Foreign currency contracts | $ | 6 | | | $ | — | | | $ | 6 | | | $ | — | | | A |
Net investment hedge contracts | | Net investment hedge contracts | $ | 161 | | | $ | — | | | $ | 161 | | | $ | — | | | A |
| | | Basis of fair value measurements | | | |
| Balance at December 31, 2018 | | Quoted prices in active markets for identical items (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Valuation technique | |
(millions of dollars) | | |
Assets: | |
| | |
| | |
| | |
| | | |
Foreign currency contracts | $ | 3.0 |
| | $ | — |
| | $ | 3.0 |
| | $ | — |
| | A | |
Other long-term receivables (insurance settlement agreement note receivable) | $ | 34.0 |
| | $ | — |
| | $ | 34.0 |
| | $ | — |
| | C | |
Net investment hedge contracts | $ | 11.9 |
| | $ | — |
| | $ | 11.9 |
| | $ | — |
| | A | |
Liabilities: |
|
| | |
| |
|
| | |
| | | |
Foreign currency contracts | $ | 1.7 |
| | $ | — |
| | $ | 1.7 |
| | $ | — |
| | A | |
Commodity contracts | $ | 0.2 |
| | $ | — |
| | $ | 0.2 |
| | $ | — |
| | A | |
|
| | | | | | | | | | | | | | | | | |
| | | Basis of fair value measurements | | |
(millions of dollars) | Balance at December 31, 2017 | | Quoted prices in active markets for identical items (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Valuation technique |
Assets: | |
| | |
| | |
| | |
| | |
Foreign currency contracts | $ | 1.7 |
| | $ | — |
| | $ | 1.7 |
| | $ | — |
| | A |
Other long-term receivables (insurance settlement agreement note receivable) | $ | 42.9 |
| | $ | — |
| | $ | 42.9 |
| | $ | — |
| | C |
Liabilities: |
|
| | |
| | |
| | |
| | |
Foreign currency contracts | $ | 5.0 |
| | $ | — |
| | $ | 5.0 |
| | $ | — |
| | A |
The following tables classify the Company'sCompany’s defined benefit plan assets measured at fair value on a recurring basis as of December 31, 2018 and 2017:basis:
101
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Basis of fair value measurements |
(millions of dollars) | Balance at December 31, 2018 | | Quoted prices in active markets for identical items (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Valuation technique | | Assets measured at NAV (a) |
U.S. Plans: |
|
| |
|
| |
|
| |
|
| | | | |
Fixed income securities | $ | 122.1 |
| | $ | 1.2 |
| | $ | — |
| | $ | — |
| | A | | 120.9 |
|
Equity securities | 71.0 |
| | 11.1 |
| | — |
| | — |
| | A | | 59.9 |
|
Real estate and other | 22.7 |
| | 17.8 |
| | 0.2 |
| | — |
| | A | | 4.7 |
|
| $ | 215.8 |
| | $ | 30.1 |
| | $ | 0.2 |
| | $ | — |
| | | | $ | 185.5 |
|
Non-U.S. Plans: |
|
| |
|
| |
|
| |
|
| | | | |
Fixed income securities | $ | 239.4 |
| | $ | — |
| | $ | — |
| | $ | — |
| | A | | 239.4 |
|
Equity securities | 162.7 |
| | 92.9 |
| | — |
| | — |
| | A | | 69.8 |
|
Real estate and other | 36.4 |
| | — |
| | — |
| | — |
| | A | | 36.4 |
|
| $ | 438.5 |
| | $ | 92.9 |
| | $ | — |
| | $ | — |
| | | | $ | 345.6 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Basis of fair value measurements |
(in millions) | Balance at December 31, 2021 | | Quoted prices in active markets for identical items (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Valuation technique | | Assets measured at NAV3 |
U.S. Plans: | | | | | | | | | | | |
Fixed income securities | $ | 129 | | | $ | — | | | $ | — | | | $ | — | | | — | | $ | 129 | |
Equity securities | 28 | | | — | | | — | | | — | | | — | | 28 | |
Alternative credit fund | 19 | | | — | | | — | | | — | | | — | | 19 | |
Cash | 1 | | | 1 | | | — | | | — | | | A | | — | |
| $ | 177 | | | $ | 1 | | | $ | — | | | $ | — | | | | | $ | 176 | |
Non-U.S. Plans: | | | | | | | | | | | |
Fixed income securities | $ | 710 | | | $ | 116 | | | $ | — | | | $ | — | | | A | | $ | 594 | |
Equity securities | 412 | | | 363 | | | — | | | — | | | A | | 49 | |
Cash1 | 338 | | | 338 | | | — | | | — | | | A | | — | |
Insurance contract2 | 108 | | | — | | | — | | | 108 | | | C | | — | |
Real estate and other | 481 | | | 124 | | | 18 | | | 127 | | | A,C | | 212 | |
| $ | 2,049 | | | $ | 941 | | | $ | 18 | | | $ | 235 | | | | | $ | 855 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Basis of fair value measurements |
(in millions) | Balance at December 31, 2020 | | Quoted prices in active markets for identical items (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Valuation technique | | Assets measured at NAV3 |
U.S. Plans: | | | | | | | | | | | |
Fixed income securities | $ | 81 | | | $ | — | | | $ | — | | | $ | — | | | — | | $ | 81 | |
Equity securities | 64 | | | — | | | — | | | — | | | — | | 64 | |
Alternative credit fund | 22 | | | — | | | — | | | — | | | — | | 22 | |
Cash | 20 | | | 20 | | | — | | | — | | | A | | — | |
| $ | 187 | | | $ | 20 | | | $ | — | | | $ | — | | | | | $ | 167 | |
Non-U.S. Plans: | | | | | | | | | | | |
Fixed income securities | $ | 1,123 | | | $ | 51 | | | $ | — | | | $ | — | | | A | | $ | 1,072 | |
Equity securities | 283 | | | — | | | — | | | — | | | — | | 283 | |
Cash | 130 | | | 130 | | | — | | | — | | | A | | — | |
Insurance contract2 | 113 | | | — | | | — | | | 113 | | | C | | — | |
Real estate and other | 392 | | | — | | | — | | | 86 | | | C | | 306 | |
| $ | 2,041 | | | $ | 181 | | | $ | — | | | $ | 199 | | | | | $ | 1,661 | |
_____________________________
1 As of December 31, 2021, £122 million in the Company’s non-U.S. plans was deemed cash in-transit and classified as a Level 1 investment.
2 A BorgWarner defined benefit plan in the United Kingdom owns an insurance contract that guarantees payment of specified pension liabilities. The Company measures the fair value of the insurance asset by projecting expected future cash flows from the contract and discounting them to present value based on current market rates, including an assessment for non-performance risk of the insurance company. The assumptions used to project expected future cash flows are based on actuarial estimates and are unobservable; therefore, the contract is categorized within Level 3 of the hierarchy.
3 Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. These amounts represent investments in commingled and managed funds that have underlying assets in fixed income securities, equity securities, and other assets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Basis of fair value measurements |
(millions of dollars) | Balance at December 31, 2017 | | Quoted prices in active markets for identical items (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Valuation technique | | Assets measured at NAV (a) |
U.S. Plans: | |
| | |
| | |
| | |
| | | | |
Fixed income securities | $ | 127.1 |
| | $ | 1.3 |
| | $ | — |
| | $ | — |
| | A | | 125.8 |
|
Equity securities | 86.7 |
| | 13.5 |
| | — |
| | — |
| | A | | 73.2 |
|
Real estate and other | 26.3 |
| | 19.9 |
| | 0.4 |
| | — |
| | A | | 6.0 |
|
| $ | 240.1 |
| | $ | 34.7 |
| | $ | 0.4 |
| | $ | — |
| | | | $ | 205.0 |
|
Non-U.S. Plans: |
|
| |
|
| |
|
| |
|
| | | | |
Fixed income securities | $ | 212.4 |
| | $ | — |
| | $ | — |
| | $ | — |
| | A | | 212.4 |
|
Equity securities | 233.9 |
| | 105.4 |
| | — |
| | — |
| | A | | 128.5 |
|
Real estate and other | 37.1 |
| | — |
| | — |
| | — |
| | A | | 37.1 |
|
| $ | 483.4 |
| | $ | 105.4 |
| | $ | — |
| | $ | — |
| | | | $ | 378.0 |
|
The reconciliation of Level 3 defined benefit plans assets was as follows:________________
| |
(a) | Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. These amounts represent investments in commingled and managed funds which have underlying assets in fixed income securities, equity securities, and other assets. |
| | | | | | | | | | | | | | | | | |
| Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
(in millions) | Insurance contract | | Real estate trust fund | | Hedge funds |
Balance at January 1, 2020 | $ | 110 | | | $ | — | | | $ | — | |
Delphi Technologies acquisition | — | | | 82 | | | 103 | |
Purchases, sales and settlements | — | | | — | | | (114) | |
Realized gains | — | | | — | | | 3 | |
Benefits paid | (6) | | | — | | | — | |
Unrealized gains (losses) on assets still held at the reporting date | 6 | | | (2) | | | — | |
Translation adjustment | 3 | | | 6 | | | 8 | |
Balance at December 31, 2020 | $ | 113 | | | $ | 86 | | | $ | — | |
Purchases, sales and settlements | — | | | 36 | | | — | |
| | | | | |
Realized gains | — | | | — | | | — | |
Benefits paid | (4) | | | — | | | — | |
Unrealized gains (losses) on assets still held at the reporting date | 1 | | | 7 | | | — | |
Translation adjustment | (2) | | | (2) | | | — | |
Balance at December 31, 2021 | $ | 108 | | | $ | 127 | | | $ | — | |
Refer toNote 12, "Retirement18, “Retirement Benefit Plans,"” to the Consolidated Financial Statements for more detail surrounding the defined benefit plan’s asset investment policies and strategies, target allocation percentages and expected return on plan asset assumptions.
| |
NOTE 11 | FINANCIAL INSTRUMENTS |
NOTE 17 FINANCIAL INSTRUMENTS
The Company’s financial instruments include cash and cash equivalents, marketable securities.securities and accounts receivable. Due to the short-term nature of these instruments, their book value approximates their fair value. The Company’s financial instruments may include long-term debt, investments in equity securities, interest rate and cross-currency swaps, commodity derivative contracts and foreign currency derivative contracts. All derivative contracts are placed with counterparties that have an S&P, or equivalent, investment grade credit rating at the time of the contracts’ placement. An adjustment for non-performance risk is considered in the estimate of fair value in derivative assets based on the counterparty credit default swap (“CDS”) rate. When the Company is in a net derivative liability position, the non-performance risk adjustment is based on its CDS rate. At December 31, 20182021 and 2017,2020, the Company had no derivative contracts that contained credit risk relatedcredit-risk-related contingent features.
The Company occasionally uses certain commodity derivative contracts to protect against commodity price changes related to forecasted raw material and component purchases. The Company had no outstanding commodity contracts at December 31, 2021 and 2020. The Company primarily utilizes forward and option contracts, which are designated as cash flow hedges. At December 31, 2018, the following commodity derivative contracts were outstanding. At December 31, 2017, there were no commodity derivative contracts outstanding.
|
| | | | | | | |
| | Commodity derivative contracts |
| | Volume hedged | | | | |
Commodity | | December 31, 2018 | | Units of measure | | Duration |
Copper | | 256.7 |
| | Metric Tons | | Dec - 19 |
The Company manages its interest rate risk by balancing its exposure to fixed and variable rates while attempting to optimize its interest costs. The Company selectivelyoccasionally uses interest rate swaps to reduce market value risk associated with changes in interest rates (fair value hedges and cash flow hedges). At December 31, 20182021 and December 31, 2017,2020, the Company had no outstanding interest rate swaps.swaps or options.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company uses foreign currency forward and option contracts to protect against exchange rate movements for forecasted cash flows, including capital expenditures, purchases, operating expenses or sales transactions designated in currencies other than the functional currency of the operating unit. In addition, the Company uses foreign currency forward contracts to hedge exposure associated with ourits net investment in certain foreign operations (net investment hedges). The Company has also designated its Euro denominated debt as a net investment hedge of the Company's investment in a European subsidiary. Foreign currency derivative contracts require the Company, at a future date, to either buy or sell foreign currency in exchange for the operating units’ local currency. At December 31, 2018 and December 31, 2017, theThe following foreign currency derivative contracts were outstanding:outstanding and mature through the ending duration noted below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency derivatives (in millions)1 |
Functional currency | | Traded currency | | Notional in traded currency December 31, 2021 | | Notional in traded currency December 31, 2020 | | Ending duration |
Brazilian Real | | U.S. Dollar | | 23 | | | 4 | | | Dec-22 |
British Pound | | Euro | | 42 | | | 97 | | | Dec-22 |
Chinese Renminbi | | British Pound | | 26 | | | — | | | Dec-22 |
Chinese Renminbi | | U.S. Dollar | | 185 | | | 113 | | | Dec-22 |
Chinese Renminbi | | Euro | | 26 | | | — | | | Dec-22 |
Euro | | Polish Zloty | | 394 | | | 147 | | | Dec-22 |
Euro | | U.S. Dollar | | 86 | | | 41 | | | Dec-22 |
| | | | | | | | |
| | | | | | | | |
U.S. Dollar | | British Pound | | 13 | | | 6 | | | Dec-22 |
U.S. Dollar | | Euro | | 28 | | | 55 | | | Dec-22 |
U.S. Dollar | | Korean Won | | 49,919 | | | 15,000 | | | Dec-22 |
U.S. Dollar | | Singapore Dollar | | 27 | | | 47 | | | Dec-22 |
U.S. Dollar | | Thailand Baht | | 1,720 | | | — | | | May-22 |
U.S. Dollar | | Mexico Peso | | 2,619 | | | 1,178 | | | Dec-22 |
|
| | | | | | | | | | |
Foreign currency derivatives (in millions) |
Functional currency | | Traded currency | | Notional in traded currency December 31, 2018 | | Notional in traded currency December 31, 2017 | | Ending Duration |
Brazilian real | | Euro | | 3.6 |
| | 1.1 |
| | Jun - 19 |
Brazilian real | | US dollar | | 5.3 |
| | — |
| | Jun - 19 |
Chinese renminbi | | Euro | | — |
| | 18.6 |
| | Jun - 18 |
Chinese renminbi | | US dollar | | — |
| | 36.0 |
| | Sep - 18 |
Euro | | British pound | | 7.0 |
| | 3.9 |
| | Oct - 19 |
Euro | | Chinese renminbi | | — |
| | 85.0 |
| | Dec - 18 |
Euro | | Japanese yen | | — |
| | 1,311.3 |
| | Dec - 18 |
Euro | | Swedish krona | | 539.6 |
| | 267.4 |
| | Jun - 19 |
Euro | | US dollar | | 18.9 |
| | 56.5 |
| | Dec - 19 |
Japanese yen | | Chinese renminbi | | 88.8 |
| | — |
| | Dec - 19 |
Japanese yen | | Korean won | | 5,785.2 |
| | — |
| | Dec - 19 |
Japanese yen | | US dollar | | 2.8 |
| | — |
| | Dec - 19 |
Korean won | | Euro | | 6.4 |
| | 3.1 |
| | Dec - 19 |
Korean won | | Japanese yen | | 266.4 |
| | 619.0 |
| | Dec - 19 |
Korean won | | US dollar | | 7.1 |
| | 11.2 |
| | Dec - 19 |
Swedish krona | | Euro | | 56.0 |
| | 109.7 |
| | Jan - 20 |
US dollar | | Euro | | — |
| | 42.0 |
| | Dec - 18 |
US dollar | | Mexican peso | | 574.5 |
| | — |
| | Dec - 19 |
_____________________________
1 Table above excludes non-significant traded currency pairings with total notional amounts less than $10 million U.S. Dollar equivalent as of December 31, 2021 or 2020.
The Company selectively uses cross-currency swaps to hedge the foreign currency exposure associated with ourits net investment in certain foreign operations (net investment hedges). At December 31, 2018,2021 and 2020, the following cross-currency swap contracts were outstanding. At December 31, 2017, there were no cross-currency swap derivative contracts outstanding.outstanding:
|
| | | | | | | | | |
| Cross-Currency Swaps |
(in millions) | Notional in USD | | Notional in Local Currency | | Duration |
Fixed $ to fixed € | $ | 250.0 |
| | € | 206.2 |
| | Sep - 20 |
Fixed $ to fixed ¥ | $ | 100.0 |
| | ¥ | 10,977.5 |
| | Feb - 23 |
89 | | | | | | | | | | | | | | | | | |
| Cross-currency swaps |
(in millions) | December 31, 2021 | | December 31, 2020 | | Ending duration |
U.S. Dollar to Euro: | | | | | |
Fixed receiving notional | $ | 1,100 | | | $ | 1,100 | | | Jul - 27 |
Fixed paying notional | € | 976 | | | € | 976 | | | Jul - 27 |
U.S. Dollar to Euro: | | | | | |
Fixed receiving notional | $ | 500 | | | $ | 500 | | | Mar - 25 |
Fixed paying notional | € | 450 | | | € | 450 | | | Mar - 25 |
U.S. Dollar to Japanese Yen: | | | | | |
Fixed receiving notional | $ | 100 | | | $ | 100 | | | Feb - 23 |
Fixed paying notional | ¥ | 10,978 | | | ¥ | 10,978 | | | Feb - 23 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
At December 31, 20182021 and 2017,2020, the following amounts were recorded in the Consolidated Balance Sheets as being payable to or receivable from counterparties under ASC Topic 815:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | Assets | | Liabilities |
Derivatives designated as hedging instruments Under Topic 815: | | Balance Sheet Location | | December 31, 2021 | | December 31, 2020 | | Balance Sheet Location | | December 31, 2021 | | December 31, 2020 |
Foreign currency | | Prepayments and other current assets | | $ | 7 | | | $ | 1 | | | Other current liabilities | | $ | 8 | | | $ | 4 | |
Foreign currency | | Other non-current assets | | $ | — | | | $ | — | | | Other non-current liabilities | | $ | — | | | $ | 1 | |
Net investment hedges | | Other non-current assets | | $ | 8 | | | $ | — | | | Other non-current liabilities | | $ | 54 | | | $ | 161 | |
| | | | | | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | | | | | | |
Foreign currency | | Prepayments and other current assets | | $ | 6 | | | $ | 4 | | | Other current liabilities | | $ | — | | | $ | 1 | |
|
| | | | | | | | | | | | | | | | | | | | |
(in millions) | | Assets | | Liabilities |
Derivatives designated as hedging instruments Under Topic 815: | | Location | | December 31, 2018 | | December 31, 2017 | | Location | | December 31, 2018 | | December 31, 2017 |
Foreign currency | | Prepayments and other current assets | | $ | 1.9 |
| | $ | 0.9 |
| | Accounts payable and accrued expenses | | $ | 1.6 |
| | $ | 3.9 |
|
| | Other non-current assets | | $ | — |
| | $ | 0.8 |
| | Other non-current liabilities | | $ | 0.1 |
| | $ | — |
|
Commodity | | Prepayments and other current assets | | $ | — |
| | $ | — |
| | Accounts payable and accrued expenses | | $ | 0.2 |
| | $ | — |
|
Net investment hedges | | Prepayments and other current assets | | $ | — |
| | $ | — |
| | Accounts payable and accrued expenses | | $ | — |
| | $ | — |
|
| | Other non-current assets | | $ | 11.9 |
| | $ | — |
| | Other non-current liabilities | | $ | — |
| | $ | — |
|
Derivatives not designated as hedging instruments | | | | | | | | | | | | |
Foreign currency | | Prepayments and other current assets | | $ | 1.1 |
| | $ | — |
| | Accounts payable and accrued expenses | | $ | — |
| | $ | 1.1 |
|
Effectiveness for cash flow hedges is assessed at the inception of the hedging relationship and quarterly, thereafter. Gains and losses arising from these contracts that are included in the assessment of effectiveness are deferred into accumulated other comprehensive income (loss) ("AOCI"(“AOCI”) and reclassified into income as the underlying operating transactions are recognized. These realized gains or losses offset the hedged transaction and are recorded on the same line in the statement of operations. The initial value of any component excluded from the assessment of effectiveness will be recognized in income using a systematic and rational method over the life of the hedging instrument. Any difference between the change in fair value of the excluded component and amounts recognized in income under that systematic and rational method will be recognized in AOCI.
Effectiveness for net investment hedges is assessed at the inception of the hedging relationship and quarterly, thereafter. Gains and losses arising from these contracts that are included in the assessment of effectiveness are deferred into foreign currency translation adjustments and only released when the subsidiary being hedged is sold or substantially liquidated. The initial value of any component excluded from the assessment of effectiveness will be recognized in income using a systematic and rational method over the life of the hedging instrument. Any difference between the change in fair value of the excluded component and amounts recognized in income under that systematic and rational method will be recognized in AOCI.
During the year ended December 31, 2021, the Company repaid its €500 million 1.8% senior notes due November 2022, which were designated as a net investment hedge, resulting in a deferred loss of $50 million that will remain in accumulated other comprehensive loss until the net investment is sold, completely liquidated or substantially liquidated. The Company has designated the €1 billion in 1.0% senior notes due May 2031, issued in May 2021, as a net investment hedge of the Company’s investment in its European subsidiaries.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The table below shows deferred gains (losses) reported in AOCI as well as the amount expected to be reclassified to income in one year or less.less for designated net investment hedges. The amount expected to be reclassified to income in one year or less assumes no change in the current relationship of the hedged item at December 31, 20182021 market rates.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | (in millions) | | Deferred gain (loss) in AOCI at | | Gain (loss) expected to be reclassified to income in one year or less | (in millions) | | Deferred gain (loss) in AOCI at | | Gain (loss) expected to be reclassified to income in one year or less |
Contract Type | | December 31, 2018 | | December 31, 2017 | | Contract Type | | December 31, 2021 | | December 31, 2020 | |
Foreign currency | | $ | 0.1 |
| | $ | (2.3 | ) | | $ | — |
| |
Commodity | | (0.2 | ) | | — |
| | (0.2 | ) | |
| Net investment hedges: | | — |
| | | | | Net investment hedges: | | | | | | |
Foreign currency | | 4.5 |
| | 2.9 |
| | — |
| Foreign currency | | $ | (10) | | | $ | (1) | | | $ | — | |
Cross-currency swaps | | 11.9 |
| | — |
| | — |
| Cross-currency swaps | | (46) | | | (161) | | | — | |
Foreign currency denominated debt | | (30.4 | ) | | (57.1 | ) | | — |
| Foreign currency denominated debt | | 66 | | | (68) | | | — | |
Total | | $ | (14.1 | ) | | $ | (56.5 | ) | | $ | (0.2 | ) | Total | | $ | 10 | | | $ | (230) | | | $ | — | |
Derivative instruments designated as hedging instruments as defined by ASC Topic 815 held during the period resulted in the following gains and losses recorded in income: | | | | Year Ended December 31, 2018 | | Year ended December 31, 2021 |
(in millions) | | Net sales | | Cost of sales | | Selling, general and administrative expenses | | Other comprehensive income | (in millions) | | Net sales | | Cost of sales | | Selling, general and administrative expenses | | Other comprehensive income |
Total amounts of earnings and other comprehensive income line items in which the effects of cash flow hedges are recorded | | $ | 10,529.6 |
| | $ | 8,300.2 |
| | $ | 945.7 |
| | $ | (170.1 | ) | Total amounts of earnings and other comprehensive income line items in which the effects of cash flow hedges are recorded | | $ | 14,838 | | | $ | 11,983 | | | $ | 1,460 | | | $ | 100 | |
| | | | | | | | | |
Gain (loss) on cash flow hedging relationships: | | | | | | | | | Gain (loss) on cash flow hedging relationships: | |
| | | | | | | | | |
Foreign currency | | | | | | | | | Foreign currency | |
Gain (loss) recognized in other comprehensive income | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (1.3 | ) | Gain (loss) recognized in other comprehensive income | | $ | (4) | |
Gain (loss) reclassified from AOCI to income | | $ | (2.3 | ) | | $ | (1.1 | ) | | $ | (0.3 | ) | | $ | — |
| Gain (loss) reclassified from AOCI to income | | $ | 1 | | | $ | (4) | | | $ | (1) | | | $ | — | |
Gain (loss) reclassified from AOCI to income as a result that a forecasted transaction is no longer probable of occurring | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
| | | | | | | | | |
Commodity | | | | | | | | | |
Gain (loss) recognized in other comprehensive income | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (0.4 | ) | |
Gain (loss) reclassified from AOCI to income | | $ | — |
| | $ | (0.2 | ) | | $ | — |
| | $ | — |
| |
Gain (loss) reclassified from AOCI to income as a result that a forecasted transaction is no longer probable of occurring | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | Year ended December 31, 2020 |
(in millions) | | Net sales | | Cost of sales | | Selling, general and administrative expenses | | Other comprehensive income |
Total amounts of earnings and other comprehensive income line items in which the effects of cash flow hedges are recorded | | $ | 10,165 | | | $ | 8,255 | | | $ | 951 | | | $ | 76 | |
| | | | | | | | |
Gain (loss) on cash flow hedging relationships: | | | | | | | | |
Foreign currency | | | | | | | | |
Gain (loss) recognized in other comprehensive income | | | | | | | | $ | (1) | |
Gain (loss) reclassified from AOCI to income | | $ | — | | | $ | 1 | | | $ | (2) | | | $ | — | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
91 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | Year ended December 31, 2019 |
(in millions) | | Net sales | | Cost of sales | | Selling, general and administrative expenses | | Other comprehensive income |
Total amounts of earnings and other comprehensive income line items in which the effects of cash flow hedges are recorded | | $ | 10,168 | | | $ | 8,067 | | | $ | 873 | | | $ | (53) | |
| | | | | | | | |
Gain (loss) on cash flow hedging relationships: | | | | | | | | |
Foreign currency | | | | | | | | |
Gain (loss) recognized in other comprehensive income | | | | | | | | $ | (1) | |
Gain (loss) reclassified from AOCI to income | | $ | (5) | | | $ | (1) | | | $ | 3 | | | $ | — | |
| | | | | | | | |
| | | | | | | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
| | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
(in millions) | | Net sales | | Cost of sales | | Selling, general and administrative expenses | | Other comprehensive income |
Total amounts of earnings and other comprehensive income line items in which the effects of cash flow hedges are recorded | | $ | 9,799.3 |
| | $ | 7,683.7 |
| | $ | 899.1 |
| | $ | 232.1 |
|
| | | | | | | | |
Gain (loss) on cash flow hedging relationships: | | | | | | | | |
| | | | | | | | |
Foreign currency | | | | | | | | |
Gain (loss) recognized in other comprehensive income | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (4.7 | ) |
Gain (loss) reclassified from AOCI to income | | $ | 3.4 |
| | $ | (0.1 | ) | | $ | — |
| | $ | — |
|
Gain (loss) reclassified from AOCI to income as a result that a forecasted transaction is no longer probable of occurring | | $ | — |
| | $ | — |
| | $ | (0.1 | ) | | $ | — |
|
| | | | | | | | |
Commodity | | | | | | | | |
Gain (loss) recognized in other comprehensive income | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 0.6 |
|
Gain (loss) reclassified from AOCI to income | | $ | — |
| | $ | 0.5 |
| | $ | — |
| | $ | — |
|
Gain (loss) reclassified from AOCI to income as a result that a forecasted transaction is no longer probable of occurring | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
(in millions) | | Net sales | | Cost of sales | | Selling, general and administrative expenses | | Other comprehensive income |
Total amounts of earnings and other comprehensive income line items in which the effects of cash flow hedges are recorded | | $ | 9,071.0 |
| | $ | 7,142.3 |
| | $ | 818.0 |
| | $ | (111.9 | ) |
| | | | | | | | |
Gain (loss) on cash flow hedging relationships: | | | | | | | | |
| | | | | | | | |
Foreign currency | | | | | | | | |
Gain (loss) recognized in other comprehensive income | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 7.0 |
|
Gain (loss) reclassified from AOCI to income | | $ | (0.1 | ) | | $ | 1.4 |
| | $ | — |
| | $ | — |
|
Gain (loss) reclassified from AOCI to income as a result that a forecasted transaction is no longer probable of occurring | | $ | — |
| | $ | — |
| | $ | 0.3 |
| | $ | — |
|
| | | | | | | | |
Commodity | | | | | | | | |
Gain (loss) recognized in other comprehensive income | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 0.6 |
|
Gain (loss) reclassified from AOCI to income | | $ | — |
| | $ | (1.4 | ) | | $ | — |
| | $ | — |
|
Gain (loss) reclassified from AOCI to income as a result that a forecasted transaction is no longer probable of occurring | | $ | — |
| | $ | (0.3 | ) | | $ | — |
| | $ | — |
|
There were noThe gains and (losses)or losses recorded in income related to components excluded from the assessment of effectiveness for derivative instruments designated as cash flow hedges.hedges were immaterial for the periods presented.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Gains and (losses) on derivative instruments designated as net investment hedges were recognized in other comprehensive income (loss) during the periods presented below.
| | | | | | | | | | | | | | | | | | | | |
(in millions) | | Year Ended December 31, |
Net investment hedges | | 2021 | | 2020 | | 2019 |
Foreign currency | | $ | (9) | | | $ | (2) | | | $ | 1 | |
Cross-currency swaps | | $ | 115 | | | $ | (155) | | | $ | 4 | |
Foreign currency denominated debt | | $ | 84 | | | $ | (51) | | | $ | 13 | |
|
| | | | | | | | | | | | |
(in millions) | | Year Ended December 31, |
Net investment hedges | | 2018 | | 2017 | | 2016 |
Foreign currency | | $ | 1.6 |
| | $ | (7.9 | ) | | $ | 0.4 |
|
Cross-currency swaps | | $ | 11.9 |
| | $ | — |
| | $ | — |
|
Foreign currency denominated debt | | $ | 26.7 |
| | $ | (83.7 | ) | | $ | 16.8 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Derivatives designated as net investment hedge instruments as defined by ASC Topic 815 held during the period resulted in the following gains and (losses) recorded in Interest expense and finance charges on components excluded from the assessment of effectiveness:
| | | | | | | | | | | | | | | | | | | | |
(in millions) | | Year Ended December 31, |
Net investment hedges | | 2021 | | 2020 | | 2019 |
Foreign currency | | $ | — | | | $ | — | | | $ | — | |
Cross-currency swaps | | $ | 22 | | | $ | 18 | | | $ | 11 | |
|
| | | | | | | | | | | | |
(in millions) | | Year Ended December 31, |
Net investment hedges | | 2018 | | 2017 | | 2016 |
Foreign currency | | $ | 0.6 |
| | $ | 1.3 |
| | $ | — |
|
Cross-currency swaps | | $ | 8.7 |
| | $ | — |
| | $ | — |
|
There were no gains andor (losses) recorded in income related to components excluded from the assessment of effectiveness for foreign currency denominated debt designated as net investment hedges. There were no gains and losses reclassified from AOCI for net investment hedges during the periods presented.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year Ended December 31, |
(in millions) | | 2018 | | 2017 | | 2016 |
Contract Type | | Location | | Gain (loss) on swaps | | Gain (loss) on borrowings | | Gain (loss) on swaps | | Gain (loss) on borrowings | | Gain (loss) on swaps | | Gain (loss) on borrowings |
Interest rate swap | | Interest expense and finance charges | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 8.5 |
| | $ | (8.5 | ) |
Derivatives not designated as hedging instruments are used to hedge remeasurement exposures of monetary assets and liabilities denominated in currencies other than the operating units' functional currency. TheThese derivatives resulted in the following gains and (losses) recorded in income from derivative instruments not designated as hedging instruments were immaterial for the periods presented.income:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | | | Year Ended December 31, |
Contract Type | | Location | | 2021 | | 2020 | | 2019 |
Foreign Currency | | Selling, general and administrative expenses | | $ | 13 | | | $ | 3 | | | $ | (3) | |
| | | | | | | | |
| |
NOTE 12 | RETIREMENT BENEFIT PLANS |
NOTE 18 RETIREMENT BENEFIT PLANS
The Company sponsors various defined contribution savings plans, primarily in the U.S., that allow employees to contribute a portion of their pre-tax and/or after-tax income in accordance with plan specified guidelines. Under specified conditions, the Company will make contributions to the plans and/or match a percentage of the employee contributions up to certain limits. Total expense related to the defined contribution plans was $34.9$58 million, $33.5$38 million and $28.3$37 million in the years ended December 31, 2018, 20172021, 2020 and 2016,2019, respectively.
The Company has a number of defined benefit pension plans and other postretirement employee benefit plans covering eligible salaried and hourly employees and their dependents. The defined pension benefits provided are primarily based on (i) years of service and (ii) average compensation or a monthly retirement benefit amount. The Company provides defined benefit pension plans in France, Germany, Ireland, Italy, Japan, Mexico, Monaco, South Korea, Sweden, U.K. and the U.S. The other postretirement employee benefit plans, which provide medical benefits, are unfunded plans. OurThe Company’s U.S. and U.K. defined benefit plans are frozen, and no additional service cost is being accrued. All pension and other postretirement employee benefit plans in the U.S. have been closed to new employees. The measurement date for all plans is December 31.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On October 1, 2020, as a result of the acquisition of Delphi Technologies, the Company assumed all of the retirement-related liabilities of Delphi Technologies, the most significant of which was the Delphi Technologies Pension Scheme (the “Scheme”) in the United Kingdom. On December 12, 2020, the Company entered into a Heads of Terms Agreement (the “Agreement”) with the Trustees of the Scheme related to the future funding of the Scheme. Under the Agreement, the Company eliminated the prior schedule of contributions between Delphi Technologies and the Scheme in exchange for a $137 million (£100 million) one-time contribution into the Scheme Plan by December 31, 2020, which was paid on December 15, 2020. The Agreement also contained other provisions regarding the implementation of a revised asset investment strategy as well as a funding progress test that will be performed every three years to determine if additional contributions need to be made into the Scheme by the Company. At this time, the Company anticipates that no additional contributions will need to be made into the Scheme until 2026 at the earliest.
During the year ended December 31, 2019, the Company settled approximately $50 million of its U.S. pension projected benefit obligation by liquidating approximately $50 million in plan assets through a lump-sum disbursement made to an insurance company. Pursuant to this agreement, the insurance company unconditionally and irrevocably guaranteed all future payments to certain participants that were receiving payments from the U.S. pension plan. The insurance company assumed all investment risk associated with the assets that were delivered as part of this transaction. Additionally, during the year ended December 31, 2019, the Company discharged certain U.S. pension plan obligations by making lump-sum payments of $15 million to former employees of the Company. As a result, the Company settled $65 million of projected benefit obligation by liquidating pension plan assets and recorded a non-cash settlement loss of $27 million related to the accelerated recognition of unamortized losses.
The following table summarizes the expenses for the Company'sCompany’s defined contribution and defined benefit pension plans and the other postretirement defined employee benefit plans.plans:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2021 | | 2020 | | 2019 |
Defined contribution expense | $ | 58 | | | $ | 38 | | | $ | 37 | |
Defined benefit pension (income) expense | (19) | | | 15 | | | 45 | |
Other postretirement employee benefit income | (1) | | | (1) | | | — | |
Total | $ | 38 | | | $ | 52 | | | $ | 82 | |
108
|
| | | | | | | | | | | |
| Year Ended December 31, |
(millions of dollars) | 2018 | | 2017 | | 2016 |
Defined contribution expense | $ | 34.9 |
| | $ | 33.5 |
| | $ | 28.3 |
|
Defined benefit pension expense | 8.5 |
| | 12.5 |
| | 10.1 |
|
Other postretirement employee benefit expense | 0.1 |
| | 0.5 |
| | 1.4 |
|
Total | $ | 43.5 |
| | $ | 46.5 |
| | $ | 39.8 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following provides a roll forward of the plans’ benefit obligations, plan assets, funded status and recognition in the Consolidated Balance Sheets.Sheets:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension benefits | | Other postretirement |
| Year Ended December 31, | | employee benefits |
| 2021 | | 2020 | | Year Ended December 31, |
(in millions) | U.S. | | Non-U.S. | | U.S. | | Non-U.S. | | 2021 | | 2020 |
Change in projected benefit obligation: | | | | | | | | | | | |
Projected benefit obligation, January 1 | $ | 202 | | | $ | 2,527 | | | $ | 198 | | | $ | 695 | | | $ | 65 | | | $ | 81 | |
Service cost | — | | | 25 | | | — | | | 21 | | | — | | | — | |
Interest cost | 3 | | | 30 | | | 5 | | | 16 | | | 1 | | | 2 | |
| | | | | | | | | | | |
Plan amendments | — | | | 1 | | | — | | | — | | | — | | | (12) | |
Settlement and curtailment | (4) | | | (13) | | | — | | | (19) | | | — | | | — | |
Actuarial (gain) loss | (7) | | | (208) | | | 14 | | | 161 | | | (6) | | | 1 | |
Currency translation | — | | | (59) | | | — | | | 147 | | | — | | | — | |
Delphi Technologies acquisition1 | — | | | — | | | — | | | 1,542 | | | — | | | 1 | |
| | | | | | | | | | | |
Benefits paid | (11) | | | (76) | | | (15) | | | (36) | | | (6) | | | (8) | |
Projected benefit obligation, December 312 | $ | 183 | | | $ | 2,227 | | | $ | 202 | | | $ | 2,527 | | | $ | 54 | | | $ | 65 | |
Change in plan assets: | | | | | | | | | | | |
Fair value of plan assets, January 1 | $ | 187 | | | $ | 2,041 | | | $ | 176 | | | $ | 505 | | | | | |
Actual return on plan assets | 5 | | | 110 | | | 16 | | | 83 | | | | | |
Employer contribution | — | | | 24 | | | 10 | | | 164 | | | | | |
| | | | | | | | | | | |
Settlements | (4) | | | (11) | | | — | | | (18) | | | | | |
Currency translation | — | | | (39) | | | — | | | 115 | | | | | |
Delphi Technologies acquisition1 | — | | | — | | | — | | | 1,228 | | | | | |
| | | | | | | | | | | |
Benefits paid | (11) | | | (76) | | | (15) | | | (36) | | | | | |
Fair value of plan assets, December 31 | $ | 177 | | | $ | 2,049 | | | $ | 187 | | | $ | 2,041 | | | | | |
Funded status | $ | (6) | | | $ | (178) | | | $ | (15) | | | $ | (486) | | | $ | (54) | | | $ | (65) | |
Amounts in the Consolidated Balance Sheets consist of: | | | | | | | | | | | |
Non-current assets | $ | — | | | $ | 68 | | | $ | — | | | $ | 26 | | | $ | — | | | $ | — | |
Current liabilities | (2) | | | (7) | | | (1) | | | (6) | | | (7) | | | (9) | |
Non-current liabilities | (4) | | | (239) | | | (14) | | | (506) | | | (47) | | | (56) | |
Net amount | $ | (6) | | | $ | (178) | | | $ | (15) | | | $ | (486) | | | $ | (54) | | | $ | (65) | |
Amounts in accumulated other comprehensive loss consist of: | | | | | | | | | | | |
Net actuarial loss | $ | 84 | | | $ | 74 | | | $ | 86 | | | $ | 330 | | | $ | 10 | | | $ | 16 | |
Net prior service (credit) cost | (3) | | | 2 | | | (4) | | | 2 | | | (13) | | | (16) | |
Net amount | $ | 81 | | | $ | 76 | | | $ | 82 | | | $ | 332 | | | $ | (3) | | | $ | — | |
| | | | | | | | | | | |
Total accumulated benefit obligation for all plans | $ | 183 | | | $ | 2,183 | | | $ | 202 | | | $ | 2,471 | | | | | |
_____________________________
1 Balances are based on actuarial valuations as of October 1, 2020, the date of the Delphi Technologies acquisition. All subsequent activity is included elsewhere within the table.
2 The decrease in the projected benefit obligation was primarily due to actuarial gains during the period. The main driver of these gains was the increase of 0.53% in the weighted average discount rate for Non-U.S. plans.
109
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension benefits | | Other postretirement |
| Year Ended December 31, | | employee benefits |
| 2018 | | 2017 | | Year Ended December 31, |
(millions of dollars) | US | | Non-US | | US | | Non-US | | 2018 | | 2017 |
Change in projected benefit obligation: | |
| | |
| | |
| | |
| | |
| | |
|
Projected benefit obligation, January 1 | $ | 283.3 |
| | $ | 628.8 |
| | $ | 282.5 |
| | $ | 528.2 |
| | $ | 107.0 |
| | $ | 119.9 |
|
Service cost | — |
| | 17.9 |
| | — |
| | 18.0 |
| | 0.1 |
| | 0.1 |
|
Interest cost | 8.5 |
| | 12.0 |
| | 8.9 |
| | 11.0 |
| | 2.9 |
| | 3.2 |
|
Plan participants’ contributions | — |
| | 0.3 |
| | — |
| | 0.3 |
| | — |
| | — |
|
Plan amendments | — |
| | 1.7 |
| | — |
| | — |
| | — |
| | (0.7 | ) |
Settlement and curtailment | — |
| | (4.3 | ) | | — |
| | (3.7 | ) | | — |
| | — |
|
Actuarial (gain) loss | (18.2 | ) | | 4.9 |
| | 8.7 |
| | (7.8 | ) | | (6.7 | ) | | 2.2 |
|
Currency translation | — |
| | (29.4 | ) | | — |
| | 63.4 |
| | — |
| | — |
|
Acquisition | — |
| | — |
| | 4.0 |
| | 37.0 |
| | — |
| | — |
|
Benefits paid | (20.7 | ) | | (19.6 | ) | | (20.8 | ) | | (17.6 | ) | | (16.8 | ) | | (17.7 | ) |
Projected benefit obligation, December 31 | $ | 252.9 |
| | $ | 612.3 |
| | $ | 283.3 |
| | $ | 628.8 |
| | $ | 86.5 |
| | $ | 107.0 |
|
Change in plan assets: | |
| | |
| | |
| | |
| | |
| | |
|
Fair value of plan assets, January 1 | $ | 240.1 |
| | $ | 483.4 |
| | $ | 229.5 |
| | $ | 393.8 |
| | |
| | |
|
Actual return on plan assets | (10.7 | ) | | (18.1 | ) | | 23.5 |
| | 30.7 |
| | |
| | |
|
Employer contribution | 7.0 |
| | 18.8 |
| | 4.0 |
| | 14.3 |
| | |
| | |
|
Plan participants’ contribution | — |
| | 0.3 |
| | — |
| | 0.3 |
| | |
| | |
|
Settlements | — |
| | (4.3 | ) | | — |
| | (3.6 | ) | |
|
| |
|
|
Currency translation | — |
| | (22.0 | ) | | — |
| | 46.8 |
| | |
| | |
|
Acquisition | — |
| | — |
| | 3.8 |
| | 18.1 |
| |
|
| |
|
|
Other | — |
| | — |
| | — |
| | 0.6 |
| | | | |
Benefits paid | (20.6 | ) | | (19.6 | ) | | (20.7 | ) | | (17.6 | ) | | |
| | |
|
Fair value of plan assets, December 31 | $ | 215.8 |
| | $ | 438.5 |
| | $ | 240.1 |
| | $ | 483.4 |
| | | | |
Funded status | $ | (37.1 | ) | | $ | (173.8 | ) | | $ | (43.2 | ) | | $ | (145.4 | ) | | $ | (86.5 | ) | | $ | (107.0 | ) |
Amounts in the Consolidated Balance Sheets consist of: | |
| | |
| | |
| | |
| | |
| | |
|
Non-current assets | $ | — |
| | $ | 16.7 |
| | $ | — |
| | $ | 23.2 |
| | $ | — |
| | $ | — |
|
Current liabilities | (0.5 | ) | | (4.4 | ) | | (0.1 | ) | | (3.9 | ) | | (11.0 | ) | | (13.2 | ) |
Non-current liabilities | (36.6 | ) | | (186.1 | ) | | (43.1 | ) | | (164.7 | ) | | (75.5 | ) | | (93.8 | ) |
Net amount | $ | (37.1 | ) | | $ | (173.8 | ) | | $ | (43.2 | ) | | $ | (145.4 | ) | | $ | (86.5 | ) | | $ | (107.0 | ) |
Amounts in accumulated other comprehensive loss consist of: | |
| | |
| | |
| | |
| | |
| | |
|
Net actuarial loss | $ | 113.1 |
| | $ | 193.0 |
| | $ | 111.0 |
| | $ | 159.0 |
| | $ | 13.2 |
| | $ | 20.8 |
|
Net prior service (credit) cost | (5.8 | ) | | 2.2 |
| | (6.6 | ) | | 0.8 |
| | (11.8 | ) | | (15.8 | ) |
Net amount* | $ | 107.3 |
| | $ | 195.2 |
| | $ | 104.4 |
| | $ | 159.8 |
| | $ | 1.4 |
| | $ | 5.0 |
|
| | | | | | | | | | | |
Total accumulated benefit obligation for all plans | $ | 252.9 |
| | $ | 583.3 |
| | $ | 283.3 |
| | $ | 602.0 |
| | |
| | |
|
________________
| |
* | AOCI shown above does not include our equity investee, NSK-Warner. NSK-Warner had an AOCI loss of $9.2 million and $9.7 million at December 31, 2018 and 2017, respectively. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The funded status of pension plans with accumulated benefit obligations in excess of plan assets at December 31 is as follows: | | | | | | | | | | | |
| December 31, |
(in millions) | 2021 | | 2020 |
Accumulated benefit obligation | $ | (658) | | | $ | (2,401) | |
Plan assets | 442 | | | 1,924 | |
Deficiency | $ | (216) | | | $ | (477) | |
Pension deficiency by country: | | | |
United States | $ | (6) | | | $ | (15) | |
United Kingdom | (11) | | | (202) | |
Germany | (89) | | | (139) | |
Other | (110) | | | (121) | |
Total pension deficiency | $ | (216) | | | $ | (477) | |
|
| | | | | | | |
| December 31, |
(millions of dollars) | 2018 | | 2017 |
Accumulated benefit obligation | $ | (649.9 | ) | | $ | (681.2 | ) |
Plan assets | 449.9 |
| | 494.8 |
|
Deficiency | $ | (200.0 | ) | | $ | (186.4 | ) |
Pension deficiency by country: | |
| | |
|
United States | $ | (37.1 | ) | | $ | (43.2 | ) |
Germany | (95.4 | ) | | (75.7 | ) |
Other | (67.5 | ) | | (67.5 | ) |
Total pension deficiency | $ | (200.0 | ) | | $ | (186.4 | ) |
The funded status of pension plans with projected benefit obligations in excess of plan assets is as follows: | | | | | | | | | | | |
| December 31, |
(in millions) | 2021 | | 2020 |
Projected benefit obligation | $ | (731) | | | $ | (2,500) | |
Plan assets | 478 | | | 1,973 | |
Deficiency | $ | (253) | | | $ | (527) | |
Pension deficiency by country: | | | |
United States | $ | (6) | | | $ | (15) | |
United Kingdom | (11) | | | (202) | |
Germany | (95) | | | (147) | |
Other | (141) | | | (163) | |
Total pension deficiency | $ | (253) | | | $ | (527) | |
The weighted average asset allocations of the Company’s funded pension plans and target allocations by asset category are as follows:
| | | | | | | | | | | | | | | | | |
| December 31, | | Target Allocation |
| 2021 | | 2020 | |
U.S. Plans: | | | | | |
Alternative credit, real estate, cash and other | 12 | % | | 23 | % | | 3% - 23% |
Fixed income securities | 72 | % | | 43 | % | | 66% - 76% |
Equity securities | 16 | % | | 34 | % | | 11% - 21% |
| 100 | % | | 100 | % | | |
Non-U.S. Plans: | | | | | |
Insurance contract, real estate, cash and other1 | 45 | % | | 31 | % | | 19% - 39% |
Fixed income securities1 | 35 | % | | 55 | % | | 47% - 57% |
Equity securities | 20 | % | | 14 | % | | 14% - 24% |
| 100 | % | | 100 | % | | |
_____________________________ |
| | | | | | | |
| December 31, | | Target Allocation |
| 2018 | | 2017 | |
U.S. Plans: | |
| | |
| | |
Real estate and other | 11 | % | | 11 | % | | 0% - 15% |
Fixed income securities | 56 | % | | 53 | % | | 45% - 65% |
Equity securities | 33 | % | | 36 | % | | 25% - 45% |
| 100 | % | | 100 | % | | |
Non-U.S. Plans: | |
| | |
| | |
Real estate and other | 8 | % | | 8 | % | | 0% - 10% |
Fixed income securities | 55 | % | | 44 | % | | 43% - 65% |
Equity securities | 37 | % | | 48 | % | | 30% - 56% |
| 100 | % | | 100 | % | | |
1 As of December 31, 2021, £122 million in the Company’s non-U.S. plans was deemed cash in-transit, driving the variances between actual allocation and target allocation.
The Company'sCompany’s investment strategy is to maintain actual asset weightings within a preset range of target allocations. The Company believes these ranges represent an appropriate risk profile for the planned benefit payments of the plans based on the timing of the estimated benefit payments. In each asset
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
category, separate portfolios are maintained for additional diversification. Investment managers are retained in each asset category to manage each portfolio against its benchmark. Each investment manager has appropriate investment guidelines. In addition, the entire portfolio is evaluated against a relevant peer group. The defined benefit pension plans did not hold any Company securities as investments as of December 31, 20182021 and 2017.2020. A portion of pension assets is invested in common and commingled trusts.
The Company expects to contribute a total of $15$20 million to $25$30 million into its defined benefit pension plans during 2019.2022. Of the $15$20 million to $25$30 million in projected 20192022 contributions, $4.0$7 million are contractually obligated, while any remaining payments would be discretionary.
Refer to Note 10, "Fair16, “Fair Value Measurements,"” to the Consolidated Financial Statements for more detail surrounding the fair value of each major category of plan assets, as well as the inputs and valuation techniques used to develop the fair value measurements of the plans'plans’ assets at December 31, 20182021 and 2017.2020.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
See the table below for a breakout of net periodic benefit cost between U.S. and non-U.S. pension plans:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension benefits | | Other postretirement employee benefits |
| Year Ended December 31, | |
| 2021 | | 2020 | | 2019 | | Year Ended December 31, |
(in millions) | U.S. | | Non-U.S. | | U.S. | | Non-U.S. | | U.S. | | Non-U.S. | | 2021 | | 2020 | | 2019 |
Service cost | $ | — | | | $ | 25 | | | $ | — | | | $ | 21 | | | $ | — | | | $ | 18 | | | $ | — | | | $ | — | | | $ | — | |
Interest cost | 3 | | | 30 | | | 5 | | | 16 | | | 8 | | | 12 | | | 1 | | | 2 | | | 3 | |
Expected return on plan assets | (10) | | | (83) | | | (10) | | | (36) | | | (11) | | | (22) | | | — | | | — | | | — | |
Settlements, curtailments and other | 2 | | | (2) | | | — | | | 5 | | | 27 | | | 1 | | | — | | | — | | | — | |
Amortization of unrecognized prior service (credit) cost | (1) | | | — | | | — | | | — | | | (1) | | | — | | | (3) | | | (4) | | | (4) | |
Amortization of unrecognized loss | 4 | | | 13 | | | 3 | | | 11 | | | 4 | | | 9 | | | 1 | | | 1 | | | 1 | |
Net periodic cost (income) | $ | (2) | | | $ | (17) | | | $ | (2) | | | $ | 17 | | | $ | 27 | | | $ | 18 | | | $ | (1) | | | $ | (1) | | | $ | — | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension benefits | | Other postretirement employee benefits |
| Year Ended December 31, | |
| 2018 | | 2017 | | 2016 | | Year Ended December 31, |
(millions of dollars) | US | | Non-US | | US | | Non-US | | US | | Non-US | | 2018 | | 2017 | | 2016 |
Service cost | $ | — |
| | $ | 17.9 |
| | $ | — |
| | $ | 18.0 |
| | $ | — |
| | $ | 16.2 |
| | $ | 0.1 |
| | $ | 0.1 |
| | $ | 0.2 |
|
Interest cost | 8.5 |
| | 12.0 |
| | 8.9 |
| | 11.0 |
| | 9.6 |
| | 12.5 |
| | 2.9 |
| | 3.2 |
| | 4.0 |
|
Expected return on plan assets | (13.6 | ) | | (27.0 | ) | | (13.2 | ) | | (23.8 | ) | | (15.0 | ) | | (24.3 | ) | | — |
| | — |
| | — |
|
Settlements, curtailments and other | — |
| | 0.3 |
| | — |
| | 0.3 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Amortization of unrecognized prior service (credit) cost | (0.8 | ) | | 0.1 |
| | (0.8 | ) | | — |
| | (0.8 | ) | | 0.6 |
| | (4.1 | ) | | (4.1 | ) | | (4.9 | ) |
Amortization of unrecognized loss | 4.2 |
| | 6.9 |
| | 4.2 |
| | 7.9 |
| | 5.1 |
| | 6.2 |
| | 1.2 |
| | 1.3 |
| | 2.1 |
|
Net periodic (income) cost | $ | (1.7 | ) | | $ | 10.2 |
| | $ | (0.9 | ) | | $ | 13.4 |
| | $ | (1.1 | ) | | $ | 11.2 |
| | $ | 0.1 |
| | $ | 0.5 |
| | $ | 1.4 |
|
The components of net periodic benefit cost other than the service cost component are included in Other postretirement income in the Condensed Consolidated Statements of Operations.
The estimated net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $14.1 million. The estimated net loss and prior service credit for the other postretirement employee benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year are $0.6 million and $3.6 million, respectively.
The Company'sCompany’s weighted-average assumptions used to determine the benefit obligations for its defined benefit pension and other postretirement employee benefit plans as of December 31, 2018 and 2017 were as follows:
| | | | | | | | | | | |
| December 31, |
(percent) | 2021 | | 2020 |
U.S. pension plans: | | | |
Discount rate | 2.73 | | | 2.31 | |
Rate of compensation increase | N/A | | N/A |
U.S. other postretirement employee benefit plans: | | | |
Discount rate | 2.46 | | | 1.93 | |
Rate of compensation increase | N/A | | N/A |
Non-U.S. pension plans: | | | |
Discount rate1 | 1.97 | | | 1.44 | |
Rate of compensation increase | 3.21 | | | 3.23 | |
|
| | | |
| December 31, |
(percent) | 2018 | | 2017 |
U.S. pension plans: | | | |
Discount rate | 4.24 | | 3.55 |
Rate of compensation increase | N/A | | N/A |
U.S. other postretirement employee benefit plans: | | | |
Discount rate | 4.05 | | 3.32 |
Rate of compensation increase | N/A | | N/A |
Non-U.S. pension plans: | | | |
Discount rate | 2.28 | | 2.25 |
Rate of compensation increase | 2.99 | | 2.98 |
________________
1 Includes 1.91% and 1.39% for the U.K. pension plans for December 31, 2021 and 2020, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company'sCompany’s weighted-average assumptions used to determine the net periodic benefit cost/(income) for its defined benefit pension and other postretirement employee benefit plans for the years ended December 31, 2018 and 2017 were as follows:
| | | | | | | | | | | |
| Year Ended December 31, |
(percent) | 2021 | | 2020 |
U.S. pension plans: | | | |
Discount rate | 2.31 | | | 3.17 | |
Effective interest rate on benefit obligation | 1.62 | | | 2.73 | |
Expected long-term rate of return on assets | 5.75 | | | 6.00 | |
Average rate of increase in compensation | N/A | | N/A |
U.S. other postretirement plans: | | | |
Discount rate | 1.93 | | | 2.95 | |
Effective interest rate on benefit obligation | 1.21 | | | 2.50 | |
Expected long-term rate of return on assets | N/A | | N/A |
Average rate of increase in compensation | N/A | | N/A |
Non-U.S. pension plans: | | | |
Discount rate1 | 1.44 | | | 1.69 | |
Effective interest rate on benefit obligation | 1.24 | | | 2.19 | |
Expected long-term rate of return on assets2 | 4.10 | | | 4.75 | |
Average rate of increase in compensation | 3.23 | | | 3.10 | |
|
| | | |
| Year Ended December 31, |
(percent) | 2018 | | 2017 |
U.S. pension plans: | | | |
Discount rate - service cost | 3.55 | | 3.94 |
Effective interest rate on benefit obligation | 3.13 | | 3.26 |
Expected long-term rate of return on assets | 6.00 | | 6.01 |
Average rate of increase in compensation | N/A | | N/A |
U.S. other postretirement plans: | | | |
Discount rate - service cost | 2.65 | | 2.68 |
Effective interest rate on benefit obligation | 2.86 | | 2.85 |
Expected long-term rate of return on assets | N/A | | N/A |
Average rate of increase in compensation | N/A | | N/A |
Non-U.S. pension plans: | | | |
Discount rate - service cost | 2.71 | | 2.55 |
Effective interest rate on benefit obligation | 1.98 | | 1.96 |
Expected long-term rate of return on assets | 5.73 | | 5.68 |
Average rate of increase in compensation | 2.98 | | 3.00 |
________________
1 Includes 1.39% and 1.82% for the U.K. pension plans for December 31, 2021 and 2020, respectively.
2 Includes 4.00% and 3.97% for the U.K. pension plans for December 31, 2021 and 2020, respectively.
The Company's approach to establishing the discount rate is based upon the market yields of high-quality corporate bonds, with appropriate consideration of each plan's defined benefit payment terms and duration of the liabilities. In determining the discount rate, the Company utilizes a full yieldfull-yield approach in the estimation of service and interest components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows.
The Company determines its expected return on plan asset assumptions by evaluating estimates of future market returns and the plans'plans’ asset allocation. The Company also considers the impact of active management of the plans'plans’ invested assets.
The estimated future benefit payments for the pension and other postretirement employee benefits are as follows:
|
| | | | | | | | | | | | |
| | Pension benefits | | Other postretirement employee benefits |
(millions of dollars) | | | | | |
Year | | U.S. | | Non-U.S. | |
2019 | | $ | 22.5 |
| | $ | 19.6 |
| | $ | 11.0 |
|
2020 | | 19.8 |
| | 21.7 |
| | 10.3 |
|
2021 | | 18.9 |
| | 21.9 |
| | 9.5 |
|
2022 | | 18.3 |
| | 22.6 |
| | 9.1 |
|
2023 | | 17.8 |
| | 23.8 |
| | 8.0 |
|
2024-2028 | | 84.2 |
| | 134.0 |
| | 28.9 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Pension benefits | | Other postretirement employee benefits |
(in millions) | | | | | |
Year | | U.S. | | Non-U.S. | |
2022 | | $ | 19 | | | $ | 73 | | | $ | 7 | |
2023 | | 14 | | | 75 | | | 6 | |
2024 | | 13 | | | 74 | | | 6 | |
2025 | | 13 | | | 77 | | | 5 | |
2026 | | 13 | | | 81 | | | 5 | |
2027-2031 | | 55 | | | 462 | | | 16 | |
The weighted-average rate of increase in the per capita cost of covered health care benefits is projected to be 6.50%range from 6.25% in 2019 for pre-65 and post-65 participants, decreasing2022 down to 5.0% by the year 2025. A one-percentage point change in the assumed health care costan ultimate trend would have the following effects:rate of 4.75%.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
| | | | | | | |
| One Percentage Point |
(millions of dollars) | Increase | | Decrease |
Effect on other postretirement employee benefit obligation | $ | 5.5 |
| | $ | (4.9 | ) |
Effect on total service and interest cost components | $ | 0.2 |
| | $ | (0.2 | ) |
| |
NOTE 13 | STOCK-BASED COMPENSATION |
NOTE 19 STOCK-BASED COMPENSATION
The Company has granted restricted common stock and restricted stock units (collectively, "restricted stock"“restricted stock”) and performance share units as long-term incentive awards to employees and non-employee directors under the BorgWarner Inc. 2014 Stock Incentive Plan, as amended ("2014 Plan") and the BorgWarner Inc. 2018 Stock Incentive Plan ("(“2018 Plan"Plan”). The Company'sCompany’s Board of Directors adopted the 2018 Plan as a replacement to the 2014 Plan in February 2018, and the Company'sCompany’s stockholders approved the 2018 Plan at the annual meeting of stockholders on April 25, 2018. After stockholders approved the 2018 Plan, the Company could no longer make grants under the 2014 Plan. The shares that were available for issuance under the 2014 Plan were cancelled upon approval of the 2018 Plan. The 2018 Plan authorizes the issuance of a total of 7 million shares, of which approximately 6.94 million shares were available for future issuance as of December 31, 2018.2021.
Stock Options A summary of the plans’ shares under option at December 31, 2018, 2017 and 2016 is as follows:
|
| | | | | | | | | | | | |
| Shares (thousands) | | Weighted average exercise price | | Weighted average remaining contractual life (in years) | | Aggregate intrinsic value (in millions) |
Outstanding at January 1, 2016 | 1,267 |
| | $ | 16.59 |
| | 0.9 | | $ | 33.7 |
|
Exercised | (794 | ) | | $ | 16.07 |
| | | | $ | 14.4 |
|
Outstanding at December 31, 2016 | 473 |
| | $ | 17.47 |
| | 0.1 | | $ | 10.4 |
|
Exercised | (473 | ) | | $ | 17.47 |
| | | | $ | 10.4 |
|
Outstanding at December 31, 2017 | — |
| | $ | — |
| | 0.0 | | $ | — |
|
Exercised | — |
| | $ | — |
| |
| | $ | — |
|
Outstanding at December 31, 2018 | — |
| | $ | — |
| | 0.0 | | $ | — |
|
| | | | | | | |
Options exercisable at December 31, 2018 | — |
| | $ | — |
| | 0.0 | | $ | — |
|
Proceeds from stock option exercises for the years ended December 31, 2018, 2017 and 2016 were as follows:
|
| | | | | | | | | | | |
| Year Ended December 31, |
(millions of dollars) | 2018 | | 2017 | | 2016 |
Proceeds from stock options exercised — gross | $ | — |
| | $ | 8.3 |
| | $ | 12.7 |
|
Tax benefit | — |
| | 8.2 |
| | 0.3 |
|
Proceeds from stock options exercised, net of tax | $ | — |
| | $ | 16.5 |
| | $ | 13.0 |
|
Restricted StockStock: The value of restricted stock is determined by the market value of the Company’s common stock at the date of grant. In 2018,2021, restricted stock in the amount of 717,8331.2 million shares and 19,656less than 0.1 million shares waswere granted to employees and non-employee directors, respectively. The value of the awards is recognized as compensation expense ratably over the restriction periods. As of December 31, 2018,2021, there was $29.3$45 million of unrecognized compensation expense related to restricted stock that will be recognized over a weighted average period of approximately 21.2 years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Restricted stock compensation expense recorded in the Consolidated Statements of Operations is as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in millions, except per share data) | 2021 | | 2020 | | 2019 |
Restricted stock compensation expense | $ | 37 | | | $ | 31 | | | $ | 30 | |
Restricted stock compensation expense, net of tax | $ | 28 | | | $ | 23 | | | $ | 23 | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
(millions of dollars, except per share data) | 2018 | | 2017 | | 2016 |
Restricted stock compensation expense | $ | 25.9 |
| | $ | 27.0 |
| | $ | 26.7 |
|
Restricted stock compensation expense, net of tax | $ | 19.7 |
| | $ | 19.7 |
| | $ | 19.5 |
|
A summary of the status of the Company’s nonvested restricted stock for employees and non-employee directors at December 31, 2018, 2017 and 2016 is as follows:
| | | | | | | | | | | |
| Shares subject to restriction (thousands) | | Weighted average grant date fair value |
Nonvested at January 1, 2019 | 1,516 | | | $ | 42.97 | |
Granted | 1,082 | | | $ | 41.66 | |
Vested | (724) | | | $ | 36.81 | |
Forfeited | (210) | | | $ | 44.82 | |
Nonvested at December 31, 2019 | 1,664 | | | $ | 44.26 | |
Granted | 810 | | | $ | 33.94 | |
Vested | (600) | | | $ | 44.85 | |
Forfeited | (80) | | | $ | 40.20 | |
Converted1 | 346 | | | $ | 39.54 | |
Nonvested at December 31, 2020 | 2,140 | | | $ | 39.58 | |
Granted | 1,175 | | | $ | 43.66 | |
Vested | (845) | | | $ | 43.34 | |
Forfeited | (107) | | | $ | 39.86 | |
| | | |
Nonvested at December 31, 2021 | 2,363 | | | $ | 40.24 | |
|
| | | | | | |
| Shares subject to restriction (thousands) | | Weighted average grant date fair value |
Nonvested at January 1, 2016 | 1,326 |
| | $ | 53.18 |
|
Granted | 724 |
| | $ | 30.07 |
|
Vested | (551 | ) | | $ | 47.55 |
|
Forfeited | (70 | ) | | $ | 43.05 |
|
Nonvested at December 31, 2016 | 1,429 |
| | $ | 44.12 |
|
Granted | 804 |
| | $ | 40.10 |
|
Vested | (521 | ) | | $ | 56.53 |
|
Forfeited | (119 | ) | | $ | 38.97 |
|
Nonvested at December 31, 2017 | 1,593 |
| | $ | 38.86 |
|
Granted | 737 |
| | $ | 51.70 |
|
Vested | (556 | ) | | $ | 42.25 |
|
Forfeited | (258 | ) | | $ | 44.51 |
|
Nonvested at December 31, 2018 | 1,516 |
| | $ | 42.97 |
|
________________
1 Represents outstanding Delphi Technologies restricted stock converted to BorgWarner restricted stock. The Delphi Technologies awards were converted using an exchange ratio of 0.4307 at the close of the acquisition.
Total Shareholder Return
Performance Share Units share units:The 2014 and 2018 Plans provide for awarding ofCompany grants performance sharesshare units to members of senior management that vest at the end of successive three-year periods based the following metrics:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
•Total Stockholder Return Units: This performance metric is based on the Company'sCompany’s market performance in terms of total shareholder return relative to a peer group of automotive and industrial companies. Based on the Company’s relative ranking within the performance peer group, it is possible for none of the awards to vest or for a range of up to the 200% of the target shares to vest.
The Company recognizes compensation expense relating to itsthis performance share plansplan ratably over the performance period regardless of whether the market conditions are expected to be achieved. Compensation expense associated with the performance share plans is calculated using a lattice model (Monte Carlo simulation). The amounts expensed under the plan and the common stock issuances for the three-year measurement periods ended December 31, 2018, 2017 and 2016 were as follows:
|
| | | | | | | | | | | |
| Year Ended December 31, |
(millions of dollars, except share data) | 2018 | | 2017 | | 2016 |
Expense | $ | 9.0 |
| | $ | 9.9 |
| | $ | 9.6 |
|
Number of shares | — |
| | — |
| | — |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of the status of the Company's nonvested total shareholder return performance share units at December 31, 2018, 2017 and 2016 is as follows:
|
| | | | | | |
| Number of shares (thousands) | | Weighted average grant date fair value |
Nonvested at January 1, 2016 | 475 |
| | $ | 56.55 |
|
Granted | 171 |
| | $ | 16.61 |
|
Forfeited | (236 | ) | | $ | 49.37 |
|
Nonvested at December 31, 2016 | 410 |
| | $ | 43.99 |
|
Granted | 201 |
| | $ | 45.57 |
|
Forfeited | (256 | ) | | $ | 61.40 |
|
Nonvested at December 31, 2017 | 355 |
| | $ | 32.35 |
|
Granted | 287 |
| | $ | 68.38 |
|
Forfeited | (345 | ) | | $ | 38.26 |
|
Nonvested at December 31, 2018 | 297 |
| | $ | 60.35 |
|
As of December 31, 2018,2021, there was $7.5$8 million of unrecognized compensation expense related to total stockholder return units that will be recognized over a weighted average period of approximately 1.41.8 years.
•Relative Revenue Growth Performance Share Units In the second quarter of 2016, the Company started a newUnits: This performance share program to reward members of senior managementmetric is based on the Company'sCompany’s performance in terms of revenue growth relative to the vehicle market over three-year performance periods. Based on the Company’s relative revenue growth in excess of the industry vehicle production, it is possible for none of the awards to vest or for a range of up to 200% of the target shares to vest.
The value of this performance share award is determined by the market value of the Company’s common stock at the date of grant. The Company recognizes compensation expense relating to
itsthis performance share
plansplan over the performance period based on the number of shares expected to vest at the end of each reporting period. The actual performance of the Company is evaluated quarterly and the expense is adjusted according to the new projections.
The amounts expensed under the plan and common stock issuance for the year ended December 31, 2018, 2017 and 2016 were as follows: |
| | | | | | | | | | | |
| Year Ended December 31, |
(millions of dollars, except share data) | 2018 | | 2017 | | 2016 |
Expense | $ | 18.0 |
| | $ | 15.9 |
| | $ | 7.1 |
|
Number of shares | 249,000 |
| | 126,000 |
| | — |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of the status of the Company’s nonvested relative revenue growth performance shares at December 31, 2018, 2017 and 2016 is as follows:
|
| | | | | | |
| Number of shares (thousands) | | Weighted average grant date fair value |
Nonvested at January 1, 2016 | — |
| | $ | — |
|
Granted | 485 |
| | $ | 38.62 |
|
Vested | (126 | ) | | $ | 38.62 |
|
Forfeited | (39 | ) | | $ | 38.62 |
|
Nonvested at December 31, 2016 | 320 |
| | $ | 38.62 |
|
Granted | 198 |
| | $ | 40.08 |
|
Vested | (156 | ) | | $ | 38.62 |
|
Forfeited | (7 | ) | | $ | 39.20 |
|
Nonvested at December 31, 2017 | 355 |
| | $ | 39.42 |
|
Granted | 287 |
| | $ | 50.82 |
|
Vested | (166 | ) | | $ | 38.62 |
|
Forfeited | (179 | ) | | $ | 45.82 |
|
Nonvested at December 31, 2018 | 297 |
| | $ | 47.03 |
|
Based on the Company’s relative revenue growth in excess of the industry vehicle production, it is possible for none of the awards to vest or for a range up to the 200% of the target shares to vest. As of December 31, 2018,2021, there was $8.6$3 million of unrecognized compensation expense related to relative revenue growth units that will be recognized over a weighted average period of approximately 1.41.0 years. The unrecognized amount of compensation expense is based on projected performance as of December 31, 2018.2021.
•Adjusted Earnings Per Share Units: Introduced in the first quarter of 2020, this performance metric is based on the Company’s earnings per share adjusted for certain one-time items and non-operating gains and losses against a pre-defined target measured in the third year of the performance period.
In 2018,The value of this performance share award is determined by the adjusted earnings per share performance. The Company recognizes compensation expense relating to this performance share plan over the performance period based on the number of shares expected to vest at the end of each reporting period. The actual performance of the Company modifiedis evaluated quarterly, and the vesting provisionsexpense is adjusted according to the new projections.
As of restricted stock and performance share unit grants made to retiring executive officers to allow certainDecember 31, 2021, there was $1 million of the outstanding awards, that otherwise would have been forfeited, to vest upon retirement. This resulted in net restricted stock and performance share unitunrecognized compensation expense of $8.3 million in the year ended December 31, 2018. Additional incremental compensation expense of $4.0 million related to these modified awardsadjusted earnings per share units that will be recognized ratably through February 2019.over a weighted average period of approximately 1 years.
•eProducts Revenue Mix: Introduced in the first quarter of 2021, this performance metric is based on the Company’s total revenue derived from eProducts in relation to its total proforma revenue in 2023. Based on the Company’s eProducts revenue mix, it is possible for none of the awards to vest or for a range of up to 200% of the target shares to vest.
The value of this performance share award is determined by the market value of the Company’s common stock at the date of grant. The Company recognizes compensation expense relating to this performance share plan over the performance period based on the number of shares expected to vest at the end of each reporting period. The actual performance of the Company is evaluated quarterly and the expense is adjusted according to the new projections.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of December 31, 2021, there was $9 million of unrecognized compensation expense related to the eProducts revenue mix units that will be recognized over a weighted average period of approximately 2.0 years. The unrecognized amount of compensation expense is based on projected performance as of December 31, 2021.
•Cumulative Free Cash Flow: Introduced in the first quarter of 2021, this performance metric is based on the Company’s performance in terms of its operating cash flow, less capital expenditures, for the 3-year period from 2021-2023. Based on the Company’s cumulative free cash flow, it is possible for none of the awards to vest or for a range of up to 200% of the target shares to vest.
The value of this performance share award is determined by the market value of the Company’s common stock at the date of grant. The Company recognizes compensation expense relating to this performance share plan over the performance period based on the number of shares expected to vest at the end of each reporting period. The actual performance of the Company is evaluated quarterly and the expense is adjusted according to the new projections.
As of December 31, 2021, there was $4 million of unrecognized compensation expense related to the cumulative free cash flow units that will be recognized over a weighted average period of approximately 2.0 years. The unrecognized amount of compensation expense is based on projected performance as of December 31, 2021.
The amounts expensed and common stock issued for performance share units for the years ended December 31, 2021, 2020 and 2019 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Expense (in millions) | Number of shares issued (in thousands) | | Expense (in millions) | Number of shares issued (in thousands) | | Expense (in millions) | Number of shares issued (in thousands) |
Total Stockholder Return | $ | 6 | | — | | | $ | 5 | | 165 | | | $ | 5 | | — | |
Other Performance-Based | 18 | | 148 | | | 5 | | 340 | | | 7 | | 315 | |
Total | $ | 24 | | 148 | | | $ | 10 | | 505 | | | $ | 12 | | 315 | |
A summary of the status of the Company’s nonvested performance share units for the years ended December 31, 2021, 2020 and 2019 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Total Stockholder Return | | Other Performance-Based |
| Number of shares (in thousands) | | Weighted average grant date fair value | | Number of shares (in thousands) | | Weighted average grant date fair value |
Nonvested at January 1, 2019 | 297 | | | $ | 60.35 | | | 297 | | | $ | 47.03 | |
Granted | 196 | | | $ | 51.52 | | | 196 | | | $ | 41.90 | |
Vested | (160) | | | $ | 45.78 | | | (160) | | | $ | 40.10 | |
Forfeited | (93) | | | $ | 55.82 | | | (93) | | | $ | 44.30 | |
Nonvested at December 31, 2019 | 240 | | | $ | 64.61 | | | 240 | | | $ | 48.52 | |
Granted | 137 | | | $ | 28.55 | | | 253 | | | $ | 34.15 | |
Vested | (89) | | | $ | 69.75 | | | (89) | | | $ | 51.29 | |
Forfeited | (17) | | | $ | 57.36 | | | (19) | | | $ | 44.19 | |
Nonvested at December 31, 2020 | 271 | | | $ | 45.20 | | | 385 | | | $ | 38.66 | |
Granted | 135 | | | $ | 70.39 | | | 404 | | | $ | 45.30 | |
Vested | (143) | | | $ | 47.93 | | | (143) | | | $ | 41.92 | |
Forfeited | (4) | | | $ | 37.28 | | | (6) | | | $ | 36.79 | |
| | | | | | | |
Nonvested at December 31, 2021 | 259 | | | $ | 56.90 | | | 640 | | | $ | 42.14 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 1420 ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table summarizes the activity within accumulated other comprehensive lossloss:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | Foreign currency translation adjustments | | Hedge instruments | | Defined benefit postretirement plans | | Other | | Total |
Beginning Balance, January 1, 2019 | | $ | (442) | | | $ | — | | | $ | (234) | | | $ | 2 | | | $ | (674) | |
| | | | | | | | | | |
Comprehensive (loss) income before reclassifications | | (51) | | | (1) | | | (29) | | | (2) | | | (83) | |
Income taxes associated with comprehensive (loss) income before reclassifications | | (4) | | | — | | | 4 | | | — | | | — | |
Reclassification from accumulated other comprehensive (loss) income | | — | | | 1 | | | 37 | | | — | | | 38 | |
Income taxes reclassified into net earnings | | — | | | — | | | (8) | | | — | | | (8) | |
Ending Balance December 31, 2019 | | $ | (497) | | | $ | — | | | $ | (230) | | | $ | — | | | $ | (727) | |
Comprehensive (loss) income before reclassifications | | 133 | | | (1) | | | (131) | | | — | | | 1 | |
Income taxes associated with comprehensive (loss) income before reclassifications | | 43 | | | — | | | 18 | | | — | | | 61 | |
Reclassification from accumulated other comprehensive (loss) income | | — | | | 1 | | | 16 | | | — | | | 17 | |
Income taxes reclassified into net earnings | | — | | | — | | | (3) | | | — | | | (3) | |
Ending Balance December 31, 2020 | | $ | (321) | | | $ | — | | | $ | (330) | | | $ | — | | | $ | (651) | |
Comprehensive (loss) income before reclassifications1 | | (59) | | | (4) | | | 255 | | | — | | | 192 | |
Income taxes associated with comprehensive (loss) income before reclassifications | | (43) | | | — | | | (64) | | | — | | | (107) | |
Reclassification from accumulated other comprehensive (loss) income | | — | | | 4 | | | 14 | | | — | | | 18 | |
Income taxes reclassified into net earnings | | — | | | — | | | (3) | | | — | | | (3) | |
Ending Balance December 31, 2021 | | $ | (423) | | | $ | — | | | $ | (128) | | | $ | — | | | $ | (551) | |
_____________________________
1 The increase in the defined benefit postretirement plans comprehensive income before reclassifications is primarily due to actuarial gains during the years ended December 31, 2018, 2017 and 2016:period. Refer to Note 18 “Retirement Benefit Plans,” for more information.
The change in other comprehensive income for the Company’s noncontrolling interest entities is related to foreign currency translation.
NOTE 21 CONTINGENCIES
|
| | | | | | | | | | | | | | | | | | | | |
(millions of dollars) | | Foreign currency translation adjustments | | Hedge instruments | | Defined benefit postretirement plans | | Other | | Total |
Beginning Balance, January 1, 2016 | | $ | (421.2 | ) | | $ | (2.0 | ) | | $ | (189.9 | ) | | $ | 2.9 |
| | $ | (610.2 | ) |
Comprehensive (loss) income before reclassifications | | (109.1 | ) | | 8.0 |
| | (11.4 | ) | | (1.6 | ) | | (114.1 | ) |
Income taxes associated with comprehensive (loss) income before reclassifications | | — |
| | (0.7 | ) | | (2.6 | ) | | — |
| | (3.3 | ) |
Reclassification from accumulated other comprehensive (loss) income | | — |
| | 0.1 |
| | 8.3 |
| | — |
| | 8.4 |
|
Income taxes reclassified into net earnings | | — |
| | (0.4 | ) | | (2.5 | ) | | — |
| | (2.9 | ) |
Ending Balance December 31, 2016 | | $ | (530.3 | ) | | $ | 5.0 |
| | $ | (198.1 | ) | | $ | 1.3 |
| | $ | (722.1 | ) |
Comprehensive (loss) income before reclassifications | | 236.5 |
| | (4.5 | ) | | (5.0 | ) | | 1.4 |
| | 228.4 |
|
Income taxes associated with comprehensive (loss) income before reclassifications | | — |
| | 1.0 |
| | (0.5 | ) | | — |
| | 0.5 |
|
Reclassification from accumulated other comprehensive (loss) income | | — |
| | (3.8 | ) | | 8.5 |
| | — |
| | 4.7 |
|
Income taxes reclassified into net earnings | | — |
| | 1.0 |
| | (2.5 | ) | | — |
| | (1.5 | ) |
Ending Balance December 31, 2017 | | $ | (293.8 | ) | | $ | (1.3 | ) | | $ | (197.6 | ) | | $ | 2.7 |
| | $ | (490.0 | ) |
Adoption of Accounting Standard | | — |
| | — |
| | (14.0 | ) | | — |
| | (14.0 | ) |
Comprehensive (loss) income before reclassifications | | (152.8 | ) | | (1.7 | ) | | (41.9 | ) | | (1.1 | ) | | (197.5 | ) |
Income taxes associated with comprehensive (loss) income before reclassifications | | 5.2 |
| | 0.2 |
| | 13.5 |
| | — |
| | 18.9 |
|
Reclassification from accumulated other comprehensive (loss) income | | — |
| | 3.9 |
| | 7.5 |
| | — |
| | 11.4 |
|
Income taxes reclassified into net earnings | | — |
| | (0.8 | ) | | (2.1 | ) | | — |
| | (2.9 | ) |
Ending Balance December 31, 2018 | | $ | (441.4 | ) | | $ | 0.3 |
| | $ | (234.6 | ) | | $ | 1.6 |
| | $ | (674.1 | ) |
In the normal course of business, the Company is party to various commercial and legal claims, actions and complaints, including matters involving warranty claims, intellectual property claims, general liability and various other risks. It is not possible to predict with certainty whether or not the Company will ultimately be successful in any of these commercial and legal matters or, if not, what the impact might be. The Company's environmental and product liability contingencies are discussed separately below. The Company'sCompany’s management does not expect that an adverse outcome in any of these commercial and legal claims, actions and complaints that are currently pending will have a material adverse effect on the Company'sCompany’s results of operations, financial position or cash flows, although itflows. An adverse outcome could, nonetheless, be material to the results of operations or cash flows.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company previously disclosed a warranty claim that an OEM customer asserted. The claim was related to certain combustion-related products, and the Company and the customer continued to work through the warranty process in the fourth quarter of 2021. In December 2021, as a particular quarter.result of discussions that occurred in the fourth quarter, the Company (without any admission of liability) and the customer reached an agreement to fully resolve the claim for $130 million, which the Company paid in 2021. For the year ended December 31, 2021, the Company recorded cumulative charges of $124 million in connection with the warranty claim. The Company is pursuing a partial recovery of this claim through its insurance coverage. However, there is no assurance that there will be any recovery.
Environmental
The Company and certain of its current and former direct and indirect corporate predecessors, subsidiaries and divisions have been identified by the United States Environmental Protection Agency and certain state environmental agencies and private parties as potentially responsible parties (“PRPs”) at various hazardous waste disposal sites under the Comprehensive Environmental Response, Compensation and Liability Act (“Superfund”) and equivalent state laws. The PRPslaws and, as such, may currently be presently liable for the cost of clean-up and other remedial activities at 2826 such sites.sites as of December 31, 2021 and 2020. Responsibility for clean-up and other remedial activities at a Superfund site is typically shared among PRPs based on an allocation formula.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company believes that none of these matters, individually or in the aggregate, will have a material adverse effect on its results of operations, financial position or cash flows. Generally, this is because either the estimates of the maximum potential liability at a site are not material or the liability will be shared with other PRPs, although no assurance can be given with respect to the ultimate outcome of any such matter.
The Company has an accrual for environmental liabilities of $9.0$7 million and $8.3 millionas of December 31, 20182021 and December 31, 2017, respectively.2020, included in Other current and Other non-current liabilities in the Consolidated Balance Sheets. This accrual is based on information available to the Company (which in most cases includes:includes an estimate of allocation of liability among PRPs; the probability that other PRPs, many of whomwhich are large, solvent public companies, will fully pay the cost apportioned to them; currently available information from PRPs and/or federal or state environmental agencies concerning the scope of contamination and estimated remediation and consulting costs; and remediation alternatives).
Asbestos-related LiabilityActivity
Like many other industrial companies that have historically operated in the United States, the Company, or parties that the Company is obligated to indemnify, continues to behas been named as one of many defendants in asbestos-related personal injury actions. The Company vigorously defends against these claims, and has been successful in obtaining the dismissalMorse TEC, a former wholly-owned subsidiary of the majorityCompany, was the obligor for the Company’s previously recorded asbestos-related liabilities and the policyholder of the claims asserted against it without any payment. Duerelated insurance assets.
Derecognition of Morse TEC
On October 30, 2019, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Enstar. Pursuant to the naturePurchase Agreement, the Company transferred 100% of the fibers usedequity interests of Morse TEC to Enstar. In connection with this transfer, the Company contributed approximately $172 million in certain types of automotive products,cash to Morse TEC. As Morse TEC was the encapsulationobligor for the Company’s asbestos-related liabilities and policyholder of the asbestos,related insurance assets, the rights and obligations related to these items transferred upon the manner ofsale, and pursuant to the products’ use,Purchase Agreement, Morse TEC indemnified the Company believes that these products were and its affiliates for asbestos-related liabilities as more specifically described in the Purchase Agreement. This indemnification obligation with respect to Asbestos-Related Liabilities (as such terms are highly unlikelydefined in the Purchase Agreement) is not subject to cause harm. Furthermore,any cap or time
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
limitation. Following the useful lifecompletion of nearly all of these products expired many years ago. The Company likewise expects that no payment will be made bythis transfer, the Company or its insurance carriers in the vast majority of current and futurehas no obligation with respect to previously recorded asbestos-related claims.
The Company’s asbestos-related claims activity forliabilities. During the year ended December 31, 20182019, in accordance with ASC Topic 810, this subsidiary was derecognized as the Company ceased to control the entity, and 2017 isthe Company removed the associated assets and liabilities from the Consolidated Balance Sheet, resulting in a pre-tax gain of $177 million. In addition, the Company recorded tax expense as follows:a result of the reversal of the previously recorded deferred tax assets related to the asbestos liabilities of $173 million, resulting in an after-tax gain of $4 million. |
| | | | | |
| 2018 | | 2017 |
Beginning claims January 1 | 9,225 |
| | 9,385 |
|
New claims received | 1,932 |
| | 2,116 |
|
Dismissed claims | (2,189 | ) | | (1,866 | ) |
Settled claims | (370 | ) | | (410 | ) |
Ending claims December 31 | 8,598 |
| | 9,225 |
|
The Company had certain insurance coverage applicable to asbestos-related claims. The rights to this insurance were transferred with Morse TEC upon the sale of its membership interests. Prior to the derecognition, the coverage was the subject of litigation that remained pending at the time of the derecognition.
Through
During the year ended December 31, 2018 and December 31, 2017, the Company incurred$574.4 million and $528.7 million, respectively, in asbestos-related claim resolution costs (including settlement payments and judgments) and associated defense costs. During 2018 and 2017,2019, the Company paid $46.0$38 million and $51.7 million, respectively, in asbestos-related claim resolution costs and associated defense costs. These gross payments are before tax benefits and any insurance receipts. Asbestos-related claim resolution costs and associated defense costs arewere reflected in the Company'sCompany’s operating cash flows and will continue to be in the future.flows.
NOTE 22 LEASES AND COMMITMENTS
The Company’s lease agreements primarily consist of real estate property, such as manufacturing facilities, warehouses, and office buildings, in addition to personal property, such as vehicles, manufacturing and information technology equipment. The Company reviews,determines whether a contract is or contains a lease at contract inception. The majority of the Company's lease arrangements are comprised of fixed payments and a limited number of these arrangements include a variable payment component based on an ongoing basis, its own experience in handling asbestos-related claims and trends affecting asbestos-related claims in the U.S. tort system generally, for the purposescertain index fluctuations. As of assessing the valueDecember 31, 2021, a significant portion of pending asbestos-related claims and the number and value of those that may be asserted in the future, as well as potential recoveries from the Company’s insurance carriers with respectleases were classified as operating leases.
Generally, the Company’s operating leases have renewal options that extend the lease terms, and some include options to such claims and defense costs.
As partterminate the agreement or purchase the leased asset. The amortizable life of these assets is the lesser of its review and assessmentuseful life or the lease term, including renewal periods reasonably assured of asbestos-related claims,being exercised at lease inception.
All leases with an initial term of 12 months or less without an option to extend or purchase the underlying asset that the Company utilizesis reasonably certain to exercise (“short-term leases”) are not recorded on the Consolidated Balance Sheet and lease expense is recognized on a third party actuary to further assist instraight-line basis over the analysis of potential future asbestos-related claim resolution costs and associated defense costs. The actuary’s work utilizes data and analysis resulting from the Company’s claim review process, including input from national coordinating counsel and local counsel, and includes the development of an estimate of the potential value of asbestos-related claims asserted but not yet resolvedlease term.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as well asThe following table presents the numberlease assets and potential value of asbestos-related claims not yet asserted. In developing the estimate of liability for potential future claims, the actuary projects a potential number of future claims based on the Company’s historical claim filings and patterns and compares that to anticipated levels of unique plaintiff asbestos-related claims asserted in the U.S. tort system against all defendants. The actuary also utilizes assumptions based on the Company’s historical proportion of claims resolved without payment, historical claim resolution costs for those claims that result in a payment, and historical defense costs. Thelease liabilities are then estimated by multiplying the pending and projected future claim filings by projected payments rates and average claim resolution amounts and then adding an estimate for defense costs.
The Company determined based on the factors described above, including the analysis and input of the actuary, that its best estimate of the aggregate liability both for asbestos-related claims asserted but not yet resolved and potential asbestos-related claims not yet asserted, including estimated defense costs, was $805.3 million and $828.2 million as of December 31, 20182021 and 2020:
| | | | | | | | | | | | | | |
| | December 31, |
(in millions) | | 2021 | | 2020 |
Assets | Balance Sheet Location | | | |
Operating leases | Other non-current assets | $ | 185 | | | $ | 211 | |
Finance leases | Property, plant and equipment, net | 11 | | | 12 | |
Total lease assets | | $ | 196 | | | $ | 223 | |
| | | | |
Liabilities | | | | |
Current | | | | |
Operating leases | Other current liabilities | $ | 43 | | | $ | 47 | |
Finance leases | Notes payable and other short-term debt | 2 | | | 2 | |
Non-current | | | | |
Operating leases | Other non-current liabilities | 152 | | | 172 | |
Finance leases | Long-term debt | 11 | | | 12 | |
Total lease liabilities | | $ | 208 | | | $ | 233 | |
The following table presents lease obligations arising from obtaining leased assets for the years ended December 31, 2017,2021 and 2020. For the years ended December 31, 2021 and 2020, approximately $6 million and $159 million of these lease obligations were assumed in the acquisition of AKASOL on June 4, 2021 and Delphi Technologies on October 1, 2020, respectively. This liability reflects
| | | | | | | | | | | |
| December 31, |
(in millions) | 2021 | | 2020 |
Operating leases | $ | 27 | | | $ | 152 | |
Finance leases | 1 | | | 14 | |
Total lease obligations | $ | 28 | | | $ | 166 | |
The following table presents the actuarial central estimate, which is intended to represent an expected valuematurity of the most probable outcome. Aslease liabilities as of December 31, 2018 and 2017,2021:
| | | | | | | | | | | |
(in millions) | Operating leases | | Finance leases |
2022 | $ | 47 | | | $ | 3 | |
2023 | 33 | | | 2 | |
2024 | 29 | | | 2 | |
2025 | 26 | | | 2 | |
2026 | 23 | | | 2 | |
After 2026 | 54 | | | 4 | |
Total (undiscounted) lease payments | $ | 212 | | | $ | 15 | |
Less: Imputed interest | 17 | | | 2 | |
Present value of lease liabilities | $ | 195 | | | $ | 13 | |
In the Company estimates that its aggregate liability for such claims, including defense costs, is as follows:
|
| | | | | | | |
(millions of dollars) | 2018 | | 2017 |
Beginning asbestos liability as of January 1 | $ | 828.2 |
| | $ | 879.3 |
|
Actuarial revaluation | 22.8 |
| | — |
|
Claim resolution costs and defense related costs | (45.7 | ) | | (51.1 | ) |
Ending asbestos liability as of December 31 | $ | 805.3 |
| | $ | 828.2 |
|
The Company's estimate is not discounted to present value and includes an estimate of liability for potential future claims not yet asserted through December 31, 2064 with a runoff through 2074. The Company currently believes that December 31, 2074 is a reasonable assumption as to the last date on which it is likely to have resolved all asbestos-related claims, based on the nature and useful life of the Company’s products and the likelihood of incidence of asbestos-related disease in the U.S. population generally.
During the yearyears ended December 31, 2018,2021, 2020 and 2019, the Company recorded an increase to its asbestos-related liabilitiesoperating lease expense of $22.8$57 million, as a result of actuarial valuation changes. This increase was$29 million and $24 million, respectively.
In the result of higher future defense costs resulting from recent trends in the ratio of defense costs to claim resolution costs. During the yearyears ended December 31, 2017,2021, 2020 and 2019, the Company withoperating cash flows for operating leases were $54 million, $29 million and $24 million, respectively.
In the assistance of counsel and its third party actuary reviewed the Company's claims experience against external data sources and concluded no actuarial valuation adjustment to the liability in 2017 was necessary. During the yearyears ended December 31, 2016,2021, 2020 and 2019, the Company recorded a decrease to its asbestos-related liabilitiesshort-term lease costs of $45.5$21 million, as a result of actuarial valuation changes. This decrease was the result of lower future claim resolution costs resulting from changes in the Company's defense strategy in recent years$21 million and docket control measures which were implemented in a significant jurisdiction in 2016.$18 million, respectively.
The Company’s estimate of the claim resolution costs and associated defense costs for asbestos-related claims asserted but not yet resolved and potential claims not yet asserted is its reasonable best estimate of such costs. Such estimate is subject to numerous uncertainties. These include future legislative or judicial changes affecting the U.S. tort system, bankruptcy proceedings involving one or more co-defendants, the impact and timing of payments from bankruptcy trusts that currently exist and those that may exist in the future, disease emergence and associated claim filings, the impact of future settlements or significant judgments, changes in the medical condition of claimants, changes in the treatment of asbestos-related disease, and any changes in settlement or defense strategies. The balances recorded for asbestos-related claims are based on the best available information and assumptions that the Company believes are reasonable, including as to the number of future claims that may be asserted, the percentage of claims that may result in a payment, the average cost to resolve such claims, and potential defense costs. The Company has concluded that it is reasonably possible that it may incur additional losses through 2074 for asbestos-related claims, in addition to amounts recorded, of up to approximately $100.0 million as of December 31,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Finance lease costs and related cash flows were immaterial for the periods presented.
2018 and 2017. The various assumptions utilized
ASC Topic 842 requires that the rate implicit in arriving atthe lease be used if readily determinable. Generally, implicit rates are not readily determinable in the Company’s estimate may also change over time, andagreements, so the Company’s actual liabilityincremental borrowing rate is used instead for asbestos-related claims asserted but not yet resolved and those not yet asserted may be higher or lower thansuch lease arrangements. The incremental borrowing rates are determined using rates specific to the Company’s estimate as a result of such changes.
The Company has certain insurance coverage applicable to asbestos-related claims including primary insurance and excess insurance coverage. Prior to June 2004, the claim resolution costs and defense costs associated with all asbestos-related claims were paid by the Company's primary layer insurance carriers under a series of interim funding arrangements. In June 2004, primary layer insurance carriers notified the Companyterm of the alleged exhaustionlease, economic environments where lease activity is concentrated, value of their policy limits. A declaratory judgment action was filed in January 2004 in the Circuit Court of Cook County, Illinois by Continental Casualty Companylease portfolio, and related companies against the Company and certain of its historical general liability insurance carriers. The Cook County court has issued a number of interim rulings and discovery is continuing in this proceeding. The Company is vigorously pursuing the litigation against all insurance carriers that continue to be parties to it, which currently includes excess insurance carriers, as well as pursuing settlement discussions with its insurance carriers where appropriate. The Company has entered into settlement agreements with certain of its insurance carriers, resolving such insurance carriers’ coverage disputes through the insurance carriers’ agreement to pay specified amounts to the Company, either immediately or over a specified period. Through December 31, 2018 and December 31, 2017, the Company received $271.1 million and $270.0 million, respectively, in cash and notes from insurance carriers on account of asbestos-related claim resolution costs and associated defense costs.
As of December 31, 2018 and December 31, 2017, the Company estimates that it has $386.4 million in aggregate insurance coverage available with respect to asbestos-related claims, and their associated defense costs. The Company has recorded this insurance coverage as a long-term receivable for asbestos-related claim resolution costs and associated defense costs that have been incurred, less cash and notes received, and remaining limits as a deferred insurance asset with respect to liabilities recorded for potential future costs for asbestos-related claims. The Company has determined the amount of that estimate by taking into account the remaining limitsassuming full collateralization of the insurance coverage, the number and amount of potential claims from co-insured parties, potential remaining recoveries from insolvent insurance carriers, the impact of previous insurance settlements, and coverage available from solvent insurance carriers not party to the coverage litigation. The Company’s estimated remaining insurance coverage relating to asbestos-related claims and their associated defense costs is the subject of disputes with its insurance carriers, substantially all of which are being adjudicated in the Cook County insurance litigation. The Company believes that its insurance receivable is probable of collection notwithstanding those disputes based on, among other things, the arguments made by the insurance carriers in the Cook County litigation and evaluation of those arguments by the Company and its counsel, the case law applicable to the issues in dispute, the rulings to date by the Cook County court, the absence of any credible evidence alleged by the insurance carriers that they are not liable to indemnify the Company, and the fact that the Company has recovered a substantial portion of its insurance coverage, $271.1 million through December 31, 2018, from its insurance carriers under similar policies. However, the resolution of the insurance coverage disputes, and the number and amount of claims on our insurance from co-insured parties, may increase or decrease the amount of such insurance coverage available to the Company as compared to the Company’s estimate.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The amounts recorded in the Condensed Consolidated Balance Sheets respecting asbestos-related claims are as follows:
|
| | | | | | | |
| December 31, |
(millions of dollars) | 2018 | | 2017 |
Assets: | |
| | |
|
Other long-term asbestos-related insurance receivables | $ | 303.3 |
| | $ | 258.7 |
|
Deferred asbestos-related insurance asset | 83.1 |
| | 127.7 |
|
Total insurance assets | $ | 386.4 |
| | $ | 386.4 |
|
Liabilities: |
|
| | |
|
Accounts payable and accrued expenses | $ | 50.0 |
| | $ | 52.5 |
|
Other non-current liabilities | 755.3 |
| | 775.7 |
|
Total accrued liabilities | $ | 805.3 |
| | $ | 828.2 |
|
On July 31, 2018, the Division of Enforcement of the SEC informed the Company that it is conducting an investigation related to the Company's accounting for asbestos-related claims not yet asserted. The Company is fully cooperating with the SEC in connection with its investigation.
NOTE 16 RESTRUCTURING
In 2017, the Company initiated actions within its emissions business in the Engine segment designed to improve future profitability and competitiveness and started exploring strategic options for the non-core emission product lines. As a result, the Company recorded restructuring expense of $48.2 million within its emissions business in the year ended December 31, 2017, primarily related to professional fees and negotiated commercial costs associated with business divestiture and manufacturing footprint rationalization activities. As a continuation of these actions, the Company recorded restructuring expense of $53.5 million in the year ended December 31, 2018, primarily related to employee termination benefits and professional fees. The largest portion of this was a voluntary termination program in the European emissions business where approximately 140 employees accepted the termination packages. As a result, the Company recorded approximately $28.4 million of employee severance expense during the year ended December 31, 2018. In addition, the Company recorded $6.0 million employee termination benefits in other locations in the Engine segment in the year ended December 31, 2018.
Additionally, the Company recorded restructuring expense of $10.3 million in the year ended December 31, 2018 in the Drivetrain segment primarily related to manufacturing footprint rationalization activities.
The Company will continue to explore improving the future profitability and competitiveness of its Engine and Drivetrain business. These actions may result in the recognition of additional restructuring charges that could be material.
On September 27, 2017, the Company acquired 100% of the equity interests of Sevcon. In connection with this transaction, the Company recorded restructuring expense of $6.8 million during the year ended December 31, 2017, primarily related to contractually required severance associated with Sevcon executive officers and other employee termination benefits.
In the fourth quarter of 2013, the Company initiated actions primarily in the Drivetrain segment designed to improve future profitability and competitiveness. As a continuation of these actions, the Company finalized severance agreements with three labor unions at separate facilities in Western Europe for approximately 450 employees. The Company recorded restructuring expense related to these facilities of $8.2 million in the year ended December 31, 2016. Included in this restructuring expense are employee termination benefits of $3.0 million and other expense of $5.2 million.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In the second quarter of 2014, the Company initiated actions to improve the future profitability and competitiveness of Gustav Wahler GmbH u. Co. KG and its general partner ("Wahler"). The Company recorded restructuring expense related to Wahler of $9.6 million in the year ended December 31, 2016. This restructuring expense was primarily related to employee termination benefits.
In the fourth quarter of 2015, the Company acquired 100% of the equity interests in Remy and initiated actions to improve future profitability and competitiveness. The Company recorded restructuring expense of $6.1 million in the year ended December 31, 2016. Included in this restructuring expense was $3.1 million in the year ended December 31, 2016 related to winding down certain operations in North America. Additionally, the Company recorded employee termination benefits of $2.0 million in the year ended December 31, 2016 primarily related to contractually required severance associated with Remy executive officers and other employee termination benefits in Mexico.
Estimates of restructuring expense are based on information available at the time such charges are recorded. Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially recorded. Accordingly, the Company may record revisions of previous estimates by adjusting previously established accruals.
loans. The following table displays a rollforward ofpresents the severance accruals recorded within the Company's Consolidated Balance Sheetterms and the related cash flow activity for the years ended December 31, 2018 and 2017:discount rates:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Weighted-average remaining lease term (years) | | | |
Operating leases | 7 | | 8 |
Finance leases | 7 | | 8 |
Weighted-average discount rate | | | |
Operating leases | 2.0 | % | | 2.0 | % |
Finance leases | 3.0 | % | | 3.1 | % |
NOTE 23 EARNINGS PER SHARE
|
| | | | | | | | | | | | |
| | Severance Accruals |
(millions of dollars) | | Drivetrain | | Engine | | Total |
Balance at January 1, 2017 | | $ | 3.7 |
| | $ | 2.7 |
| | $ | 6.4 |
|
Provision | | 4.7 |
| | 1.4 |
| | 6.1 |
|
Cash payments | | (4.6 | ) | | (2.9 | ) | | (7.5 | ) |
Translation adjustment | | 0.3 |
| | 0.1 |
| | 0.4 |
|
Balance at December 31, 2017 | | 4.1 |
| | 1.3 |
| | 5.4 |
|
Provision | | 7.1 |
| | 34.4 |
| | 41.5 |
|
Cash payments | | (7.3 | ) | | (14.5 | ) | | (21.8 | ) |
Translation adjustment | | — |
| | (0.4 | ) | | (0.4 | ) |
Balance at December 31, 2018 | | $ | 3.9 |
| | $ | 20.8 |
| | $ | 24.7 |
|
| |
NOTE 17 | LEASES AND COMMITMENTS |
Certain assets are leased under long-term operating leases including rent for facilities. Most leases contain renewal options for various periods. Leases generally require the Company to pay for insurance, taxes and maintenance of the leased property. The Company leases other equipment such as vehicles and certain office equipment under short-term leases. Total rent expense was $42.0 million, $39.6 million and $38.2 million in the years ended December 31, 2018, 2017 and 2016, respectively. The Company does not have any material capital leases.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Future minimum operating lease payments at December 31, 2018 were as follows:
|
| | | |
(millions of dollars) | |
2019 | $ | 24.3 |
|
2020 | 20.6 |
|
2021 | 15.5 |
|
2022 | 12.6 |
|
2023 | 10.4 |
|
After 2023 | 37.9 |
|
Total minimum lease payments | $ | 121.3 |
|
| |
NOTE 18 | EARNINGS PER SHARE |
The Company presents both basic and diluted earnings per share of common stock (“EPS”) amounts. Basic EPS is calculated by dividing net earnings attributable to BorgWarner Inc. by the weighted average shares of common stock outstanding during the reporting period. Diluted EPS is calculated by dividing net earnings attributable to BorgWarner Inc. by the weighted average shares of common stock and common equivalent stock equivalents outstanding during the reporting period.
The dilutive impact of stock-based compensation is calculated using the treasury stock method. The treasury stock method assumes that the Company uses the assumed proceeds from the exercise of awards to repurchase common stock at the average market price during the period. The assumed proceeds under the treasury stock method include the purchase price that the grantee will pay in the future, and compensation cost for future service that the Company has not yet recognized. Options are only dilutive when the average market price of the underlying common stock exceeds the exercise price of the options. The dilutive effects of performance-based stock awards described in Note 13, "Stock-Based19, “Stock-Based Compensation,"” to the Consolidated Financial Statements are included in the computation of diluted earnings per share at the level the related performance criteria are met through the respective balance sheet date. There were 0.8 million and 0.2 million of performance share units excluded from the computation of the diluted earnings per share for the years ended December 31, 2021 and 2020, respectively, because the related performance criteria had not been met as of the balance sheet dates.
As a result of the acquisition of Delphi Technologies, approximately 37 million shares were issued on October 1, 2020, which resulted in dilution of approximately 9 million shares on a year-to-date basis.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table reconciles the numerators and denominators used to calculate basic and diluted earnings per share of common stock:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in millions except share and per share amounts) | 2021 | | 2020 | | 2019 |
Basic earnings per share: | | | | | |
Net earnings attributable to BorgWarner Inc. | $ | 537 | | | $ | 500 | | | $ | 746 | |
Weighted average shares of common stock outstanding | 238.1 | | | 213.0 | | | 205.7 | |
Basic earnings per share of common stock | $ | 2.25 | | | $ | 2.35 | | | $ | 3.63 | |
| | | | | |
Diluted earnings per share: | | | | | |
Net earnings attributable to BorgWarner Inc. | $ | 537 | | | $ | 500 | | | $ | 746 | |
Weighted average shares of common stock outstanding | 238.1 | | | 213.0 | | | 205.7 | |
Effect of stock-based compensation | 1.4 | | | 1.0 | | | 1.1 | |
Weighted average shares of common stock outstanding including dilutive shares | 239.5 | | | 214.0 | | | 206.8 | |
Diluted earnings per share of common stock | $ | 2.24 | | | $ | 2.34 | | | $ | 3.61 | |
| | | | | |
Antidilutive stock-based awards excluded from the calculation of diluted earnings per share | — | | | — | | | 0.1 | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
(in millions except share and per share amounts) | 2018 | | 2017 | | 2016 |
Basic earnings per share: | |
| | |
| | |
|
Net earnings attributable to BorgWarner Inc. | $ | 930.7 |
| | $ | 439.9 |
| | $ | 595.0 |
|
Weighted average shares of common stock outstanding | 208.197 |
| | 210.429 |
| | 214.374 |
|
Basic earnings per share of common stock | $ | 4.47 |
| | $ | 2.09 |
| | $ | 2.78 |
|
| | | | | |
Diluted earnings per share: | | | |
| | |
|
Net earnings attributable to BorgWarner Inc. | $ | 930.7 |
| | $ | 439.9 |
| | $ | 595.0 |
|
| | | | | |
Weighted average shares of common stock outstanding | 208.197 |
| | 210.429 |
| | 214.374 |
|
Effect of stock-based compensation | 1.299 |
| | 1.119 |
| | 0.954 |
|
Weighted average shares of common stock outstanding including dilutive shares | 209.496 |
| | 211.548 |
| | 215.328 |
|
Diluted earnings per share of common stock | $ | 4.44 |
| | $ | 2.08 |
| | $ | 2.76 |
|
| | | | | |
Antidilutive stock-based awards excluded from the calculation of diluted earnings per share | 0.139 |
| | — |
| | — |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
NOTE 19 | RECENT TRANSACTIONS |
Sevcon, Inc.
On September 27, 2017, the Company acquired 100% of the equity interests in Sevcon for cash of $185.7 million. This amount includes $26.6 million paid to settle outstanding debt and $5.1 million paid for Sevcon stock-based awards attributable to pre-combination services.
Sevcon is a global provider of electrification technologies, serving customers in the U.S., U.K., France, Germany, Italy, China and the Asia Pacific region. Sevcon products complement BorgWarner’s power electronics capabilities utilized to provide electrified propulsion solutions. Sevcon's operating results and assets are reported within the Company's Drivetrain reporting segment.
The following table summarizes the aggregated fair value of the assets acquired and liabilities assumed on September 27, 2017, the date of acquisition:
|
| | | | |
(millions of dollars) | | |
Receivables, net | | $ | 15.9 |
|
Inventories, net | | 16.7 |
|
Other current assets | | 2.8 |
|
Property, plant and equipment, net | | 7.3 |
|
Goodwill | | 127.6 |
|
Other intangible assets | | 70.7 |
|
Deferred tax liabilities | | (9.2 | ) |
Income taxes payable | | (0.7 | ) |
Other assets and liabilities | | (2.9 | ) |
Accounts payable and accrued expenses | | (24.5 | ) |
Total consideration, net of cash acquired | | 203.7 |
|
| | |
Less: Assumed retirement-related liabilities | | 18.0 |
|
Cash paid, net of cash acquired | | $ | 185.7 |
|
In connection with the acquisition, the Company capitalized $17.7 million for customer relationships, $48.8 million for developed technology and $4.2 million for the Sevcon trade name. These intangible assets, excluding the indefinite-lived trade name, will be amortized over a period of 7 to 20 years. Various valuation techniques were used to determine the fair value of the intangible assets, with the primary techniques being forms of the income approach, specifically, the relief-from-royalty and excess earnings valuation methods, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. Under these valuation approaches, the Company is required to make estimates and assumptions about sales, operating margins, growth rates, royalty rates and discount rates based on budgets, business plans, economic projections, anticipated future cash flows and marketplace data. Due to the nature of the transaction, goodwill is not deductible for tax purposes.
In the third quarter of 2018, the Company finalized all purchase accounting adjustments related to the acquisition and recorded fair value adjustments based on new information obtained during the measurement period primarily related to intangible assets. These adjustments have resulted in a decrease in goodwill of $6.0 million from the Company's initial estimate.
Due to its insignificant size relative to the Company, supplemental pro forma financial information of the combined entity for the current and prior reporting period is not provided.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Divgi-Warner Private Limited
In August 2016, the Company sold its 60% ownership interest in Divgi-Warner Private Limited ("Divgi-Warner") to the joint venture partner. This former joint venture was formed in 1995 to develop and manufacture transfer cases and synchronizer rings in India. As a result of the sale, the Company received cash proceeds of approximately $5.4 million, net of capital gains tax and cash divested, which is classified as an investing activity within the Condensed Consolidated Statement of Cash Flows. Furthermore, the Company wrote off noncontrolling interest of $4.8 million as result of the sale and recognized a negligible gain in the year ended December 31, 2016.
Remy International, Inc.
On November 10, 2015, the Company acquired 100% of the equity interests in Remy for $29.50 per share in cash. The Company also settled approximately $361.0 million of outstanding debt. Remy was a global market leading producer of rotating electrical components that had key technologies and operations in 10 countries. The cash paid, net of cash acquired, was $1,187.0 million.
In October 2016, the Company entered into a definitive agreement to sell the light vehicle aftermarket business associated with the Company’s acquisition of Remy for approximately $80 million in cash. The Remy light vehicle aftermarket business sells remanufactured and new starters, alternators and multi-line products to aftermarket customers, mainly retailers in North America, and warehouse distributors in North America, South America and Europe. The sale of this business allowed the Company to focus on the rapidly developing original equipment manufacturer powertrain electrification trend. During the third quarter of 2016, the Company determined that assets and liabilities subject to the Remy light vehicle aftermarket business sale met the held for sale criteria and recorded an asset impairment expense of $106.5 million to adjust the net book value of this business to its fair value. During the fourth quarter of 2016, upon the closing of the transaction, the Company recorded an additional loss of $20.6 million related to the finalization of the sale proceeds, changes in working capital from the amounts originally estimated and costs associated with the winding down of an aftermarket related product line, resulting in a total loss on divestiture of $127.1 million in the year ended December 31, 2016. As a result of this transaction, total assets of $284.1 million including $94.7 million of inventory and $72.6 million of accounts receivable and total liabilities of $93.2 million were removed from the Company’s consolidated balance sheet.
| |
NOTE 20 | ASSETS AND LIABILITIES HELD FOR SALE |
In 2017, the Company started exploring strategic options for non-core emission product lines in the Engine segment and launched an active program to locate a buyer and initiated all other actions required to complete the plan to sell and exit the non-core pipe and thermostat product lines. The Company determined that the assets and liabilities of the non-core emission product lines met the held for sale criteria as of December 31, 2017. The fair value of the assets and liabilities, less costs to sell, was determined to be less than the carrying value, therefore, the Company recorded an asset impairment expense of $71.0 million in Other expense, net to adjust the net book value of this business to its fair value less cost to sell in the year ended December 31, 2017. During 2018, the Company continued its marketing efforts with interested parties and engaged in active discussions with these parties. In December 2018, after finalizing negotiations regarding various aspects of the sale, the Company entered into a definitive agreement to sell its thermostat product lines for approximately $28 million subject to customary adjustments. Completion of the sale is expected in the first quarter of 2019, subject to satisfaction of customary closing conditions. The fair value of the assets and liabilities based on anticipated proceeds upon sale, less costs to sell of $3.5 million, was determined to be less than the carrying value, therefore, the Company recorded an additional asset impairment expense of $25.6 million in the year ended December 31,2018 in Other expense, net to adjust the net book value of this business to its fair value less cost to sell. As of December 31, 2018 and December 31, 2017, assets of $47.0 million and $67.3 million, including allocated goodwill of $7.0 millionand $7.3 million, and liabilities of $23.1 millionand$29.5 million, respectively, were reclassified as held for sale on
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the Consolidated Balance Sheets. The business did not meet the criteria to be classified as a discontinued operation.
The assets and liabilities classified as held for sale are as follows:
|
| | | | | | | |
| December 31, | | December 31, |
(millions of dollars) | 2018 | | 2017 |
Receivables, net | $ | 14.8 |
| | $ | 21.0 |
|
Inventories, net | 41.6 |
| | 30.4 |
|
Prepayments and other current assets | 11.9 |
| | 10.3 |
|
Property, plant and equipment, net | 44.9 |
| | 47.7 |
|
Goodwill | 7.0 |
| | 7.3 |
|
Other intangible assets, net | 20.2 |
| | 21.1 |
|
Other assets | 0.1 |
| | 0.5 |
|
Impairment of carrying value | (93.5 | ) | | (71.0 | ) |
Total assets held for sale | $ | 47.0 |
| | $ | 67.3 |
|
| | | |
Accounts payable and accrued expenses | $ | 18.3 |
| | $ | 24.6 |
|
Other liabilities | 4.8 |
| | 4.9 |
|
Total liabilities held for sale | $ | 23.1 |
| | $ | 29.5 |
|
| |
NOTE 21 | REPORTING SEGMENTS AND RELATED INFORMATION |
NOTE 24 REPORTING SEGMENTS AND RELATED INFORMATION
The Company'sCompany’s business is comprised of twoaggregated into 4 reporting segments: Engine and Drivetrain.segments which are further described below. These segments are strategic business groups, which are managed separately as each represents a specific grouping of related automotive components and systems.
•Air Management. This segment develops and manufactures products to improve fuel economy, reduce emissions and enhance performance. The Air Management segment’s technologies include turbochargers, eBoosters, eTurbos, timing systems, emissions systems, thermal systems, gasoline ignition technology, smart remote actuators, powertrain sensors, canisters, cabin heaters, battery modules and systems, battery packs, battery heaters and battery charging.
•e-Propulsion & Drivetrain. This segment develops and manufactures products to improve fuel economy, reduce emissions and enhance performance in combustion, hybrid and electric vehicles. The e-Propulsion & Drivetrain segment’s technologies include rotating electrical components, power electronics, control modules, software, friction and mechanical products for automatic transmissions and torque-management products.
•Fuel Injection. This segment includes gasoline and diesel fuel injection components and systems. The gasoline fuel injection portfolio includes a full suite of fuel injection technologies – including pumps, injectors, fuel rail assemblies and complete systems – that deliver greater efficiency for traditional and hybrid vehicles with gasoline combustion engines.
•Aftermarket. Through this segment, the Company allocates resourcessells products and services to each segment based uponindependent aftermarket customers and original equipment service customers. The aftermarket product portfolio includes a wide range of solutions covering the projected after-tax return on invested capital ("ROIC") of its business initiatives. ROIC is comprised offuel injection, electronics and engine management, maintenance, and test equipment and vehicle diagnostics categories.
Segment Adjusted EBIT after deducting notional taxes compared tois the projected average capital investment required.measure of segment income or loss used by the Company. Segment Adjusted EBIT is comprised of earnings before interest, income taxes and noncontrolling interest (“EBIT"EBIT”) adjusted for restructuring, goodwillmerger, acquisition and divestiture expense, impairment charges, affiliates'affiliates’ earnings and other items not reflective of on-going operating income or loss.
Adjusted EBIT is the measure of segment income or loss used by the Company. The Company believes Segment Adjusted EBIT is most reflective of the operational profitability or loss of ourits reporting segments.
The following tables show segment information and Segment Adjusted EBIT for the Company'sCompany’s reporting segments.segments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2021 Segment information | | | | | | | |
| Net sales | | Year-end assets | | Depreciation/ amortization | | Long-lived asset expenditures1 |
(in millions) | Customers | | Inter-segment | | Net | | | |
Air Management | $ | 7,146 | | | $ | 152 | | | $ | 7,298 | | | $ | 6,729 | | | $ | 305 | | | $ | 281 | |
e-Propulsion & Drivetrain | 5,209 | | | 169 | | | 5,378 | | | 5,527 | | | 284 | | | 237 | |
Fuel Injection | 1,637 | | | 189 | | | 1,826 | | | 1,782 | | | 142 | | | 110 | |
Aftermarket | 846 | | | 7 | | | 853 | | | 815 | | | 5 | | | 4 | |
Inter-segment eliminations | — | | | (517) | | | (517) | | | — | | | — | | | — | |
Total | 14,838 | | | — | | | 14,838 | | | 14,853 | | | 736 | | | 632 | |
Corporate2 | — | | | — | | | — | | | 1,722 | | | 36 | | | 34 | |
Consolidated | $ | 14,838 | | | $ | — | | | $ | 14,838 | | | $ | 16,575 | | | $ | 772 | | | $ | 666 | |
122
|
| | | | | | | | | | | | | | | | | | | | | | | |
2018 Segment information | | | | | | | |
| Net sales | | Year-end assets | | Depreciation/ amortization | | Long-lived asset expenditures (a) |
(millions of dollars) | Customers | | Inter-segment | | Net | | | |
Engine | $ | 6,389.9 |
| | $ | 57.5 |
| | $ | 6,447.4 |
| | $ | 4,730.7 |
| | $ | 225.7 |
| | $ | 278.1 |
|
Drivetrain | 4,139.7 |
| | (0.3 | ) | | 4,139.4 |
| | 3,919.9 |
| | 175.6 |
| | 254.4 |
|
Inter-segment eliminations | — |
| | (57.2 | ) | | (57.2 | ) | | — |
| | — |
| | — |
|
Total | 10,529.6 |
| | — |
| | 10,529.6 |
| | 8,650.6 |
| | 401.3 |
| | 532.5 |
|
Corporate (b) | — |
| | — |
| | — |
| | 1,444.7 |
| | 30.0 |
| | 14.1 |
|
Consolidated | $ | 10,529.6 |
| | $ | — |
| | $ | 10,529.6 |
| | $ | 10,095.3 |
| | $ | 431.3 |
| | $ | 546.6 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2020 Segment information | | | | | | | |
| Net sales | | Year-end assets | | Depreciation/ amortization3 | | Long-lived asset expenditures1 |
(in millions) | Customers | | Inter-segment | | Net | | | |
Air Management | $ | 5,598 | | | $ | 80 | | | $ | 5,678 | | | $ | 5,714 | | | $ | 241 | | | $ | 210 | |
e-Propulsion & Drivetrain | 3,940 | | | 49 | | | 3,989 | | | 5,412 | | | 261 | | | 192 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Fuel Injection | 435 | | | 44 | | | 479 | | | 1,964 | | | 32 | | | 21 | |
Aftermarket | 192 | | | 2 | | | 194 | | | 806 | | | 2 | | | 2 | |
Inter-segment eliminations | — | | | (175) | | | (175) | | | — | | | — | | | — | |
Total | 10,165 | | | — | | | 10,165 | | | 13,896 | | | 536 | | | 425 | |
Corporate2 | — | | | — | | | — | | | 2,133 | | | 32 | | | 16 | |
Consolidated | $ | 10,165 | | | $ | — | | | $ | 10,165 | | | $ | 16,029 | | | $ | 568 | | | $ | 441 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
2017 Segment information | | | | | | | |
| Net sales | | Year-end assets | | Depreciation/ amortization | | Long-lived asset expenditures (a) |
(millions of dollars) | Customers | | Inter-segment | | Net | | | |
Engine | $ | 6,009.0 |
| | $ | 52.5 |
| | $ | 6,061.5 |
| | $ | 4,732.9 |
| | $ | 218.8 |
| | $ | 305.5 |
|
Drivetrain | 3,790.3 |
| | — |
| | 3,790.3 |
| | 3,903.8 |
| | 160.9 |
| | 241.6 |
|
Inter-segment eliminations | — |
| | (52.5 | ) | | (52.5 | ) | | — |
| | — |
| | — |
|
Total | 9,799.3 |
| | — |
| | 9,799.3 |
| | 8,636.7 |
| | 379.7 |
| | 547.1 |
|
Corporate (b) | — |
| | — |
| | — |
| | 1,150.9 |
| | 28.1 |
| | 12.9 |
|
Consolidated | $ | 9,799.3 |
| | $ | — |
| | $ | 9,799.3 |
| | $ | 9,787.6 |
| | $ | 407.8 |
| | $ | 560.0 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
2016 Segment information | | | | | | | |
| Net sales | | Year-end assets | | Depreciation/ amortization | | Long-lived asset expenditures (a) |
(millions of dollars) | Customers | | Inter-segment | | Net | | | |
Engine | $ | 5,547.3 |
| | $ | 42.8 |
| | $ | 5,590.1 |
| | $ | 4,134.6 |
| | $ | 211.9 |
| | $ | 298.7 |
|
Drivetrain | 3,523.7 |
| | — |
| | 3,523.7 |
| | 3,212.4 |
| | 154.5 |
| | 182.8 |
|
Inter-segment eliminations | — |
| | (42.8 | ) | | (42.8 | ) | | — |
| | — |
| | — |
|
Total | 9,071.0 |
| | — |
| | 9,071.0 |
| | 7,347.0 |
| | 366.4 |
| | 481.5 |
|
Corporate (b) | — |
| | — |
| | — |
| | 1,487.7 |
| | 25.0 |
| | 19.1 |
|
Consolidated | $ | 9,071.0 |
| | $ | — |
| | $ | 9,071.0 |
| | $ | 8,834.7 |
| | $ | 391.4 |
| | $ | 500.6 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2019 Segment information | | | | | | | |
| Net sales | | Year-end assets | | Depreciation/ amortization | | Long-lived asset expenditures1 |
(in millions) | Customers | | Inter-segment | | Net | | | |
Air Management | $ | 6,153 | | | $ | 61 | | | $ | 6,214 | | | $ | 4,536 | | | $ | 227 | | | $ | 219 | |
e-Propulsion & Drivetrain | 4,015 | | | — | | | 4,015 | | | 4,075 | | | 183 | | | 254 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Inter-segment eliminations | — | | | (61) | | | (61) | | | — | | | — | | | — | |
Total | 10,168 | | | — | | | 10,168 | | | 8,611 | | | 410 | | | 473 | |
Corporate2 | — | | | — | | | — | | | 1,091 | | | 29 | | | 8 | |
Consolidated | $ | 10,168 | | | $ | — | | | $ | 10,168 | | | $ | 9,702 | | | $ | 439 | | | $ | 481 | |
_______________
(a) Long-lived asset expenditures include capital expenditures and tooling outlays.
(b) Corporate assets include investments and other long-term receivables and deferred income taxes.
| | |
1 Long-lived asset expenditures include capital expenditures and tooling outlays. |
2 Corporate assets include cash and cash equivalents, investments and long-term receivables, and deferred income taxes. |
3 In 2020, e-Propulsion & Drivetrain includes $38 million related to accelerated amortization for certain intangibles, refer to Note 12, “Goodwill and Other Intangibles,” for more information. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Adjusted earnings before interest, income taxes and noncontrolling interest ("(“Segment Adjusted EBIT"EBIT”)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2021 | | 2020 | | 2019 |
Air Management | $ | 1,070 | | | $ | 762 | | | $ | 995 | |
e-Propulsion & Drivetrain | 486 | | | 359 | | | 443 | |
Fuel Injection | 170 | | | 39 | | | — | |
Aftermarket | 107 | | | 22 | | | — | |
Segment Adjusted EBIT | 1,833 | | | 1,182 | | | 1,438 | |
Corporate, including stock-based compensation | 302 | | | 192 | | | 206 | |
Restructuring expense | 163 | | | 203 | | | 72 | |
Customer warranty settlement (Note 21) | 124 | | | — | | | — | |
Merger, acquisition and divestiture expense | 50 | | | 96 | | | 11 | |
Loss on sales of businesses | 29 | | | — | | | 7 | |
Asset impairments and lease modifications | 17 | | | 17 | | | — | |
Net gain on insurance recovery for property damage | (3) | | | (9) | | | — | |
Intangible asset accelerated amortization (Note 12) | — | | | 38 | | | — | |
Amortization of inventory fair value adjustment | — | | | 27 | | | — | |
Gain on derecognition of subsidiary (Note 21) | — | | | — | | | (177) | |
Unfavorable arbitration loss | — | | | — | | | 14 | |
Officer stock awards modification | — | | | — | | | 2 | |
| | | | | |
| | | | | |
Equity in affiliates' earnings, net of tax | (48) | | | (18) | | | (32) | |
Unrealized loss (gain) on equity securities | 362 | | | (382) | | | — | |
| | | | | |
| | | | | |
Interest expense, net | 93 | | | 61 | | | 43 | |
Other postretirement (income) expense | (45) | | | (7) | | | 27 | |
Earnings before income taxes and noncontrolling interest | 789 | | | 964 | | | 1,265 | |
Provision for income taxes | 150 | | | 397 | | | 468 | |
Net earnings | 639 | | | 567 | | | 797 | |
Net earnings attributable to the noncontrolling interest, net of tax | 102 | | | 67 | | | 51 | |
Net earnings attributable to BorgWarner Inc. | $ | 537 | | | $ | 500 | | | $ | 746 | |
124
|
| | | | | | | | | | | |
| Year Ended December 31, |
(millions of dollars) | 2018 | | 2017 | | 2016 |
Engine | $ | 1,039.9 |
|
| $ | 992.1 |
| | $ | 943.9 |
|
Drivetrain | 475.4 |
|
| 448.3 |
| | 363.0 |
|
Adjusted EBIT | 1,515.3 |
|
| 1,440.4 |
| | 1,306.9 |
|
Restructuring expense | 67.1 |
| | 58.5 |
| | 26.9 |
|
Asset impairment and loss on divestiture | 25.6 |
| | 71.0 |
| | 127.1 |
|
Asbestos-related adjustments | 22.8 |
| | — |
| | (48.6 | ) |
Gain on sale of building | (19.4 | ) | | — |
| | — |
|
Other postretirement income | (9.4 | ) | | (5.1 | ) | | (4.9 | ) |
Officer stock awards modification | 8.3 |
| | — |
| | — |
|
Merger, acquisition and divestiture expense | 5.8 |
| | 10.0 |
| | 23.7 |
|
Lease termination settlement | — |
| | 5.3 |
| | — |
|
Intangible asset impairment | — |
| | — |
| | 12.6 |
|
Contract expiration gain | — |
| | — |
| | (6.2 | ) |
Other (income) expense, net | (3.3 | ) | | 2.1 |
| | — |
|
Corporate, including equity in affiliates' earnings and stock-based compensation | 169.6 |
|
| 170.3 |
| | 155.3 |
|
Interest income | (6.4 | ) |
| (5.8 | ) | | (6.3 | ) |
Interest expense and finance charges | 58.7 |
|
| 70.5 |
| | 84.6 |
|
Earnings before income taxes and noncontrolling interest | 1,195.9 |
|
| 1,063.6 |
| | 942.7 |
|
Provision for income taxes | 211.3 |
|
| 580.3 |
| | 306.0 |
|
Net earnings | 984.6 |
|
| 483.3 |
| | 636.7 |
|
Net earnings attributable to the noncontrolling interest, net of tax | 53.9 |
|
| 43.4 |
| | 41.7 |
|
Net earnings attributable to BorgWarner Inc. | $ | 930.7 |
|
| $ | 439.9 |
| | $ | 595.0 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Geographic Information
During the year ended December 31, 2018,2021, approximately 77%83% of the Company'sCompany’s consolidated net sales were outside the United States ("(“U.S."”), attributing sales to the location of production rather than the location of the customer. Outside the U.S., onlyChina, Mexico, Germany, China,Poland, South Korea Mexico and Hungarythe United Kingdom exceeded 5% of consolidated net sales during the year ended December 31, 2018. Also, the Company's 50%2021. The Company’s investments in equity investment in NSK-Warner (refer to Note 6, "Balance Sheet Information," to the Consolidated Financial Statements for more information) of $184.1 million, $185.1 million and $172.9 million at December 31, 2018, 2017 and 2016, respectively, issecurities are excluded from the definition of long-lived assets, as are goodwill and certain other non-current assets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net sales | | Long-lived assets |
(in millions) | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
United States | $ | 2,490 | | | $ | 2,023 | | | $ | 2,335 | | | $ | 625 | | | $ | 937 | | | $ | 752 | |
Europe: | | | | | | | | | | | |
Germany | 1,342 | | | 1,175 | | | 1,507 | | | 405 | | | 338 | | | 328 | |
Poland | 1,121 | | | 696 | | | 627 | | | 324 | | | 352 | | | 180 | |
United Kingdom | 821 | | | 276 | | | 171 | | | 215 | | | 229 | | | 56 | |
Hungary | 469 | | | 458 | | | 589 | | | 193 | | | 184 | | | 164 | |
Other Europe | 1,452 | | | 954 | | | 916 | | | 520 | | | 620 | | | 229 | |
Total Europe | 5,205 | | | 3,559 | | | 3,810 | | | 1,657 | | | 1,723 | | | 957 | |
China | 3,518 | | | 2,269 | | | 1,711 | | | 1,042 | | | 1,055 | | | 605 | |
Mexico | 1,736 | | | 1,035 | | | 1,040 | | | 623 | | | 367 | | | 247 | |
South Korea | 1,096 | | | 814 | | | 786 | | | 256 | | | 301 | | | 221 | |
Other foreign | 793 | | | 465 | | | 486 | | | 192 | | | 208 | | | 152 | |
Total | $ | 14,838 | | | $ | 10,165 | | | $ | 10,168 | | | $ | 4,395 | | | $ | 4,591 | | | $ | 2,934 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Net sales | | Long-lived assets |
(millions of dollars) | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 |
United States | $ | 2,393.5 |
| | $ | 2,280.0 |
| | $ | 2,236.0 |
| | $ | 728.9 |
| | $ | 719.3 |
| | $ | 799.3 |
|
Europe: |
|
| |
|
| |
|
| | |
| | |
| | |
|
Germany | 1,665.1 |
| | 1,652.6 |
| | 1,735.1 |
| | 371.1 |
| | 413.4 |
| | 370.3 |
|
Hungary | 687.3 |
| | 655.7 |
| | 541.1 |
| | 153.0 |
| | 147.5 |
| | 122.2 |
|
Other Europe | 1,669.5 |
| | 1,427.2 |
| | 1,193.9 |
| | 452.5 |
| | 426.1 |
| | 337.7 |
|
Total Europe | 4,021.9 |
| | 3,735.5 |
| | 3,470.1 |
| | 976.6 |
| | 987.0 |
| | 830.2 |
|
China | 1,801.1 |
| | 1,560.1 |
| | 1,218.0 |
| | 589.3 |
| | 554.8 |
| | 384.6 |
|
South Korea | 858.8 |
| | 877.6 |
| | 948.2 |
| | 235.1 |
| | 244.2 |
| | 208.0 |
|
Mexico | 978.4 |
| | 920.2 |
| | 805.6 |
| | 223.1 |
| | 201.2 |
| | 136.2 |
|
Other foreign | 475.9 |
| | 425.9 |
| | 393.1 |
| | 150.8 |
| | 157.3 |
| | 143.5 |
|
Total | $ | 10,529.6 |
| | $ | 9,799.3 |
| | $ | 9,071.0 |
| | $ | 2,903.8 |
| | $ | 2,863.8 |
| | $ | 2,501.8 |
|
Sales to Major Customers
Consolidated net sales to Ford (including its subsidiaries) were approximately 14%10%, 15%,13% and 15% for the years ended December 31, 2018, 20172021, 2020 and 2016, respectively; and2019, respectively. Consolidated net sales to Volkswagen (including its subsidiaries) were approximately 12%9%, 13%11% and 13%11% for the years ended December 31, 2018, 20172021, 2020 and 2016, respectively. Both of the Company's reporting segments had significant sales to Volkswagen and Ford in 2018, 2017 and 2016.2019. Such sales consisted of a variety of products to a variety of customer locations and regions. No other single customer accounted for more than 10% of consolidated net sales in any of the years presented.
Sales by Product Line
Sales of turbochargers for light vehicles represented approximately 27%19%, 28%24% and 28% of totalconsolidated net sales for the years ended December 31, 2018, 20172021, 2020 and 2016,2019, respectively. The Company currently supplies light vehicle turbochargers to many OEMs including BMW, Daimler, Fiat Chrysler Automobiles, Ford, General Motors, Great Wall, Hyundai, Renault, Volkswagen and Volvo. No other single product line accounted for more than 10% of consolidated net sales in any of the years presented.
Subsequent Event
In January 2022, the Company announced that the starter and alternator business currently reported in its e-Propulsion & Drivetrain segment will transition to the Aftermarket segment effective January 1, 2022.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 22 INTERIM25 OPERATING CASH FLOWS AND OTHER SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited)
The following table presents summary quarterly financial data: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2021 | | 2020 | | 2019 |
OPERATING | | | | | |
Net earnings | $ | 639 | | | $ | 567 | | | $ | 797 | |
Adjustments to reconcile net earnings to net cash flows from operations: | | | | | |
Depreciation and tooling amortization | 684 | | | 479 | | | 400 | |
Intangible asset amortization | 88 | | | 89 | | | 39 | |
Restructuring expense, net of cash paid | 123 | | | 135 | | | 30 | |
Stock-based compensation expense | 62 | | | 41 | | | 42 | |
Loss on sales of businesses | 29 | | | — | | | 7 | |
Loss on debt extinguishment | 20 | | | — | | | — | |
Asset impairments | 14 | | | 17 | | | — | |
Unrealized loss (gain) on equity securities | 362 | | | (382) | | | — | |
Deferred income tax (benefit) provision | (180) | | | 123 | | | 186 | |
Gain on insurance recovery received for property damages | (5) | | | (9) | | | — | |
Tax reform adjustments to provision for income taxes | — | | | — | | | 16 | |
Pre-tax gain on derecognition of subsidiary | — | | | — | | | (177) | |
Other non-cash adjustments | (31) | | | (13) | | | 27 | |
Net earnings adjustments to reconcile to net cash flows from operations | 1,805 | | | 1,047 | | | 1,367 | |
Retirement plan contributions | (30) | | | (182) | | | (38) | |
Derecognition of a subsidiary | — | | | — | | | (172) | |
Changes in assets and liabilities, excluding effects of acquisitions, divestitures and foreign currency translation adjustments: | | | | | |
Receivables | (59) | | | 27 | | | 19 | |
Inventories | (268) | | | (28) | | | (36) | |
Prepayments and other current assets | 11 | | | 23 | | | (18) | |
Accounts payable and accrued expenses | (134) | | | 186 | | | (123) | |
Prepaid taxes and income taxes payable | 8 | | | 35 | | | (8) | |
Other assets and liabilities | (27) | | | 76 | | | 17 | |
Net cash provided by operating activities | $ | 1,306 | | | $ | 1,184 | | | $ | 1,008 | |
| | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION | | | | | |
Cash paid during the year for: | | | | | |
Interest, net | $ | 130 | | | $ | 97 | | | $ | 72 | |
Income taxes, net of refunds | $ | 342 | | | $ | 205 | | | $ | 243 | |
Non-cash investing transactions: | | | | | |
Period end accounts payable related to property, plant and equipment purchases | $ | 142 | | | $ | 182 | | | $ | 102 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(millions of dollars, except per share amounts) | 2018 | | 2017 |
Quarter ended | Mar-31 | | Jun-30 | | Sep-30 | | Dec-31 | | Year | | Mar-31 | | Jun-30 | | Sep-30 | | Dec-31 | | Year |
Net sales | $ | 2,784.3 |
| | $ | 2,694.0 |
| | $ | 2,478.5 |
| | $ | 2,572.8 |
| | $ | 10,529.6 |
| | $ | 2,407.0 |
| | $ | 2,389.7 |
| | $ | 2,416.2 |
| | $ | 2,586.4 |
| | $ | 9,799.3 |
|
Cost of sales | 2,192.5 |
| | 2,114.8 |
| | 1,962.9 |
| | 2,030.0 |
| | 8,300.2 |
| | 1,890.7 |
| | 1,876.8 |
| | 1,894.6 |
| | 2,021.6 |
| | 7,683.7 |
|
Gross profit | 591.8 |
| | 579.2 |
| | 515.6 |
| | 542.8 |
| | 2,229.4 |
| | 516.3 |
| | 512.9 |
| | 521.6 |
| | 564.8 |
| | 2,115.6 |
|
Selling, general and administrative expenses | 253.4 |
| | 236.0 |
| | 230.5 |
| | 225.8 |
| | 945.7 |
| | 219.0 |
| | 215.1 |
| | 225.0 |
| | 240.0 |
| | 899.1 |
|
Other expense (income), net | 4.9 |
| | 30.4 |
| | 7.1 |
| | 51.4 |
| | 93.8 |
| | 5.8 |
| | (0.3 | ) | | 22.0 |
| | 117.0 |
| | 144.5 |
|
Operating income | 333.5 |
| | 312.8 |
| | 278.0 |
| | 265.6 |
| | 1,189.9 |
| | 291.5 |
| | 298.1 |
| | 274.6 |
| | 207.8 |
| | 1,072.0 |
|
Equity in affiliates’ earnings, net of tax | (10.2 | ) | | (13.0 | ) | | (15.2 | ) | | (10.5 | ) | | (48.9 | ) | | (9.7 | ) | | (14.4 | ) | | (14.4 | ) | | (12.7 | ) | | (51.2 | ) |
Interest income | (1.5 | ) | | (1.4 | ) | | (1.5 | ) | | (2.0 | ) | | (6.4 | ) | | (1.5 | ) | | (1.4 | ) | | (1.3 | ) | | (1.6 | ) | | (5.8 | ) |
Interest expense and finance charges | 16.1 |
| | 14.9 |
| | 14.4 |
| | 13.3 |
| | 58.7 |
| | 18.0 |
| | 18.0 |
| | 17.6 |
| | 16.9 |
| | 70.5 |
|
Other postretirement income | (2.6 | ) | | (2.4 | ) | | (2.4 | ) | | (2.0 | ) | | (9.4 | ) | | (1.2 | ) | | (1.4 | ) | | (1.3 | ) | | (1.2 | ) | | (5.1 | ) |
Earnings before income taxes and noncontrolling interest | 331.7 |
| | 314.7 |
| | 282.7 |
| | 266.8 |
| | 1,195.9 |
| | 285.9 |
| | 297.3 |
| | 274.0 |
| | 206.4 |
| | 1,063.6 |
|
Provision for income taxes | 94.9 |
| | 30.4 |
| | 66.8 |
| | 19.2 |
| | 211.3 |
| | 86.3 |
| | 76.2 |
| | 79.4 |
| | 338.4 |
| | 580.3 |
|
Net earnings (loss) | 236.8 |
| | 284.3 |
| | 215.9 |
| | 247.6 |
| | 984.6 |
| | 199.6 |
| | 221.1 |
| | 194.6 |
| | (132.0 | ) | | 483.3 |
|
Net earnings attributable to the noncontrolling interest, net of tax | 11.7 |
| | 12.5 |
| | 12.1 |
| | 17.6 |
| | 53.9 |
| | 10.4 |
| | 9.1 |
| | 9.7 |
| | 14.2 |
| | 43.4 |
|
Net earnings (loss) attributable to BorgWarner Inc. (a) | $ | 225.1 |
| | $ | 271.8 |
| | $ | 203.8 |
| | $ | 230.0 |
| | $ | 930.7 |
| | $ | 189.2 |
| | $ | 212.0 |
| | $ | 184.9 |
| | $ | (146.2 | ) | | $ | 439.9 |
|
| | | | | | | | | | | | | | | | | | | |
Earnings per share — basic | $ | 1.07 |
| | $ | 1.30 |
| | $ | 0.98 |
| | $ | 1.11 |
| | $ | 4.47 |
| | $ | 0.89 |
| | $ | 1.01 |
| | $ | 0.88 |
| | $ | (0.70 | ) | | $ | 2.09 |
|
Earnings per share — diluted | $ | 1.07 |
| | $ | 1.30 |
| | $ | 0.98 |
| | $ | 1.10 |
| | $ | 4.44 |
| | $ | 0.89 |
| | $ | 1.00 |
| | $ | 0.88 |
| | $ | (0.70 | ) | | $ | 2.08 |
|
_______________
(a) The Company's results were impacted by the following:
Quarter ended December 31, 2018: The Company recorded an asset impairment expense of $25.6 million to adjust the net book value of the pipe and thermostat product lines to fair value. The Company recorded asbestos-related adjustments resulting in a net increase to Other Expense of $22.8 million. The Company recorded restructuring expense of $22.7 million primarily related to the Engine and Drivetrain segment actions designed to improve future profitability and competitiveness. The Company recorded a gain of $19.4 million related to the sale of a building at a manufacturing facility located in Europe. The Company also recorded merger and acquisition expense of $1.0 million primarily related to professional fees associated with divestiture activities for the non-core pipes and thermostat product line. The Company recorded reductions of income tax expense of $5.5 million related to restructuring expense, $0.1 million related to merger, acquisition and divestiture expense, $5.5 million related to asbestos-related adjustments, $7.7 million related to asset impairment expense, $0.4 million related to a decrease in our deferred tax liability due to the Company's ability to record a tax benefit for certain foreign tax credits available due to actions the Company took during the year, $9.1 million related to valuation allowance releases, $2.8 million related to tax reserve adjustments, and $18.5 million related to changes in accounting methods and tax filing positions for prior years primarily related to the Tax Act. Additionally, the Company recorded income tax expense of $5.8 million related to a gain on the sale of a building, $7.4 million related to adjustments to measurement period provisional estimates associated with the Tax Act and $0.4 million related to other expense.
Quarter ended September 30, 2018: The Company recorded restructuring expense of $5.7 million primarily related to the actions within its Engine segment designed to improve future profitability and competitiveness. The Company also recorded merger and acquisition expense of $1.6 million primarily related to professional fees associated with divestiture activities for the non-core pipes and thermostat product line. The Company recorded reductions of income tax expense of $1.3 million related to restructuring expense, $0.4 million related to other expense, $6.6 million related to adjustments to measurement period provisional estimates associated with the Tax Act, $0.5 million related to a decrease in our deferred tax liability due to the Company's ability to record a tax benefit for certain foreign tax credits available due to actions the Company took during the year, and $1.8 million related to other one-time tax adjustments, primarily due to changes in tax filing positions. Additionally, the Company recorded income tax expense of $0.1 million related to merger, acquisition and divestiture expense.
Quarter ended June 30, 2018: The Company recorded restructuring expense of $31.2 million primarily related to the initiation of actions within its emissions business in the Engine segment designed to improve future profitability and competitiveness. The Company also recorded merger and acquisition expense of $1.0 million primarily related to professional fees associated with divestiture activities for the non-core pipes and thermostat product line. The Company recorded reductions of income tax expenses of $7.6 million associated with restructuring expense, $13.4 million related to adjustments to measurement period provisional estimates associated with the Tax Act, $21.1 million related to a decrease in our deferred tax liability due to the Company's ability to record a tax benefit for certain foreign tax credits available due to actions the Company took in the second quarter, and $9.9 million related to other one-time tax adjustments.
Quarter ended March 31, 2018: The Company recorded restructuring expense of $7.5 million primarily related to Engine and Drivetrain segment actions designed to improve future profitability and competitiveness. The Company recorded a gain of approximately $4.0 million related to the settlement of a commercial contract for an entity acquired in the 2015 Remy acquisition. The Company also recorded merger and acquisition expense of $2.2 million primarily related to professional fees associated with divestiture activities for the non-core pipe product line. The Company recorded income tax expenses of $0.9 million and $0.4 million related to a commercial settlement gain and other one-time tax adjustments, and reductions of income tax expense of $0.6 million and $0.3 million which are associated with restructuring expense, and merger and acquisition expense.
Quarter ended December 31, 2017: The Company recorded an asset impairment expense of $71.0 million to adjust the net book value of the pipe and thermostat product lines to fair value. Additionally, the Company recorded restructuring expense of $45.2 million related to Drivetrain and Engine segment actions designed to improve future profitability and competitiveness. The Company also recorded merger and acquisition expense of $3.6 million. The Company recorded reduction of income tax expenses of $8.9 million, $0.7 million and $18.2 million related to the restructuring expense, merger and acquisition expense and asset impairment expense. The Company also recorded a tax expense of $7.9 million related to other one-time tax adjustments. Additionally, the Company recorded a tax expense of $273.5 million for the change in the tax law related to tax effects of the Tax Act.
Quarter ended September 30, 2017: The Company recorded restructuring expense of $13.3 million primarily related to the initiation of actions within its emissions business in the Engine segment designed to improve future profitability and competitiveness. The Company also recorded merger and acquisition expense of $6.4 million primarily related to the Sevcon transaction. The Company recorded reduction of income tax expenses of $1.2 million related to restructuring expense, $0.3 million merger and acquisition and $5.1 million related to other one-time tax adjustments.
Quarter ended June 30, 2017: The Company recorded a reduction of income tax expense of $3.2 million related to one-time tax adjustments, primarily resulting from tax audit settlements.
Quarter ended March 31, 2017: The Company recorded lease termination settlement of $5.3 million related to the termination of a long-term property lease in Europe. The Company recorded a tax expense of $3.4 million related to one-time tax adjustments.
Item 9. Changes in and Disagreements Withwith Accountants on Accounting and Financial Disclosure
Not applicable.
| |
Item 9A. | Controls and Procedures |
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. However, ourthe Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.
The Company has adopted and maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports filed or submitted under the Exchange Act, such as this Form 10-K, is collected, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. The Company'sCompany’s disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. As required under Exchange Act Rule 13a-15, the Company'sCompany’s management, including the Chief Executive
Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective.
Management'sManagement’s Report on Internal Control Over Financial Reporting
The Company'sCompany’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Management conducted an assessment of the Company'sCompany’s internal control over financial reporting based on the framework and criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). As permitted by Securities and Exchange Commission guidance, management excluded from its assessment of internal control over financial reporting AKASOL AG which was acquired on June 4, 2021 and accounted for approximately 1.3% of consolidated total assets and 0.5% of consolidated net sales of the Company, as of and for the year ended December 31, 2021, respectively. Based on the assessment, management concluded that, as of December 31, 2018,2021, the Company'sCompany’s internal control over financial reporting is effective based on those criteria.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the Company'sCompany’s consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 20182021 as stated in its report included herein.
Changes in Internal Control over Financial Reporting
There have been no changes in internal control over the financial reporting that occurred during the most recent fiscal quarter that have materially affected or are reasonably likely to materially affect ourthe Company’s internal control over financial reporting.
| |
Item 9B. | Other Information |
Item 9B. Other Information
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
| |
Item 10. | Directors, Executive Officers and Corporate Governance |
Item 10. Directors, Executive Officers and Corporate Governance
Information with respect to directors, executive officers and corporate governance that appears in the Company'sCompany’s proxy statement for its 20192022 Annual Meeting of Stockholders under the captions “Election of Directors,” “Information on Nominees for Directors,” “Board Committees,” “Section“Compensation Committee Report,” “Delinquent Section 16(a) Beneficial Ownership Reporting Compliance,Reports,” and “Code of Ethics,” and “Compensation Committee Report”Ethics” is incorporated herein by this reference and made a part of this report.
The Company has long maintained a Code of Ethical Conduct, updated from time to time, which is applicable to all directors, officers, and employees of the Company. In addition, the Company has adopted a Code of Ethics for CEO and Senior Financial Officers, which applies to the Company’s CEO, CFO, Treasurer, and Controller. Each of these codes is posted on the Company’s website at www.borgwarner.com. The Company intends to disclose any amendments to, or waivers from, a provision of its Code of Ethical Conduct or Code of Ethics for CEO and Senior Financial Officers on its website within four business days following the date of any amendment or waiver.
Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s executive officers, directors, and persons who beneficially own more than 10% of a registered class of the Company’s equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of the Company’s common stock. Such officers, directors and persons are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms that they file with the SEC.
One Form 4 was filed one business day late, on behalf of Stefan Demmerle, with respect to one sales transaction, due to delays attributable to Dr. Demmerle’s investment brokers. Otherwise, based on information provided to the Company by each director and executive officer, the Company believes all beneficial ownership reports, required to be filed in 2021 were timely.
| |
Item 11. | Executive Compensation |
Item 11. Executive Compensation
Information with respect to director and executive compensation that appearswill appear in the Company'sCompany’s proxy statement for its 20192022 Annual Meeting of Stockholders under the captions “Director Compensation,” “Compensation Committee Interlocks and Insider Participation,” “Compensation Discussion and Analysis,” “Restricted Stock,” “Long Term“Long-Term Equity Incentives,” and “Change of Control Agreements” is incorporated herein by this reference and made a part of this report.
| |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information with respect to security ownership and certain beneficial owners and management and related stockholders matters that appearswill appear in the Company'sCompany’s proxy statement for its 20192022 Annual Meeting of Stockholders under the caption “Security Ownership of Certain Beneficial Owners and Management” is incorporated herein by this reference and made a part of this report.
For information regarding the Company's equity compensation plans, see Item 5 “Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in this Annual Report on Form 10-K.
| |
Item 13. | Certain Relationships and Related Transactions and Director Independence |
Item 13. Certain Relationships and Related Transactions and Director Independence
Information with respect to certain relationships and related transactions and director independence that appearswill appear in the Company'sCompany’s proxy statement for its 20192022 Annual Meeting of Stockholders under the caption “Certain Relationships and Related Transactions, and Director Independence” is incorporated herein by this reference and made a part of this report.
| |
Item 14. | Principal Accountant Fees and Services |
Item 14. Principal Accountant Fees and Services
Information with respect to principal accountant fees and services that appearswill appear in the Company'sCompany’s proxy statement for its 20192022 Annual Meeting of Stockholders under the caption “Fees Paid to PwC” is incorporated herein by this reference and made a part of this report.
PART IV
| |
Item 15. | Exhibits and Financial Statement Schedules |
Item 15. Exhibits and Financial Statement Schedules
The information required by this Section (a)(3) of Item 15 is set forth on the Exhibit Index that followsprecedes the Signatures page of this Form 10-K. The information required by this Section (a)(1) of Item 15 is set forth above in Item 8, Financial Statements and Supplementary Data. All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements and notes thereto included in this Form 10-K.
| |
Item 16. | Form 10-K Summary |
Item 16. Form 10-K Summary
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| |
By: | /s/ Frederic B. Lissalde |
| Frederic B. Lissalde |
| President and Chief Executive Officer |
Date: February 19, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacities indicated on the 19th day of February, 2019. |
| | | | |
SignatureExhibit Number | | Title |
|
/s/ Frederic B. Lissalde | | President and Chief Executive Officer |
Frederic B. Lissalde | | (Principal Executive Officer) and Director |
|
/s/ Thomas J. McGill | | Vice President and Interim Chief Financial Officer |
Thomas J. McGill | | (Principal Financial Officer) |
|
/s/ Anthony D. Hensel | | Vice President and Controller |
Anthony D. Hensel | | (Principal Accounting Officer) |
|
/s/ Jan Carlson | | |
Jan Carlson | | Director |
| | |
/s/ Dennis C. Cuneo | | |
Dennis C. Cuneo | | Director |
|
/s/ Roger A. Krone | | |
Roger A. Krone | | Director |
| | |
/s/ Michael S. Hanley | | |
Michael S. Hanley | | Director |
| | |
/s/ John R. McKernan, Jr. | | |
John R. McKernan, Jr. | | Director |
| | |
/s/ Deborah D. McWhinney | | |
Deborah D. McWhinney | | Director |
| | |
/s/ Paul A. Mascarenas | | |
Paul A. Mascarenas | | Director |
| | |
/s/ Alexis P. Michas | | |
Alexis P. Michas | | Director and Non-Executive Chairman |
| | |
/s/ Vicki L. Sato | | |
Vicki L. Sato | | Director |
| | |
/s/ Thomas T. Stallkamp | | |
Thomas T. Stallkamp | | Director |
EXHIBIT INDEX
Description |
| | |
| 1.1 | | |
| Description1.1 to the Company’s Current Report on Form 8-K filed on May 13, 2021). |
| | |
| 3.1 | | |
| 3.1 |
| | |
| | | |
| 3.2 |
| | |
| | | |
| 4.1 |
| | |
| | | |
| 4.2 |
| | |
| | | |
| 4.3 |
| | |
| | | |
| 4.4 |
| | |
| | | |
| 4.5 |
| | |
| | | |
| 10.14.6 |
| | |
| | | |
| 4.7 | | | |
| | | |
| 4.8 | | | |
| | | |
| 4.9 | | | |
| | | |
| 10.1 | | | |
| | | |
| 10.2 | | | |
| | | |
| 10.3 | | | |
| | | |
| | | | | | | | | | | |
Exhibit Number | Description |
| | |
| 10.4 | | | |
| | | |
| 10.5 | | | |
| | | |
| 10.6 | | | |
| | | |
| 10.7 | | | Fourth Amended and Restated Credit Agreement, dated as of June 29, 2017,March 13, 2020, among the Company, as borrower, the Administrative Agent named therein, and the Lenders that are parties thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed June 30, 2017)March 16, 2020). |
| | | |
| †10.210.8 |
| | |
| | | |
| †10.310.9 |
| | |
| | | |
| †10.10 | | |
| | | |
| †10.11 | | |
| | | |
| †10.4 |
| | |
| | | |
| †10.5 |
| | |
| | | |
| †10.6 |
| | |
| | | |
|
| | | | |
Exhibit Number | Description |
†10.12 | | |
| †10.7 |
| | |
| | | |
| †10.8 |
| | |
| | | |
| †10.9 |
| | |
| | | |
| †10.10 |
| | |
| | | |
| †10.11 |
| | |
| | | |
| †10.12 |
| | |
| | | |
| †10.13 |
| | |
| | | |
| †10.14 |
| | |
| | | |
| †10.15 |
| | |
| | | |
| †10.1610.13 |
| | |
| | | |
| †10.1710.14 |
| | |
| | | |
| †10.15 | | |
| | | |
| †10.16 | | |
| | | |
| †10.17 | | |
| | | |
| †10.18 | | |
| | | |
| †10.1810.19 |
| | |
| | | |
| †10.1910.20 |
| | |
| | | |
| | | | | | | | | | | |
Exhibit Number | Description |
| | |
| †10.21 | | |
| | | |
| †10.22 | | |
| | | |
| †10.23 | | |
| | | |
|
| | | | |
Exhibit Number | Description |
†10.24 | | |
| †10.20 |
| | |
| | | |
| †10.2110.25 |
| | |
| | | |
| †10.22 |
| | |
| | | |
| †10.2310.26 |
| | |
| | | |
| †10.2410.27 |
| | |
| | | |
| †10.2510.28 |
| | |
| | | |
| †10.2610.29 |
| | |
| | | |
| †10.2710.30 |
| | |
| | | |
| †10.2810.31 |
| | |
| | | |
�� | †10.2910.32 |
| | |
| | | |
| †10.3010.33 |
| | |
| | | |
| †10.34 | | |
| | | |
| †10.3110.35 |
| | |
| | | |
| †10.32 |
| | |
| | | |
| 10.33 |
| | |
| | | |
| 10.3410.36 |
| | |
|
| | | | |
Exhibit Number | Description |
10.37 | | |
| | | |
| 10.35 |
| | |
| | | | | | | | | | | |
Exhibit Number | | | Description |
| 21.1 |
|
| | | |
| 21.1 | | | |
| | | |
| 23.1 |
| | |
| | | |
| 31.1 |
| | |
| | | |
| 31.2 |
| | |
| | | |
| 32.1 |
| | |
| | | |
| 101.INS |
| | Inline XBRL Instance Document.* |
| | | |
| 101.SCH |
| | Inline XBRL Taxonomy Extension Schema Document.* |
| | | |
| 101.CAL |
| | Inline XBRL Taxonomy Extension Calculation Linkbase Document.* |
| | | |
| 101.LAB101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document.* |
| | | |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document.* |
| | | |
| 101.PRE |
| | Inline XBRL Taxonomy Extension Presentation Linkbase Document.* |
| | | |
| 101.DEF104.1 |
| | Cover Page Interactive Data File (formatted as Inline XBRL Taxonomy Extension Definition Linkbase Document.and contained in Exhibit 101).* |
| | | |
*Filed herewith. |
† Indicates a management contract or compensatory plan or arrangement. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | |
By: | /s/ Frederic B. Lissalde |
| Frederic B. Lissalde |
| President and Chief Executive Officer |
Date: February 15, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacities indicated on the 15th day of February, 2022.
| | | | | | | | | | | | | | |
Signature | | Title |
|
/s/ Frederic B. Lissalde | | President and Chief Executive Officer |
Frederic B. Lissalde | | (Principal Executive Officer) and Director |
|
/s/ Kevin A. Nowlan | | Executive Vice President and Chief Financial Officer |
Kevin A. Nowlan | | (Principal Financial Officer) |
|
/s/ Daniel R. Etue | | Vice President and Controller |
Daniel R. Etue | | (Principal Accounting Officer) |
|
/s/ Nelda J. Connors | | |
Nelda J. Connors | | Director |
| | |
/s/ Dennis C. Cuneo | | |
Dennis C. Cuneo | | Director |
| | |
/s/ Sara A. Greenstein | | |
Sara A. Greenstein | | Director |
|
/s/ David S. Haffner | | |
David S. Haffner | | Director |
|
/s/ Michael S. Hanley | | |
Michael S. Hanley | | Director |
|
/s/ Paul A. Mascarenas | | |
Paul A. Mascarenas | | Director |
| | |
/s/ Shaun E. McAlmont | | |
Shaun E. McAlmont | | Director |
| | |
/s/ Deborah D. McWhinney | | |
Deborah D. McWhinney | | Director |
| | |
/s/ Alexis P. Michas | | |
Alexis P. Michas | | Director and Non-Executive Chairman |