UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

QUARTERLY REPORT

(Mark One)



~~(Mark One)~~
þ	☑	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		~~For the quarterly period ended~~ ~~September 30, 2017~~

For the quarterly period ended March 31, 2020



o	☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		~~For the transition period from~~ to

For the transition period from to

Commission file number:1-12162

BORGWARNER INC.

(Exact name of registrant as specified in its charter)



Delaware			13-3404508
State or other jurisdiction of			(I.R.S. Employer
Incorporation or organization			Identification No.)

3850 Hamlin Road,	Auburn Hills,	Michigan	48326
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: ~~(248)~~ (248) 754-9200

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	BWA	New York Stock Exchange
1.80% Senior Notes due 2022	BWA22	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

~~YES~~ þ NO oYes☑ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

~~YES~~ þ NO oYes☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer” and~~filer,” “smaller reporting ~~company”~~company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. ~~(Check one):~~



Large accelerated filer	þ☑	Accelerated filer	o☐	Non-accelerated filer	o☐	Smaller reporting company	o☐
Emerging growth company	o☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

~~YES~~ o NO þYes ☐ No ☑

As of ~~October 20, 2017,~~May 1, 2020, the registrant had ~~210,838,499~~207,309,940 shares of voting common stock outstanding.

~~Table of Contents~~

BORGWARNER INC.

FORM 10-Q

THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2020

INDEX



	Page No.
PART I. Financial Information

Item 1. Financial Statements

Condensed Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019 (Unaudited)	1

Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 (Unaudited)	2

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019 (Unaudited)	3

Condensed Consolidated Statements of ~~Operations~~Cash Flows for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 (Unaudited)	4

Notes to Condensed Consolidated Financial Statements ~~of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016~~ (Unaudited)	5

~~Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 (Unaudited)~~	6

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3028

Item 3. Quantitative and Qualitative Disclosures About Market Risk	35

Item 4. Controls and Procedures	36

PART II. Other Information

Item 1. Legal Proceedings	37

Item 1A. Risk Factors	37

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	38

Item ~~4. Controls and Procedures~~6. Exhibits	39

~~PART II. Other Information~~

~~Item 1. Legal Proceedings~~	39

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~SIGNATURES	40

~~Item 6. Exhibits~~	40

~~SIGNATURES~~	41

~~Table~~

CAUTIONARY STATEMENTS FOR FORWARD-LOOKING STATEMENTS

Statements in this Quarterly Report on Form 10-Q (“Form 10-Q”) (including Management's Discussion and Analysis of ~~Contents~~Financial Condition and Results of Operations) may constitute forward-looking statements as contemplated by the 1995 Private Securities Litigation Reform Act (the “Act”) that are based on management's current outlook, expectations, estimates and projections. Words such as "anticipates," "believes," "continues," "could," "designed," "effect," "estimates," "evaluates," "expects," "forecasts," "goal," "guidance," "initiative," "intends," "may," "outlook," "plans," "potential," "predicts," "project," "pursue," "seek," "should," "target," "when," "will," "would," and variations of such words and similar expressions are intended to identify such forward-looking statements. Further, all statements, other than statements of historical fact contained or incorporated by reference in this Form 10-Q, that we expect or anticipate will or may occur in the future regarding our financial position, business strategy and measures to implement that strategy, including changes to operations, competitive strengths, goals, expansion and growth of our business and operations, plans, references to future success and other such matters, are forward-looking statements. Accounting estimates, such as those described under the heading "Critical Accounting Policies" in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019 (“Form 10-K”), are inherently forward-looking. All forward-looking statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. Forward-looking statements are not guarantees of performance and the Company's actual results may differ materially from those expressed, projected, or implied in or by the forward-looking statements.

You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q. Forward-looking statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed, projected or implied in or by the forward-looking statements. These risks and uncertainties, among others, include: uncertainties regarding the extent and duration of impacts of matters associated with COVID-19/coronavirus; the failure to complete our anticipated acquisition of Delphi Technologies PLC (“Delphi Technologies”), as a result of, by way of example, the failure to: satisfy the conditions to the completion of the transaction, obtain the regulatory approvals required for the transaction on the terms expected or on the anticipated schedule, or obtain Delphi Technologies stockholder approval in a timely manner or otherwise; our dependence on automotive and truck production, both of which are highly cyclical; our reliance on major OEM customers; commodities availability and pricing; supply disruptions; fluctuations in interest rates and foreign currency exchange rates; availability of credit; our dependence on key management; our dependence on information systems; the uncertainty of the global economic environment; the outcome of existing or any future legal proceedings, including litigation with respect to various claims; future changes in laws and regulations, including, by way of example, tariffs, in the countries in which we operate; and the other risks, including, by way of example, pandemics and quarantines, noted in reports that we file with the Securities and Exchange Commission, including Item 1A, "Risk Factors" in our most recently-filed Form 10-K as updated by Item 1A of this report. We do not undertake any obligation to update or announce publicly any updates to or revisions to any of the forward-looking statements in this Form 10-Q to reflect any change in our expectations or any change in events, conditions, circumstances, or assumptions underlying the statements.

This section and the discussions contained in Item 1A, "Risk Factors," and in Item 7, subheading "Critical Accounting Policies" in our most recently-filed Form 10-K are intended to provide meaningful cautionary statements for purposes of the safe harbor provisions of the Act. This should not be construed as a complete list of all of the economic, competitive, governmental, technological and other factors that could adversely affect our expected consolidated financial position, results of operations or liquidity. Additional risks and uncertainties, including without limitation those not currently known to us or that we currently

believe are immaterial, also may impair our business, operations, liquidity, financial condition and prospects.

Use of Non-GAAP Financial Measures

In addition to results presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), this report includes non-GAAP financial measures. The Company believes these non-GAAP financial measures provide additional information that is useful to investors in understanding the underlying performance and trends of the Company. Readers should be aware that non-GAAP financial measures have inherent limitations and should be cautious with respect to the use of such measures. To compensate for these limitations, we use non-GAAP measures as comparative tools, together with GAAP measures, to assist in the evaluation of our operating performance or financial condition. We ensure that these measures are calculated using the appropriate GAAP components in their entirety and that they are computed in a manner intended to facilitate consistent period-to-period comparisons. The Company's method of calculating these non-GAAP measures may differ from methods used by other companies. These non-GAAP measures should not be considered in isolation or as a substitute for those financial measures prepared in accordance with GAAP. Where non-GAAP financial measures are used, the most directly comparable GAAP or regulatory financial measure, as well as the reconciliation to the most directly comparable GAAP financial measure, can be found in this report.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(in millions)	September 30, 2017			December 31, 2016			March 31, 2020			December 31, 2019
ASSETS
Cash	$	414.3		$	443.7
Cash and cash equivalents							$	901		$	832
Receivables, net	2,046.1			1,689.3			1,735			1,921
Inventories, net	773.4			641.2			847			807
Prepayments and other current assets	167.3			137.4			258			276
Total current assets	3,401.1			2,911.6			3,741			3,836

Property, plant and equipment, net	2,753.7			2,501.8			2,839			2,925
Investments and other long-term receivables	559.5			502.2			315			318
Goodwill	1,882.1			1,702.2			1,818			1,842
Other intangible assets, net	509.4			463.5			383			402
Other non-current assets	710.4			753.4			406			379
Total assets	$	9,816.2		$	8,834.7		$	9,502		$	9,702

LIABILITIES AND EQUITY
Notes payable and other short-term debt	$	303.2		$	175.9		$	286		$	286
Accounts payable and accrued expenses	2,015.0			1,847.3			1,793			1,977
Income taxes payable	63.0			68.6			45			66
Total current liabilities	2,381.2			2,091.8			2,124			2,329

Long-term debt	2,091.9			2,043.6			1,664			1,674

Other non-current liabilities:
Asbestos-related liabilities	786.0			827.6
Retirement-related liabilities	301.7			294.1			302			306
Other	339.1			275.7			548			549
Total other non-current liabilities	1,426.8			1,397.4			850			855

Commitments and contingencies

Common stock	2.5			2.5			3			3
Capital in excess of par value	1,100.1			1,104.3			1,109			1,145
Retained earnings	4,712.8			4,215.2			6,036			5,942
Accumulated other comprehensive loss	(545.7		)	(722.1		)	(801		)	(727		)
Common stock held in treasury	(1,444.0		)	(1,381.6		)
Common stock held in treasury, at cost							(1,623		)	(1,657		)
Total BorgWarner Inc. stockholders’ equity	3,825.7			3,218.3			4,724			4,706
Noncontrolling interest	90.6			83.6			140			138
Total equity	3,916.3			3,301.9			4,864			4,844
Total liabilities and equity	$	9,816.2		$	8,834.7		$	9,502		$	9,702

See accompanying Notes to Condensed Consolidated Financial Statements.

~~Table of Contents~~

BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(in millions, except share and per share amounts)	2017			2016			2017			2016
(in millions, except per share amounts)													2020			2019
Net sales	$	2,416.2		$	2,214.2		$	7,212.9		$	6,812.0		$	2,279		$	2,566
Cost of sales	1,893.5			1,743.1			5,658.7			5,379.9			1,832			2,047
Gross profit	522.7			471.1			1,554.2			1,432.1			447			519

Selling, general and administrative expenses	224.8			209.7			658.6			600.4			213			226
Other expense, net	22.0			111.1			27.5			147.8			45			29
Operating income	275.9			150.3			868.1			683.9			189			264

Equity in affiliates’ earnings, net of tax	(14.4		)	(12.4		)	(38.5		)	(31.6		)	(5		)	(9		)
Interest income	(1.3		)	(1.6		)	(4.2		)	(4.7		)	(2		)	(3		)
Interest expense and finance charges	17.6			22.4			53.6			65.1
Interest expense													12			14
Other postretirement income													(2		)	—
Earnings before income taxes and noncontrolling interest	274.0			141.9			857.2			655.1			186			262

Provision for income taxes	79.4			48.8			241.9			213.4			49			91
Net earnings	194.6			93.1			615.3			441.7			137			171
Net earnings attributable to the noncontrolling interest, net of tax	9.7			9.8			29.2			29.9			8			11
Net earnings attributable to BorgWarner Inc.	$	184.9		$	83.3		$	586.1		$	411.8		$	129		$	160

Earnings per share — basic	$	0.88		$	0.39		$	2.78		$	1.91		$	0.63		$	0.77

Earnings per share — diluted	$	0.88		$	0.39		$	2.77		$	1.90		$	0.63		$	0.77

Weighted average shares outstanding (thousands):
Weighted average shares outstanding:
Basic	209,803			212,872			210,657			215,332			205.7			206.5
Diluted	211,013			213,766			211,575			216,189			206.2			207.1

Dividends declared per share	$	0.14		$	0.13		$	0.42		$	0.39

See accompanying Notes to Condensed Consolidated Financial Statements.

~~Table of Contents~~

BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(in millions)	2017			2016			2017			2016			2020			2019
Net earnings attributable to BorgWarner Inc.	$	184.9		$	83.3		$	586.1		$	411.8		$	129		$	160

Other comprehensive income (loss)
Foreign currency translation adjustments	64.2			27.9			186.6			41.8
Foreign currency translation adjustments*													(74		)	(9		)
Hedge instruments*	(1.7		)	(2.3		)	(5.2		)	1.1			(2		)	—
Defined benefit postretirement plans*	(1.8		)	(2.9		)	(6.2		)	(2.5		)	2			8
Other*	—			0.1			1.2			(1.2		)
Total other comprehensive income attributable to BorgWarner Inc.	60.7			22.8			176.4			39.2
Total other comprehensive loss attributable to BorgWarner Inc.													(74		)	(1		)

Comprehensive income attributable to BorgWarner Inc.	245.6			106.1			762.5			451.0
Comprehensive income attributable to the noncontrolling interest	1.1			2.2			4.5			2.3
Comprehensive income attributable to BorgWarner Inc.*													55			159

Net earnings attributable to noncontrolling interest, net of tax													8			11
Other comprehensive (loss) income attributable to the noncontrolling interest*													(3		)	1
Comprehensive income	$	246.7		$	108.3		$	767.0		$	453.3		$	60		$	171


*	Net of income taxes.

See accompanying Notes to Condensed Consolidated Financial Statements.

~~Table of Contents~~

BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Nine Months Ended September 30,						Three Months Ended March 31,
(in millions)	2017			2016			2020			2019
OPERATING
Net earnings	$	615.3		$	441.7		$	137		$	171
Adjustments to reconcile net earnings to net cash flows from operations:
Asset impairment expense	—			106.5
Depreciation and amortization	302.0			291.2			112			107
Stock-based compensation expense							10			8
Asset impairment							9			—
Restructuring expense, net of cash paid	3.5			12.0			2			7
Stock-based compensation expense	35.5			27.3
Deferred income tax provision	39.5			0.7
Deferred income tax benefit							(5		)	(2		)
Tax reform adjustments to provision for income taxes							—			22
Equity in affiliates’ earnings, net of dividends received, and other	(23.7		)	(22.3		)	(4		)	6
Net earnings adjusted for non-cash charges to operations	972.1			857.1			261			319
Changes in assets and liabilities:
Receivables	(232.0		)	(176.2		)	152			(95		)
Inventories	(70.8		)	(45.5		)	(58		)	(31		)
Prepayments and other current assets	(9.1		)	3.9			(8		)	(23		)
Accounts payable and accrued expenses	49.8			(14.0		)	(96		)	(120		)
Income taxes payable	(18.1		)	(33.1		)
Prepaid taxes and income taxes payable							8			(12		)
Other assets and liabilities	(68.0		)	0.9			4			2
Net cash provided by operating activities	623.9			593.1			263			40

INVESTING
Capital expenditures, including tooling outlays	(389.7		)	(354.8		)	(117		)	(117		)
Payments for business acquired, net of cash acquired	(180.6		)	—			(2		)	(10		)
Proceeds from settlement of net investment hedges							1			—
Proceeds from sale of business, net of cash divested	—			5.4			—			23
Proceeds from asset disposals and other	1.6			7.0
Payments for venture capital investment	(2.0		)	—
Payments for investments in equity securities							—			(1		)
Proceeds from asset disposals and other, net							(2		)	1
Net cash used in investing activities	(570.7		)	(342.4		)	(120		)	(104		)

FINANCING
Net increase in notes payable	124.9			51.6
Additions to long-term debt, net of debt issuance costs	—			4.6
Repayments of long-term debt, including current portion	(14.5		)	(16.6		)
Proceeds from interest rate swap termination	—			8.9
Payments for debt issuance cost	(2.4		)	—
Additions to debt, net of debt issuance costs							13			11
Repayments of debt, including current portion							(14		)	(26		)
Payments for purchase of treasury stock	(100.0		)	(250.0		)	—			(67		)
Payments for (proceeds from) stock-based compensation items	(2.1		)	0.9
Payments for stock-based compensation items							(12		)	(14		)
Dividends paid to BorgWarner stockholders	(88.5		)	(83.8		)	(35		)	(35		)
Dividends paid to noncontrolling stockholders	(23.6		)	(25.7		)	(14		)	(22		)
Net cash used in financing activities	(106.2		)	(310.1		)	(62		)	(153		)
Effect of exchange rate changes on cash	23.6			0.4			(12		)	(5		)
Net decrease in cash	(29.4		)	(59.0		)
Cash at beginning of year	443.7			577.7
Cash at end of period	$	414.3		$	518.7
Net increase (decrease) in cash and cash equivalents							69			(222		)
Cash and cash equivalents, including restricted cash at beginning of year							832			739
Cash and cash equivalents, including restricted cash at end of period							$	901		$	517

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	72.1		$	73.5		$	29		$	26
Income taxes, net of refunds	$	219.9		$	246.1		$	43		$	68
Non-cash investing transactions
Liabilities assumed from business acquired	$	19.1		$	—

See accompanying Notes to Condensed Consolidated Financial Statements.

~~Table of Contents~~

BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1) Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of BorgWarner Inc. and Consolidated Subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes necessary for a comprehensive presentation of financial position, results of operations and cash flow activity required by GAAP for complete financial statements. In the opinion of management, all normal recurring adjustments necessary for a fair statement of results have been included. Operating results for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2020. The balance sheet as of December 31, ~~2016~~2019 was derived from the audited financial statements as of that date. For further information, refer to the Consolidated Financial Statements and Footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

Certain prior period amounts have been reclassified to conform to current period presentation. Management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and accompanying notes, as well as the amounts of revenues and expenses reported during the periods covered by those financial statements and accompanying notes. Actual results could differ from these estimates. ~~Certain prior period amounts~~

A novel strain of COVID-19/coronavirus was first identified in Wuhan, China in December 2019 and subsequently declared a pandemic by the World Health Organization on March 11, 2020. To date, COVID-19/coronavirus has surfaced in nearly all regions around the world and resulted in travel restrictions, closing of borders and business slowdowns or shutdowns in affected areas. As a result, COVID-19/coronavirus has impacted the Company's business globally. Many OEMs have ~~been reclassified~~announced that they have suspended manufacturing operations, particularly in North America and Europe, on a temporary basis due to ~~conform~~market conditions and matters associated with COVID-19/coronavirus. Additionally, as a global manufacturer, the Company is responding to ~~current period presentation.~~shelter-in-place and similar government orders in various locations around the world, including throughout the United States and Europe, resulting in the temporary closures of the Company's manufacturing and assembly facilities.

The Company assessed certain accounting matters that require consideration of forecasted financial information, including, but not limited to, its allowance for credit losses, the carrying value of the Company's goodwill, intangible assets, and other long-lived assets, and valuation allowances in context with the information reasonably available to the Company and the unknown future impacts of COVID-19/coronavirus as of March 31, 2020 and through the date of this report. As a result of these assessments, there were no impairments or material increases in credit allowances or valuation allowances that impacted the Company's Condensed Consolidated Financial Statements as of and for the three months ended March 31, 2020. However, the Company's future assessment of the magnitude and duration of COVID-19/coronavirus, as well as other factors, could result in material impacts to the Consolidated Financial Statements in future reporting periods.

(2) New Accounting Pronouncements

Recently Adopted Accounting Standards

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards

Update ("ASU") No. 2020-4, "Reference Rate Reform (Topic 848)." It provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. These optional expedients and exceptions allow a company to choose not to apply certain modification accounting requirements under GAAP to contracts affected by reference rate reform. A company that makes this election would present and account for a modified contract as a continuation of the existing contract. It also enables a company to continue to apply hedge accounting for hedging relationships in which the critical terms change due to rate reform. This guidance was effective March 12, 2020 and provides relief to contract modifications through December 31, 2022. The Company adopted this guidance on March 12, 2020, and there was no impact to the Condensed Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)." It requires implementation costs incurred by customers in cloud computing arrangements to be deferred and recognized over the term of the arrangement, if those costs would be capitalized by the customer in a software licensing arrangement under the internal-use software guidance (Subtopic 350-40). This guidance was effective for interim and annual periods beginning after December 15, 2019. The Company adopted this guidance as of January 1, 2020, and the impact on its Condensed Consolidated Financial Statements was immaterial.

In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820)." It removes disclosure requirements on fair value measurements including the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, 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 losses for the period included in other comprehensive income for recurring Level 3 fair value measurements, and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This guidance was effective for interim and annual periods beginning after December 15, 2019. The Company adopted this guidance as of January 1, 2020, and there was no impact to the Condensed Consolidated Financial Statements.

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326)." It replaces the current incurred loss impairment method with a new method that reflects expected credit losses. Under this new model an entity would recognize an impairment allowance equal to its current estimate of credit losses on financial assets measured at amortized cost. This guidance was effective for annual periods beginning after December 15, 2019. The Company adopted this guidance as of January 1, 2020, and the impact on its Condensed Consolidated Financial Statements was immaterial.

Accounting Standards Not Yet Adopted

In January 2020, the FASB issued ASU No. 2020-1, "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)." It clarifies the interaction between 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 purchase securities, a company should not consider if the underlying securities would be accounted for under the equity method (ASC Topic 323) or fair value option (ASC Topic 825). This guidance is effective for interim and annual periods beginning after December 15, 2020, and early adoption is permitted. The Company is still evaluating the impact of this guidance on its Condensed 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 Accounting

Standards Codification ("ASC") Topic 740 and improve consistent application of and simplify GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance. This guidance is effective for interim and annual reporting periods beginning after December 15, 2020. The Company is currently evaluating the impact of this guidance on its Condensed Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20)." 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 is effective for annual periods beginning after December 15, 2020, and early adoption is permitted. The Company does not expect this guidance to have a material impact and it will include enhanced disclosures in the Consolidated Financial Statements upon adoption.

(3) Revenue from Contracts with Customers

The Company manufactures and sells products, primarily to OEMs of light vehicles and, to a lesser extent, to other OEMs of commercial vehicles, off-highway vehicles, certain tier one vehicle systems suppliers and into the aftermarket. 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, "Revenue from Contracts with Customers", until volumes are contractually known. Revenue is recognized when performance obligations under the terms of a contract are satisfied, which generally occurs with the transfer of control of the Company's products. For most of the Company's products, transfer of control occurs upon shipment or delivery; however, a limited number of the Company's 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. The Company recorded a contract asset of $9 million and $10 million at March 31, 2020 and December 31, 2019, respectively, for these arrangements. These amounts are reflected in Prepayments and other current assets in the Company's Condensed Consolidated Balance Sheets.

Revenue is measured at the amount of consideration the Company expects 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 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.

The Company’s payment terms with customers are customary and vary by customer and geography but typically range from 30 to 90 days. The Company has evaluated the terms of its 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 9, "Product Warranty," to the Condensed 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 Topic 606 and accounts for shipping and handling activities as a fulfillment cost.

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 expenses and Other non-current liabilities in the

Condensed Consolidated Balance Sheets and were $13 million and $9 million at March 31, 2020 and $10 million and $12 million at December 31, 2019, respectively. These amounts are reflected as revenue over the term of the arrangement (typically 3 to 7 years) as the underlying products are shipped.

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. The Company recognizes a reduction to revenue, when the 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 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 $38 million and $37 million recorded in Prepayments and other current assets in the Condensed Consolidated Balance Sheets at March 31, 2020 and December 31, 2019, respectively. The Company had $171 million and $180 million recorded in Other non-current assets in the Condensed Consolidated Balance Sheets at March 31, 2020 and December 31, 2019, respectively.

The Company's business is comprised of 2 reporting segments: Engine and Drivetrain. Refer to Note 20, "Reporting Segments," to the Condensed Consolidated Financial Statements for more information. The following table represents a disaggregation of revenue from contracts with customers by segment and region:



	Three Months Ended March 31,
	2020						2019
(In millions)	Engine		Drivetrain		Total		Engine		Drivetrain		Total
North America	$	387	$	423	$	810	$	412	$	445	$	857
Europe	711		191		902		801		227		1,028
Asia	291		242		533		340		303		643
Other	30		4		34		31		7		38
Total	$	1,419	$	860	$	2,279	$	1,584	$	982	$	2,566

(4) Research and Development Expenditures

The Company's net Research & Development ("R&D") expenditures are included in ~~selling,~~Selling, general and administrative expenses of the Condensed 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 and accepted by the customer.~~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 following table presents the Company’s gross and net expenditures on R&D activities:



	Three Months Ended March 31,
(in millions)	2020			2019
Gross R&D expenditures	$	118		$	121
Customer reimbursements	(9		)	(17		)
Net R&D expenditures	$	109		$	104

Three Months Ended
September 30,

Nine Months Ended
September 30,
(in millions) 2017 2016 2017 2016
Gross R&D expenditures $ 115.2
$ 106.1
$ 346.9
$ 311.1
Customer reimbursements (13.7 ) (17.5 ) (44.1 ) (52.2 )
Net R&D expenditures $ 101.5
$ 88.6
$ 302.8
$ 258.9

The Company has contracts with several customers at the Company's various R&D locations. ~~No such contract~~None of the Company's R&D-related customer reimbursements under these contracts exceeded 5% of ~~annual~~ net R&D expenditures in any of the periods presented.

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~~(3)~~(5) Other Expense, ~~net~~Net

Items included in ~~other~~Other expense, net consist of:



	Three Months Ended March 31,
(in millions)	2020		2019
Merger, acquisition and divestiture expense	$	21	$	1
Restructuring expense	15		14
Asset impairment	9		—
Unfavorable arbitration loss	—		14
Other expense, net	$	45	$	29

Three Months Ended
September 30,

Nine Months Ended
September 30,
(in millions) 2017 2016 2017 2016
Restructuring expense $ 13.3
$ 1.3
$ 13.3
$ 26.9
Merger and acquisition expense 6.4
5.9
6.4
18.9
Lease termination settlement —
—
5.3
—
Asset impairment expense —
106.5
—
106.5
Other expense (income) 2.3
(2.6 ) 2.5
(4.5 )
Other expense, net $ 22.0
$ 111.1
$ 27.5
$ 147.8

During the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2020 and 2019, the Company recorded $21 million and $1 million, respectively, of merger, acquisition and divestiture expense, primarily related to professional fees. The expense for 2020 primarily related to the Company's anticipated acquisition of Delphi Technologies PLC and the expense for 2019 primarily related to divestiture activities for non-core pipe and thermostat product lines.

During the three months ended March 31, 2020, the Company recorded restructuring expense of ~~$13.3 million.~~$15 million, primarily related to actions to reduce structural costs. During ~~the~~the three ~~and nine~~ months ended ~~September 30, 2016,~~March 31, 2019, the ~~Company~~Company recorded restructuring expense of ~~$1.3 million and $26.9 million, respectively. These expenses~~$14 million. This restructuring expense primarily related to Drivetrain and Engine segment actions designed to improve future profitability and competitiveness. ~~See the Restructuring footnote~~Refer to Note 18, "Restructuring," to the Condensed Consolidated Financial Statements for ~~further discussion of these expenses.~~more information.

On September 27, 2017, the Company acquired 100% of the equity interests of Sevcon, Inc. ("Sevcon"), a global player in electrification technologies, serving customers in the U.S., U.K., France, Germany, Italy, China and the Asia Pacific region. As a result, the Company recorded $6.4 million of transaction related professional fees duringDuring the three months ended ~~September 30, 2017. See~~March 31, 2020, the ~~Recent~~Company recorded a $9 million asset impairment cost to record its investment in Romeo Systems, Inc. ("Romeo") at its fair value of $41 million at March 31, 2020. Refer to Note 21, "Recent Transactions ~~footnote~~and Events," to the Condensed Consolidated Financial Statements for ~~further discussion.~~more information.

During the three ~~and nine~~ months ended ~~September 30, 2016,~~March 31, 2019, the Company ~~incurred transition and realignment expenses and other professional fees~~recorded $14 million of ~~$5.9 million and $18.9 million, respectively,~~expense related to the receipt of a final unfavorable arbitration decision associated with the ~~November 2015 acquisition~~resolution of ~~Remy International, Inc. ("Remy"). Additionally, in October 2016, the Company entered into~~ a definitive agreement to sell the light vehicle aftermarket business associated with Remy. The Company determined that assets and liabilities subject to the Remy light vehicle aftermarket business sale met the held for sale criteria during the third quarter of 2016. The fair value of the assets and liabilities, based on the anticipated sale price, was less than the carrying value, therefore, the Company 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, the Company sold the Remy light vehicle aftermarket business for approximately $80 million in cash.

~~During the first three months of 2017, the Company recorded a loss of $5.3 million~~matter related to ~~the termination of~~ a ~~long term property lease for a manufacturing facility located in Europe.~~previous acquisition.

~~(4)~~(6) Income Taxes

The Company's provision for income taxes is based upon an estimated annual tax rate for the year applied to federal, state and foreign income. On a quarterly basis, the annual effective tax rate is adjusted, as appropriate, based upon changed facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and each interim period thereafter.

~~At September 30, 2017, the~~The Company's effective tax rate for the ~~first nine~~three months ended March 31, 2020 was ~~28.2%~~26%. This rate includes ~~respective~~reductions in income tax expense of $4 million related to restructuring expense and $12 million for other one-time adjustments. The other one-time adjustments primarily relate to tax law changes in India that were enacted during the quarter and the release of certain unrecognized tax benefits due to the closure of~~$1.2 million~~, ~~$0.3 million, and $11.7 million which are associated with restructuring expense, merger and acquisition expense, and one-time tax adjustments that primarily resulted from tax audit settlements.~~ an audit.

~~At September 30, 2016, the~~The Company's effective tax rate for the ~~first nine~~three months ended March 31, 2019 was ~~32.6%~~34.7%. This rate includes reductions of income tax ~~benefits~~expense of ~~$27.6 million and $5.9~~$3 million related to ~~asset impairment and~~ restructuring expense ~~respectively, as discussed in the Other Expense, net footnote to the Condensed Consolidated Financial Statements,~~ and ~~$3.7~~$5 million ~~related to~~for other one-time tax ~~adjustments, as well as a~~adjustments. This rate also includes an increase in income tax expense of ~~$2.2~~$22 million due to the U.S. Department of the Treasury's issuance of the final regulations in the first quarter of 2019 related to ~~a gain~~the calculation of the one-time transition tax associated with the ~~release~~Tax Cuts and Jobs Act of ~~certain Remy light vehicle aftermarket liabilities due to the expiration of a customer contract.~~2017.

The annual effective tax rates differ from the U.S. statutory rate primarily due to foreign rates which differ from those in the U.S., U.S. taxes on foreign earnings, the realization of certain business tax credits, including foreign tax credits, and favorable permanent differences between book and tax treatment for certain items, including equity in affiliates' earnings.

~~(5)~~(7) Inventories, ~~net~~Net

Certain U.S. inventories are measured by 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 and net realizable value. Inventories, net consisted of the following:



	March 31,			December 31,
(in millions)	2020			2019
Raw material and supplies	$	536		$	502
Work in progress	114			113
Finished goods	211			207
FIFO inventories	861			822
LIFO reserve	(14		)	(15		)
Inventories, net	$	847		$	807

September 30, December 31,
(in millions) 2017 2016
Raw material and supplies $ 454.0
$ 378.6
Work in progress 126.8
102.9
Finished goods 207.4
174.9
FIFO inventories 788.2
656.4
LIFO reserve (14.8 ) (15.2 )
Inventories, net $ 773.4
$ 641.2

~~(6)~~(8) Property, Plant and Equipment, ~~net~~Net



	March 31,			December 31,
(in millions)	2020			2019
Land, land use rights and buildings	$	869		$	860
Machinery and equipment	3,056			2,971
Construction in progress	334			360
Finance lease assets	—			1
Total property, plant and equipment, gross	4,259			4,192
Less: accumulated depreciation	(1,657		)	(1,513		)
Property, plant and equipment, net, excluding tooling	2,602			2,679
Tooling, net of amortization	237			246
Property, plant and equipment, net	$	2,839		$	2,925

September 30, December 31,
(in millions) 2017 2016
Land, land use rights and buildings $ 874.7
$ 781.6
Machinery and equipment 2,659.9
2,371.2
Capital leases 5.9
3.9
Construction in progress 381.9
338.2
Total property, plant and equipment, gross 3,922.4
3,494.9
Less: accumulated depreciation (1,351.3 ) (1,137.5 )
Property, plant and equipment, net, excluding tooling 2,571.1
2,357.4
Tooling, net of amortization 182.6
144.4
Property, plant and equipment, net $ 2,753.7
$ 2,501.8

As of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, accounts payable of ~~$54.8~~$55 million and ~~$85.3~~$102 million, respectively, were related to property, plant and equipment purchases.

Interest costs capitalized for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 were ~~$14.2~~$4 million and ~~$10.4~~$5 million, respectively.

~~(7)~~(9) Product Warranty

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,

~~Table of Contents~~

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. Management believes that the warranty accrual is appropriate; however, actual claims incurred could differ from the original estimates, requiring adjustments to the accrual.

The following table summarizes the activity in the product warranty accrual accounts:



(in millions)	2020			2019
Beginning balance, January 1	$	116		$	103
Provisions for current period sales	15			15
Adjustments of prior estimates	5			7
Payments	(18		)	(18		)
Translation adjustment	(2		)	—
Ending balance, March 31	$	116		$	107

(in millions) 2017 2016
Beginning balance, January 1 $ 95.3
$ 107.9
Provisions 51.3
47.4
Acquisitions 0.4
6.9
Liabilities held for sale —
(9.2 )
Payments (45.7 ) (36.7 )
Translation adjustment 5.4
2.1
Ending balance, September 30 $ 106.7
$ 118.4

Acquisition activity in 2017 of $0.4 million relates to warranty liability associated with the Company's purchase of Sevcon. Acquisition activity in 2016 of $6.9 million was related to the Company's accrual for product issues that predated the Company's 2015 acquisition of Remy.

The product warranty liability is classified in the Condensed Consolidated Balance Sheets as follows:



	March 31,		December 31,
(in millions)	2020		2019
Accounts payable and accrued expenses	$	64	$	63
Other non-current liabilities	52		53
Total product warranty liability	$	116	$	116

September 30, December 31,
(in millions) 2017 2016
Accounts payable and accrued expenses $ 64.8
$ 63.9
Other non-current liabilities 41.9
31.4
Total product warranty liability $ 106.7
$ 95.3

~~(8)~~

(10) Notes Payable and Long-Term Debt

As of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, the Company had short-term and long-term debt outstanding as follows:



	March 31,		December 31,
(in millions)	2020		2019
Short-term debt
Short-term borrowings	$	34	$	34

Long-term debt
4.625% Senior notes due 09/15/20 ($250 million par value)	251		251
1.80% Senior notes due 11/7/22 (€500 million par value)	549		558
3.375% Senior notes due 03/15/25 ($500 million par value)	497		497
7.125% Senior notes due 02/15/29 ($121 million par value)	119		119
4.375% Senior notes due 03/15/45 ($500 million par value)	494		494
Term loan facilities and other	6		7
Total long-term debt	1,916		1,926
Less: current portion	252		252
Long-term debt, net of current portion	$	1,664	$	1,674

September 30, December 31,
(in millions) 2017 2016
Short-term debt

Short-term borrowings $ 282.4
$ 156.5

Long-term debt

8.00% Senior notes due 10/01/19 ($134 million par value) 137.8
139.1
4.625% Senior notes due 09/15/20 ($250 million par value) 251.6
251.9
1.80% Senior notes due 11/7/22 (€500 million par value) 585.9
520.7
3.375% Senior notes due 03/15/25 ($500 million par value) 495.9
495.6
7.125% Senior notes due 02/15/29 ($121 million par value) 118.9
118.8
4.375% Senior notes due 03/15/45 ($500 million par value) 493.5
493.3
Term loan facilities and other 29.1
43.6
Total long-term debt 2,112.7
2,063.0
Less: current portion 20.8
19.4
Long-term debt, net of current portion $ 2,091.9
$ 2,043.6

~~Table of Contents~~

In July 2016, the Company terminated interest rate swaps which had the effect of converting $384 million of fixed rate notes to variable rates. The gain on the termination is being amortized into interest expense over the remaining terms of the notes. The value related to these swap terminations as of September 30, 2017 was $3.2 million and $0.9 million on the 4.625% and 8.00% notes, respectively, as an increase to the notes. The value of these interest rate swaps as of December 31, 2016 was $3.9 million and $1.3 million on the 4.625% and 8.00% notes, respectively, as an increase to the notes.

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~~may utilize uncommitted lines of ~~the notes. The value related to these swap terminations at September 30, 2017~~credit for short-term working capital requirements. As of March 31, 2020 and December 31, ~~2016 was $3.1~~2019, the Company had $34 million in borrowings under these facilities, which are classified in Notes payable and ~~$4.1 million, respectively,~~short-term debt on the ~~8.00% notes as an increase to the notes.~~Condensed Consolidated Balance Sheets.

The weighted average interest rate on short-term borrowings outstanding as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019 was ~~2.2%~~2.3% and ~~2.3%~~2.5%, respectively. The weighted average interest rate on all borrowings outstanding, including the effects of outstanding swaps, as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019 was ~~3.7% and 3.8%, respectively.~~2.8%.

On ~~June 29, 2017,~~March 13, 2020, the Company amended ~~and extended~~ its ~~$1 billion~~ multi-currency revolving credit facility ~~(which included a feature that allowed~~by increasing the ~~Company's borrowings~~size of the facility from $1.2 billion to ~~be increased to $1.25 billion) to a $1.2~~$1.5 billion and by extending the maturity until March 13, 2025. The multi-currency revolving credit agreement provides for the facility ~~(which includes a feature that~~to automatically increase to $2.0 billion upon the closing of the anticipated acquisition of Delphi Technologies PLC. Additionally, the agreement allows the ~~Company's borrowings~~Company the ability to ~~be increased to $1.5 billion).~~increase the facility by $1.0 billion with bank group approval. The ~~facility provides for borrowings through June 29, 2022~~. ~~The Company has~~credit agreement contains customary events of default and one key financial covenant ~~as part of the credit agreement~~ which is a debt to ~~EBITDA ("~~Earnings Before Interest, Taxes, Depreciation and ~~Amortization"~~Amortization ("EBITDA") ratio. The Company was in compliance with the financial covenant at ~~September 30, 2017 and expects to remain compliant in future periods.~~ March 31, 2020. At ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, the Company had no outstanding borrowings under this facility.

The Company's commercial paper program allows the Company to issue short-term, unsecured commercial paper notes up to a maximum aggregate principal amount outstanding, which increased from ~~$1.0~~$1.2 billion to ~~$1.2~~$1.5 billion effective ~~July 26, 2017.~~March 13, 2020. Under this program, the Company may issue notes from time to time and ~~will~~ use the proceeds for general corporate purposes. ~~At September 30, 2017~~The Company had no outstanding borrowings under this program as of March 31, 2020 and December 31, 2016, the Company had outstanding borrowings of $200.0 million and $50.8 million, respectively, under this program, which is classified in the Condensed Consolidated Balance Sheets in Notes payable and other short-term debt. 2019.

The total current combined borrowing capacity under the multi-currency revolving credit facility and commercial paper program cannot exceed ~~$1.2~~$1.5 billion.

As of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, the estimated fair values of the Company’s senior unsecured notes totaled ~~$2,185.3~~$1,945 million and ~~$2,081.4~~$2,025 million, respectively. The estimated fair values were ~~$101.7 million and $62.0~~

$35 million higher than their carrying value at ~~September 30, 2017~~March 31, 2020 and $106 million higher than their carrying value at December 31, ~~2016, respectively.~~2019. 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's multi-currency revolving credit facility and commercial paper program approximates 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 ~~$31.5 million and $32.3~~$28 million at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016, respectively.~~2019. The letters of credit typically act as guarantees of payment to certain third parties in accordance with specified terms and conditions.

~~Table of Contents~~

~~(9)~~(11) Fair Value Measurements

ASC Topic 820 emphasizes that fair value is a market-based measurement, not an ~~entity specific~~entity-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.

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).

~~Table of Contents~~

The following tables classify assets and liabilities measured at fair value on a recurring basis as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016:~~2019:


			Basis of fair value measurements									Basis of fair value measurements
(in millions)	Balance at September 30, 2017		Quoted prices in active markets for identical items (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Valuation technique	Balance at March 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:
Commodity contracts	$	0.1	$	—	$	0.1	$	—	A
Foreign currency contracts	$	2.9	$	—	$	2.9	$	—	A	$	3	$	—	$	3	$	—	A
Other long-term receivables (insurance settlement agreement note receivable)	$	73.0	$	—	$	73.0	$	—	C
Interest rate swaption contracts										$	1	$	—	$	1	$	—	A
Net investment hedge contracts										$	30	$	—	$	30	$	—	A
Liabilities:
Foreign currency contracts	$	2.9	$	—	$	2.9	$	—	A	$	4	$	—	$	4	$	—	A
Net investment hedge contracts	$	9.6	$	—	$	9.6	$	—	A



			Basis of fair value measurements
(in millions)	Balance at December 31, 2019		Quoted prices in active markets for identical items (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Valuation technique
Assets:
Net investment hedge contracts	$	3	$	—	$	3	$	—	A
Liabilities:
Foreign currency contracts	$	1	$	—	$	1	$	—	A
Net investment hedge contracts	$	8	$	—	$	8	$	—	A

Basis of fair value measurements
(in millions)
Balance at
December 31, 2016

Quoted prices in active markets for identical items
(Level 1)

Significant other observable inputs
(Level 2)

Significant unobservable inputs
(Level 3)

Valuation
technique
Assets:
Commodity contracts $ 0.1
$ —
$ 0.1
$ —
A
Foreign currency contracts $ 7.2
$ —
$ 7.2
$ —
A
Other long-term receivables (insurance settlement agreement note receivable) $ 71.5
$ —
$ 71.5
$ —
C
Liabilities:
Foreign currency contracts $ 1.1
$ —
$ 1.1
$ —
A

~~(10)~~(12) 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, interest rate and cross-currency swaps and options, 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. At ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, the Company had no derivative contracts that contained credit risk related contingent features.

The Company uses certain commodity derivative contracts to protect against commodity price changes related to forecasted raw material and ~~supplies~~component purchases. The Company primarily utilizes forward and option contracts, which are designated as cash flow hedges. At ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, the following commodity derivative contracts were outstanding:



	Commodity derivative contracts
Commodity	Volume hedged March 31, 2020	Volume hedged December 31, 2019	Units of measure	Duration
Copper	148	203	Metric Tons	Dec - 20

Commodity derivative contracts
Commodity Volume hedged September 30, 2017 Volume hedged December 31, 2016 Units of measure Duration
Copper 49.1
213.8
Metric Tons Dec -17

~~Table of Contents~~

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 selectively uses interest rate swaps and options to reduce market value risk associated with changes in interest rates (fair value hedges and cash flow hedges). At ~~September 30, 2017 and~~ December 31, ~~2016,~~2019, the Company had no outstanding interest rate swaps. On February 19, 2020, the Company executed a €750 million notional interest rate swaption contract expiring June 30, 2020, and designated this contract as a cash flow hedge, to mitigate against interest rate fluctuations on anticipated debt issuance. The premium cost for this contract is immaterial. For the three months ended March 31, 2020, the Company recorded a deferred gain of $1 million in accumulated other comprehensive income (loss) ("AOCI") related to this swaption.

The Company uses foreign currency forward and option contracts to protect against exchange rate movements for forecasted cash flows, (cash flow hedges), remeasurement exposures that affect earnings (non-designated hedges), and exposures associated with the Company’s net investments in certain foreign operations (net investment hedges). Forecasted cash flows may includeincluding capital expenditures, ~~inventory~~ 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 its net investment in certain foreign operations (net investment hedges). The Company has also designated its ~~Euro~~-~~denominated~~Euro-denominated debt as a net investment hedge of the Company's investment in European subsidiaries. Foreign currency derivative contracts require the Company, at a ~~European subsidiary.~~

future date, to either buy or sell foreign currency in exchange for the operating units’ local currency. At ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, the following foreign currency derivative contracts were outstanding:



Foreign currency derivatives (in millions)
Functional currency	Traded currency	Notional in traded currency March 31, 2020	Notional in traded currency December 31, 2019	Ending Duration
Brazilian real	Euro	—	1	Mar - 20
British pound	Euro	—	9	Mar - 20
British pound	US dollar	—	4	Mar - 20
Chinese renminbi	US dollar	5	2	Dec - 20
Euro	British pound	2	—	Jan - 21
Euro	Chinese renminbi	22	—	Oct - 20
Euro	Japanese yen	290	383	Dec - 20
Euro	Polish zloty	165	—	Dec - 20
Euro	US dollar	11	18	Dec - 20
Indian rupee	Japanese yen	78	—	Jul - 20
Indian rupee	US dollar	3	—	May - 20
Japanese yen	Chinese renminbi	26	—	Jul - 20
Japanese yen	Korean won	3,705	—	Dec - 20
Japanese yen	US dollar	1	—	Jul - 20
Korean won	Euro	10	13	Dec - 20
Korean won	Japanese yen	530	409	Dec - 20
Korean won	US dollar	38	4	Dec - 20
Swedish krona	Euro	—	3	Jan - 20
US dollar	Euro	2	14	Dec - 20
US dollar	Mexican peso	380	—	Mar - 21

Foreign currency derivatives (in millions)
Functional currency Traded currency
Notional in traded currency
September 30, 2017

Notional in traded currency
December 31, 2016
Duration
Brazilian real Euro 1.1
—
Jan - 18
Chinese renminbi US dollar 49.0
33.5
Nov - 18
Chinese renminbi Euro 31.8
—
Jun - 18
Euro Chinese renminbi 30.2
—
Dec - 17
Euro British pound 1.0
4.2
Dec - 17
Euro Japanese yen 774.0
1,004.8
Dec - 18
Euro Polish zloty 33.6
18.8
Dec - 17
Euro Swedish krona 267.4
—
May -18
Euro US dollar 30.3
35.3
Dec - 18
Japanese yen Chinese renminbi 18.1
68.7
Dec - 17
Japanese yen Korean won 1,441.5
5,689.2
Dec - 17
Japanese yen US dollar 0.5
2.0
Dec - 17
Korean won Euro 3.2
—
Dec - 17
Korean won Japanese yen 208.5
539.9
Dec - 17
Korean won
US dollar 5.1
14.2
Dec - 17
Mexican peso US dollar 4.9
10.5
Dec - 17
Swedish krona Euro 12.5
48.2
Dec - 17
US dollar Euro 100.0
—
Dec - 17

The Company selectively uses cross-currency swaps to hedge the foreign currency exposure associated with its net investment in certain foreign operations (net investment hedges). At ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, the following cross-currency swap contracts were outstanding:



	Cross-Currency Swaps
(in millions)	Notional in USD		Notional in Local Currency		Duration
Fixed $ to fixed €	$	500	€	450	Mar - 25
Fixed $ to fixed ¥	$	100	¥	10,978	Feb - 23

At March 31, 2020 and December 31, 2019, the following amounts were recorded in the Condensed Consolidated Balance Sheets as being payable to or receivable from counterparties under ASC Topic 815:


	Assets					Liabilities
(in millions)	Location	September 30, 2017		December 31, 2016		Location	September 30, 2017		December 31, 2016		Assets					Liabilities
Derivatives designated as hedging instruments Under 815:											Location	March 31, 2020		December 31, 2019		Location	March 31, 2020		December 31, 2019
Foreign currency	Prepayments and other current assets	$	2.9	$	7.2	Accounts payable and accrued expenses	$	2.9	$	1.1	Prepayments and other current assets	$	2	$	—	Accounts payable and accrued expenses	$	4	$	1
Net investment hedges											Other non-current assets	$	30	$	3	Other non-current liabilities	$	—	$	8
Commodity	Prepayments and other current assets	$	0.1	$	0.1	Accounts payable and accrued expenses	$	—	$	—	Prepayments and other current assets	$	—	$	—	Accounts payable and accrued expenses	$	—	$	—
Net investment hedge	Prepayments and other current assets	$	—	$	—	Accounts payable and accrued expenses	$	9.6	$	—
Swaption											Prepayments and other current assets	$	1	$	—	Accounts payable and accrued expenses	$	—	$	—
Derivatives not designated as hedging instruments
Foreign currency											Prepayments and other current assets	$	1	$	—	Accounts payable and accrued expenses	$	—	$	—

~~Table of Contents~~

Effectiveness for cash flow ~~and net investment~~ hedges is assessed at the inception of the hedging relationship and quarterly, thereafter. ~~To the extent that derivative instruments are deemed to be effective, gains~~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. ToThe initial value of any component excluded from the ~~extent~~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 ~~derivative instruments~~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 ~~deemed to~~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 ~~ineffective, gains or losses are~~ recognized ~~into income.~~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.

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. 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 ~~September 30, 2017~~March 31, 2020 market rates.



(in millions)	Deferred gain (loss) in AOCI at						Gain (loss) expected to be reclassified to income in one year or less
Contract Type	March 31, 2020			December 31, 2019
Foreign currency	$	(3	)	$	—		$	(3	)
Interest rate swaption	1			—			—
Net investment hedges:
Foreign currency	6			5			—
Cross-currency swaps	51			16			—
Foreign currency denominated debt	(9		)	(17		)	—
Total	$	46		$	4		$	(3	)

(in millions) Deferred gain (loss) in AOCI at Gain (loss) expected to be reclassified to income in one year or less
Contract Type September 30, 2017 December 31, 2016
Foreign currency $ (0.9 ) $ 5.6
$ (0.9 )
Commodity 0.1
(0.1 ) 0.1
Net investment hedges (45.3 ) 29.5
—
Total $ (46.1 ) $ 35.0
$ (0.8 )

Derivative instruments designated as ~~hedging~~cash flow hedge instruments as defined by ASC Topic 815 held during the period resulted in the following gains and losses recorded in income:



	Three Months Ended March 31, 2020
(in millions)	Net sales		Cost of sales		Selling, general and administrative expenses		Other comprehensive income(loss)
Total amounts of earnings and other comprehensive income(loss) line items in which the effects of cash flow hedges are recorded	$	2,279	$	1,832	$	213	$	(74	)

Gain (loss) on cash flow hedging relationships:
Foreign currency
Gain (loss) recognized in other comprehensive income							$	(3	)
Gain (loss) reclassified from AOCI to income	$	—	$	—	$	—

~~Cash Flow Hedges~~



	Three Months Ended March 31, 2019
(in millions)	Net sales			Cost of sales		Selling, general and administrative expenses		Other comprehensive income(loss)
Total amounts of earnings and other comprehensive income(loss) line items in which the effects of cash flow hedges are recorded	$	2,566		$	2,047	$	226	$	(1	)

Gain (loss) on cash flow hedging relationships:
Foreign currency
Gain (loss) recognized in other comprehensive income								$	—
Gain (loss) reclassified from AOCI to income	$	(1	)	$	—	$	1	$	—

Gain (loss) reclassified
from AOCI to income
(effective portion)

Gain (loss)
recognized in income
(ineffective portion)
(in millions) Three Months Ended Three Months Ended
Contract Type Location
September 30,
2017

September 30,
2016
Location
September 30,
2017

September 30,
2016
Foreign currency Sales $ 1.3
$ 0.7
SG&A expense $ —
$ —
Foreign currency Cost of goods sold $ (0.4 ) $ (0.4 ) SG&A expense $ (0.1 ) $ 0.1
Commodity Cost of goods sold $ 0.1
$ (0.4 ) Cost of goods sold $ —
$ —

The gains or losses recorded in income related to components excluded from the assessment of effectiveness for derivative instruments designated as cash flow hedges were immaterial for the periods presented.

Gain (loss) reclassified
from AOCI to income
(effective portion)

Gain (loss)
recognized in income
(ineffective portion)
(in millions) Nine Months Ended Nine Months Ended
Contract Type Location
September 30,
2017

September 30,
2016
Location
September 30,
2017

September 30,
2016
Foreign currency Sales $ 3.3
$ 0.9
SG&A expense $ —
$ —
Foreign currency Cost of goods sold $ 0.9
$ (0.6 ) SG&A expense $ (0.1 ) $ 0.2
Commodity Cost of goods sold $ 0.4
$ (1.5 ) Cost of goods sold $ —
$ —

~~Table of Contents~~

~~Fair Value Hedges~~

(in millions)
Three Months Ended
September 30, 2017

Three Months Ended
September 30, 2016
Contract Type Location Gain (loss) on swaps Gain (loss) on borrowings Gain (loss) on swaps Gain (loss) on borrowings
Interest rate swap Interest expense and finance charges $ —
$ —
$ (2.8 ) $ 2.8

(in millions)
Nine Months Ended
September 30, 2017

Nine Months Ended
September 30, 2016
Contract Type Location 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 )

~~At September 30, 2017,~~Gains and (losses) on derivative instruments ~~that were not~~ designated as ~~hedging~~net investment hedges were recognized in other comprehensive income during the periods presented below.



(in millions)	Three Months Ended March 31,
Net investment hedges	2020		2019
Foreign currency	$	1	$	—
Cross-currency swaps	$	35	$	9
Foreign currency denominated debt	$	8	$	12

Derivatives designated as net investment hedge instruments as defined by ASC Topic 815 held during the period resulted in the following gains recorded in Interest expense and finance charges on components excluded from the assessment of effectiveness:



(in millions)	Three Months Ended March 31,
Net investment hedges	2020		2019
Cross-currency swaps	$	4	$	3

There were ~~immaterial.~~no gains or 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.

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. These derivatives resulted in the following gains and (losses) recorded in income:



(in millions)		Three Months Ended March 31,
Contract Type	Location	2020		2019
Foreign Currency	Selling, general and administrative expenses	$	3	$	(2	)

~~(11)~~(13) Retirement Benefit Plans

The Company has a number of defined benefit pension plans and other postretirement benefit plans covering eligible salaried and hourly employees and their dependents. The estimated contributions to the Company's defined benefit pension plans for ~~2017~~2020 range from ~~$15.0~~$10 million to ~~$25.0~~$20 million, of which ~~$11.4~~$5 million has been contributed through the first ~~nine~~three months of the year. The other postretirement benefit plans, which provide medical and life insurance benefits, are unfunded plans.

The components of net periodic benefit cost recorded in the Condensed Consolidated Statements of Operations are as follows:


	Pension benefits												Other postretirement employee benefits						Pension benefits												Other postretirement employee benefits
(in millions)	2017						2016						Other postretirement employee benefits						2020						2019						Other postretirement employee benefits
Three Months Ended September 30,	US			Non-US			US			Non-US			2017			2016
Three Months Ended March 31,																			US			Non-US			US			Non-US			2020			2019
Service cost	$	—		$	4.5		$	—		$	4.1		$	—		$	—		$	—		$	5		$	—		$	5		$	—		$	—
Interest cost	2.2			2.8			2.4			3.1			0.8			1.0			1			2			2			3			1			1
Expected return on plan assets	(3.3		)	(6.0		)	(3.7		)	(6.1		)	—			—			(3		)	(6		)	(3		)	(5		)	—			—
Amortization of unrecognized prior service credit	(0.2		)	—			(0.2		)	—			(1.1		)	(1.2		)	—			—			—			—			(1		)	(1		)
Amortization of unrecognized loss	1.1			2.0			1.3			1.6			0.4			0.5			1			3			1			2			—			—
Net periodic benefit (income) cost	$	(0.2	)	$	3.3		$	(0.2	)	$	2.7		$	0.1		$	0.3		$	(1	)	$	4		$	—		$	5		$	—		$	—

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.

Pension benefits
Other postretirement
employee benefits
(in millions) 2017 2016
Nine Months Ended September 30, US Non-US US Non-US 2017 2016
Service cost $ —
$ 13.3
$ —
$ 12.3
$ 0.1
$ 0.1
Interest cost 6.6
8.0
7.2
9.6
2.4
2.9
Expected return on plan assets (9.8 ) (17.4 ) (11.2 ) (18.7 ) —
—
Amortization of unrecognized prior service credit (0.6 ) —
(0.6 ) —
(3.1 ) (3.6 )
Amortization of unrecognized loss 3.2
5.8
3.8
4.7
1.0
1.6
Net periodic benefit (income) cost $ (0.6 ) $ 9.7
$ (0.8 ) $ 7.9
$ 0.4
$ 1.0

~~Table of Contents~~

~~(12)~~(14) Stock-Based Compensation

~~Under~~The Company has granted restricted common stock and restricted stock units (collectively, "restricted stock") and performance share units as long-term incentive awards to employees and non-employee directors under the ~~Company's 2004~~BorgWarner Inc. 2014 Stock Incentive Plan, as amended ("~~2004~~2014 Plan"), and the BorgWarner Inc. 2018 Stock Incentive Plan ("2018 Plan"). The Company's Board of Directors adopted the 2018 Plan as a replacement to the 2014 Plan in February 2018, and the Company'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 5 million shares were available for future issuance as of March 31, 2020.

Restricted stock In the first three months of 2020, the Company granted ~~options to purchase~~restricted stock in the amount of 766,205 shares of the Company's common stock at the fair market value on the date of grant. The options vested over periods of up to three years and have a term of 10 years from date of grant. At its November 2007 meeting, the Company's Compensation Committee decided that restricted common stock awards and stock units ("restricted stock") would be awarded in place of stock options for long-term incentive award grants to employees. Restricted stock granted to employees ~~primarily~~generally vests 50% after two years and the remainder after three ~~years from~~years. The Company recognizes the ~~date of grant. Restricted stock granted to non-employee directors generally vests on the first anniversary date~~value of the grant. In February 2014, the Company's Board of Directors replaced the expired 2004 Plan by adopting the BorgWarner Inc. 2014 Stock Incentive Plan ("2014 Plan"). On April 30, 2014, the Company's stockholders approved the 2014 Plan. Under the 2014 Plan, 8 million shares are authorized for grant, of which approximately 4.8 million shares are available for future issuance as of September 30, 2017.

~~Stock options~~ ~~A summary of the Company’s stock option activity for the nine months ended September 30, 2017 is as follows. As of March 31, 2017, there were no outstanding stock options.~~

Shares under option
(thousands)
Weighted average exercise price
Weighted average remaining contractual life
(in years)

Aggregate intrinsic value
(in millions)
Outstanding and exercisable at December 31, 2016 473
$ 17.47
0.1 $ 10.4
Exercised (473 ) $ 17.47

Outstanding and exercisable at September 30, 2017 —

~~Restricted stock~~ ~~The value of~~ restricted stock, which is ~~determined by~~equal to the market value of the Company’s common stock aton the date of grant. In the first nine months of 2017, restricted stock in the amount of 776,753 shares and 26,919 shares were granted to employees and non-employee directors, respectively. The value of the awards is recognizedgrant, as compensation expense ratably over the ~~restriction periods.~~restricted stock's vesting period. As of ~~September 30, 2017, there was $34.7~~March 31, 2020, the Company had $51 million of unrecognized compensation expense that will be recognized over a weighted average period of ~~1.9~~2 years.

The Company recorded restricted stock compensation expense of ~~$6.7 million and $6.8~~$7 million for the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016, respectively, and $20.2 million and $19.9 million for the nine months ended September 30, 2017 and 2016, respectively.~~2019.

~~Table of Contents~~

A summary of the Company’s nonvested restricted stock for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 is as follows:



	Shares subject to restriction (thousands)		Weighted average grant date fair value
Nonvested at December 31, 2019	1,664		$	44.26
Granted	766		$	34.05
Vested	(466	)	$	46.00
Forfeited	(9	)	$	42.23
Nonvested at March 31, 2020	1,955		$	39.87

Performance share units The Company grants performance share units to members of senior management that vest at the end of three-year periods based the following metrics:


•	Total Stockholder Return Units:based on the Company's total stockholder return relative to a peer group of companies.


•	Relative Revenue Growth Units:based on the Company's revenue growth relative to the vehicle market.

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 3-year defined target.

A summary of the status of the Company’s nonvested performance share units for the three months ended March 31, 2020 is as follows:


	Shares subject to restriction (thousands)		Weighted average price		Total Stockholder Return			Relative Revenue Growth			Adjusted Earnings Per Share
Nonvested at December 31, 2016	1,429		$	44.12
					Number of shares (thousands)	Weighted average grant date fair value		Number of shares (thousands)	Weighted average grant date fair value		Number of shares (thousands)	Weighted average grant date fair value
Nonvested at December 31, 2019					240	$	64.61	240	$	48.52	—	$	—
Granted	777		$	40.07	142	$	28.55	142	$	34.11	115	$	34.11
Vested	(453	)	$	57.35	—	$	—	—	$	—	—	$	—
Forfeited	(28	)	$	41.87	—	$	—	—	$	—	—	$	—
Nonvested at March 31, 2017	1,725		$	39.27
Granted	27		$	41.13
Vested	(61	)	$	51.71
Forfeited	(28	)	$	38.06
Nonvested at June 30, 2017	1,663		$	38.86
Vested	(7	)	$	45.09
Forfeited	(19	)	$	38.22
Nonvested at September 30, 2017	1,637		$	38.85
Nonvested at March 31, 2020					382	$	48.02	382	$	41.54	115	$	34.11

~~Total Shareholder Return Performance Share Plans~~ The 2004 and 2014 Plans provide for awarding of performance shares to members of senior management at the end of successive three-year periods based on the Company's performance in terms of total shareholder return relative to a peer group of automotive companies. The Company recorded compensation expense (reductions) for performance share units in the periods presented below:



	Three Months Ended March 31,
(in millions)	2020		2019
Total Stockholder Return	$	1	$	3
Relative Revenue Growth	2		(1		)
Total compensation expense (reduction)	$	3	$	2

In 2018, the Company modified the vesting provisions of ~~$2.2 million~~restricted stock and ~~$2.3~~performance share unit grants made to certain retiring executive officers to allow certain of the outstanding awards, that otherwise would have been forfeited, to vest upon retirement. This resulted in net restricted stock and performance share unit compensation expense of $2 million for the three months ended ~~September 30, 2017 and 2016, respectively, and $7.6 million and $7.4 million for~~March 31, 2019.

(15) Stockholders' Equity

The changes of the ~~nine months ended September 30, 2017 and 2016, respectively.~~

~~Relative Revenue Growth Performance Share Plans~~ In the second quarter of 2016, the Company started a new performance share program to reward members of senior management based on the Company's performance in terms of revenue growth relative to the vehicle market over three-year performance periods. The Company recorded compensation expense of $2.3 million and income of $2.1 million~~for~~Stockholders' Equity items during the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016, respectively, and $7.7 million for the nine months ended September 30, 2017 and no expense for the nine months ended September 30, 2016.~~2019, are as follows:

~~Table of Contents~~



	BorgWarner Inc. stockholders' equity
(in millions)	Issued common stock		Capital in excess of par value			Treasury stock			Retained earnings			Accumulated other comprehensive income (loss)			Noncontrolling interests
Balance, December 31, 2019	$	3	$	1,145		$	(1,657	)	$	5,942		$	(727	)	$	138
Dividends declared ($0.17 per share*)	—		—			—			(35		)	—			(3		)
Net issuance for executive stock plan	—		(16		)	12			—			—			—
Net issuance of restricted stock	—		(20		)	22			—			—			—
Net earnings	—		—			—			129			—			8
Other comprehensive loss	—		—			—			—			(74		)	(3		)
Balance, March 31, 2020	$	3	$	1,109		$	(1,623	)	$	6,036		$	(801	)	$	140

~~(13)~~



	BorgWarner Inc. stockholders' equity
(in millions)	Issued common stock		Capital in excess of par value			Treasury stock			Retained earnings			Accumulated other comprehensive income (loss)			Noncontrolling interests
Balance, December 31, 2018	$	3	$	1,146		$	(1,585	)	$	5,336		$	(674	)	$	119
Dividends declared ($0.17 per share*)	—		—			—			(35		)	—			(20		)
Net issuance for executive stock plan	—		(10		)	7			—			—			—
Net issuance of restricted stock	—		(25		)	21			—			—			—
Purchase of treasury stock	—		—			(69		)	—			—			—
Net earnings	—		—			—			160			—			11
Other comprehensive income (loss)	—		—			—			—			(1		)	1
Balance, March 31, 2019	$	3	$	1,111		$	(1,626	)	$	5,461		$	(675	)	$	111

* The dividends declared relate to BorgWarner common stock.

(16) Accumulated Other Comprehensive Loss

The following tables summarize the activity within ~~accumulated~~Accumulated other comprehensive loss during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016:~~2019:

(in millions) Foreign currency translation adjustments Hedge instruments Defined benefit postretirement plans Other Total
Beginning balance, June 30, 2017 $ (407.9 ) $ 1.5
$ (202.5 ) $ 2.5
$ (606.4 )
Comprehensive income (loss) before reclassifications 64.2
(1.4 ) (4.7 ) —
58.1
Income taxes associated with comprehensive income (loss) before reclassifications —
0.9
1.5
—
2.4
Reclassification from accumulated other comprehensive loss —
(1.0 ) 2.2
—
1.2
Income taxes reclassified into net earnings —
(0.2 ) (0.8 ) —
(1.0 )
Ending balance, September 30, 2017 $ (343.7 ) $ (0.2 ) $ (204.3 ) $ 2.5
$ (545.7 )



(in millions)	Foreign currency translation adjustments			Hedge instruments			Defined benefit retirement plans			Other		Total
Beginning balance, December 31, 2019	$	(497	)	$	—		$	(230	)	$	—	$	(727	)
Comprehensive (loss) income before reclassifications	(64		)	(2		)	6			—		(60		)
Income taxes associated with comprehensive (loss) income before reclassifications	(10		)	—			(2		)	—		(12		)
Reclassification from accumulated other comprehensive loss	—			—			(3		)	—		(3		)
Income taxes reclassified into net earnings	—			—			1			—		1
Ending balance, March 31, 2020	$	(571	)	$	(2	)	$	(228	)	$	—	$	(801	)



(in millions)	Foreign currency translation adjustments			Hedge instruments		Defined benefit retirement plans			Other		Total
Beginning balance, December 31, 2018	$	(441	)	$	—	$	(235	)	$	2	$	(674	)
Comprehensive (loss) income before reclassifications	(5		)	—		3			—		(2		)
Income taxes associated with comprehensive (loss) income before reclassifications	(4		)	—		3			—		(1		)
Reclassification from accumulated other comprehensive loss	—			—		3			—		3
Income taxes reclassified into net earnings	—			—		(1		)	—		(1		)
Ending balance, March 31, 2019	$	(450	)	$	—	$	(227	)	$	2	$	(675	)

(in millions) Foreign currency translation adjustments Hedge instruments Defined benefit postretirement plans Other Total
Beginning balance, June 30, 2016 $ (407.3 ) $ 1.4
$ (189.5 ) $ 1.6
$ (593.8 )
Comprehensive income (loss) before reclassifications 27.9
(1.2 ) (4.1 ) 0.1
22.7
Income taxes associated with comprehensive income (loss) before reclassifications —
(1.4 ) (0.4 ) —
(1.8 )
Reclassification from accumulated other comprehensive loss —
0.1
2.0
—
2.1
Income taxes reclassified into net earnings —
0.2
(0.4 ) —
(0.2 )
Ending balance, September 30, 2016 $ (379.4 ) $ (0.9 ) $ (192.4 ) $ 1.7
$ (571.0 )

(in millions) Foreign currency translation adjustments Hedge instruments Defined benefit postretirement plans Other Total
Beginning balance, December 31, 2016 $ (530.3 ) $ 5.0
$ (198.1 ) $ 1.3
$ (722.1 )
Comprehensive income (loss) before reclassifications 186.6
(2.3 ) (15.7 ) 1.2
169.8
Income taxes associated with comprehensive income (loss) before reclassifications —
0.4
5.2
—
5.6
Reclassification from accumulated other comprehensive loss —
(4.6 ) 6.3
—
1.7
Income taxes reclassified into net earnings —
1.3
(2.0 ) —
(0.7 )
Ending balance, September 30, 2017 $ (343.7 ) $ (0.2 ) $ (204.3 ) $ 2.5
$ (545.7 )

(in millions) Foreign currency translation adjustments Hedge instruments Defined benefit postretirement plans Other Total
Beginning balance, December 31, 2015 $ (421.2 ) $ (2.0 ) $ (189.9 ) $ 2.9
$ (610.2 )
Comprehensive income (loss) before reclassifications 41.8
0.7
(6.1 ) (1.2 ) 35.2
Income taxes associated with comprehensive income (loss) before reclassifications —
(1.0 ) (0.6 ) —
(1.6 )
Reclassification from accumulated other comprehensive loss —
1.2
5.9
—
7.1
Income taxes reclassified into net earnings —
0.2
(1.7 ) —
(1.5 )
Ending balance, September 30, 2016 $ (379.4 ) $ (0.9 ) $ (192.4 ) $ 1.7
$ (571.0 )

~~Table of Contents~~

~~(14)~~(17) Contingencies

The Company's environmental ~~and product liability~~ contingencies are discussed ~~separately~~ below. The Company's management does not expect that an adverse outcome in any of these other commercial and legal claims, actions and complaints will have a material adverse effect on the Company's results of operations, financial position or cash flows, although itsuch adverse outcome could be material to the results of operations in a particular quarter.

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 and, as such, may presently be liable for the cost of clean-up and other remedial activities at 2714 such ~~sites.~~sites as of March 31, 2020 and December 31, 2019. Responsibility for clean-up and other remedial activities at a Superfund site is typically shared among PRPs based on an allocation formula.

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.

~~Based~~The Company had an accrual for environmental liabilities of $3 million as of March 31, 2020 and December 31, 2019. This accrual is based on information available to the Company (which in most cases includes: an estimate of allocation of liability among PRPs; the probability that other PRPs, many of whom 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),.

Securities and Exchange Commission ("SEC") Investigation

On July 31, 2018, the Division of Enforcement of the SEC informed the Company ~~has~~that it is conducting an accrual for indicated environmental liabilities of $6.9 million and $6.3 million at September 30, 2017 and at December 31, 2016, respectively. The Company expects to pay out substantially all of the amounts accrued for environmental liability over the next five years.

In connection with the sale of Kuhlman Electric Corporation (“Kuhlman Electric”), a former indirect subsidiary, the Company agreed to indemnify the buyer and Kuhlman Electric against certain environmental liabilities relating to certain operations of Kuhlman Electric that pre-date the Company’s 1999 acquisition of Kuhlman Electric. Kuhlman Electric was sued by plaintiffs alleging personal injuries purportedly arising from contamination at Kuhlman Electric’s Crystal Springs, Mississippi facility. The Company understands that Kuhlman Electric was required by regulatory officials to remediate such contamination. Kuhlman Electric and its new owner tendered the personal injury lawsuits and regulatory demandsinvestigation related to the Company. After the Company made certain payments to the plaintiffs and undertook certain remediation on Kuhlman Electric’s behalf, litigation regarding the validity of the indemnity ensued. The underlying personal injury lawsuits and indemnity litigation now have been fully resolved. The Company continues to pursue litigation against Kuhlman Electric’sCompany's historical ~~insurers~~accounting for ~~reimbursement of amounts it paid on behalf of Kuhlman Electric under the indemnity. The Company may in the future become subject to further legal proceedings relating to these matters.~~

~~Asbestos-related Liability~~

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. We believe that the Company’s involvement is limited because

~~Table of Contents~~

these claims generally relate to a few types of automotive products that were manufactured over thirty years ago and contained encapsulated asbestos. The nature of the fibers, the encapsulation of the asbestos, and the manner of the products’ use all lead the Company to believe that these products were and are highly unlikely to cause harm. Furthermore, the useful life of nearly all of these products expired many years ago.

~~The Company’s asbestos-related claims activity during the nine months ended September 30, 2017 and 2016 is as follows:~~

2017 2016
Beginning Claims January 1 9,385
10,061
New Claims Received 1,597
1,626
Dismissed Claims (1,273 ) (1,942 )
Settled Claims (326 ) (256 )
Ending Claims September 30 9,383
9,489

It is probable that additional asbestos-related claims will be asserted against the Company in the future. The Company vigorously defends against these claims, and has obtained the dismissal of the majority of the claims asserted against it without any payment. The Company likewise expects that no payment will be made by the Company or its insurers in the vast majority of current and future asbestos-related claims in which it has been or will be named (or has an obligation to indemnify a party which has been or will be named).

~~Through September 30, 2017 and December 31, 2016, the Company had accrued and paid~~$518.6 million and $477.7 million, respectively, in indemnity (including settlement payments) and defense costs in connection with asbestos-related claims. These gross payments are before tax benefits and any insurance receipts. Indemnity and defense costs are incorporated into the Company's operating cash flows and will continue to be in the future.

The Company reviews, 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 purposes of assessing the value 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 insurers with respect to such claims and defense costs.During the fourth quarter of 2016, the Company determined that a reasonable estimate of its liability for asbestos claims not yet asserted could be made, and the Company increased its aggregate estimated liability for asbestos-related claims asserted but not yet resolved and potential asbestos-related claims not yet asserted to $879.3 million as of December 31, 2016. 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, 2059 with a runoff through 2067.asserted. The Company ~~currently believes that December 31, 2067~~ 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. As of September 30, 2017, the Company’s reasonable best estimate of the aggregate liability for both asbestos-related claims asserted but not yet resolved and potential asbestos-related claims not yet asserted, including estimated defense costs, is as follows:

(in millions)
Asbestos Liability as of December 31, 2016 $ 879.3
Indemnity and Defense Related Costs (41.0 )
Asbestos Liability as of September 30, 2017 $ 838.3

~~The Company’s estimate of its aggregate liability for asbestos-related claims asserted but not yet resolved and potential asbestos-related claims not yet asserted was developed~~fully cooperating with the ~~assistance of a third-party~~SEC in connection with its investigation.

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(18) Restructuring

consultant. In developing such estimate, the third-party consultant projected a potential number of future claims based on the Company’s historical claim filings and patterns and compared that to anticipated levels of unique plaintiff asbestos-related claims asserted in the U.S. tort system against all defendants. The consultant also utilized assumptions based on the Company’s historical proportion of claims resolved without payment, historical settlement costs for those claims that result in a payment, and historical defense costs. The liabilities were then estimated by multiplying the pending and projected future claim filings by projected payments rates and average settlement amounts and then adding an estimate for defense costs.

The Company’s estimate of the indemnity and 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 presently 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 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 concluded that it is reasonably possible that it may incur additional losses through 2067 for asbestos-related claims, in addition to amounts recorded, of up to approximately $100.0 million as of September 30, 2017. The various assumptions utilized in arriving at the Company’s estimate may also change over time, and the Company’s actual liability for asbestos-related claims asserted but not yet resolved and those not yet asserted may be higher or lower than the Company’s estimate as a result of such changes.

The Company has ~~certain insurance coverage applicable~~initiated a comprehensive plan to ~~asbestos-related claims. Prior~~reduce existing structural costs. During the three months ended March 31, 2020, the Company recorded $5 million and $2 million in the Engine and Drivetrain segments, respectively, primarily related to ~~June 2004, the settlement and defense~~severance costs, for actions 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~~this plan. Additionally, the Company ~~of the alleged exhaustion of their policy limits. A declaratory judgment action was filed in January 2004~~continues a voluntary termination program in the ~~Circuit Court~~Engine segment that resulted in restructuring expense of ~~Cook County, Illinois by Continental Casualty Company~~$8 million and ~~related companies against~~$4 million during the ~~Company~~three months ended March 31, 2020 and ~~certain of its historical general liability insurers. The Cook County court has issued a number of interim rulings and discovery is continuing in this proceeding. The Company is vigorously pursuing~~2019, respectively.

During the litigation against all carriers that are parties to it, as well as pursuing settlement discussions with its carriers where appropriate. The Company has entered into settlement agreements with certain of its insurance carriers, resolving such insurance carriers’ coverage disputes through the carriers’ agreement to pay specified amounts to the Company, either immediately or over a specified period. ~~Through September 30, 2017 and December~~three months ended March 31, ~~2016, the Company had received $270.0 million in cash and notes from insurers on account of indemnity and defense costs respecting asbestos-related claims.~~

The Company continues to have additional excess insurance coverage available for potential future asbestos-related claims. The Company also reviews the amount of its unresolved, unexhausted excess insurance coverage for asbestos-related claims, taking into account the remaining limits of such coverage, the number and amount of claims from co-insured parties, the ongoing litigation against the Company’s insurers described above, potential remaining recoveries from insolvent insurers, the impact of previous insurance settlements, and coverage available from solvent insurers not party to the coverage litigation. Based on that review, the Company has estimated that as of September 30, 2017 and December 31, 2016 that it has $386.4 millionin aggregate insurance coverage available with respect to asbestos-related claims already satisfied by the Company but not yet reimbursed by the insurers, asbestos-related claims asserted but not yet resolved, and asbestos-related claims not yet asserted, in each case together with their associated defense costs. In each case, such amounts are expected to be fully recovered. However, the resolution of the insurance coverage litigation, and the number and amount of claims on our insurance from co-insured

~~Table of Contents~~

~~parties, may increase or decrease the amount of such insurance coverage available to the Company as compared to the Company’s estimate.~~

~~The amounts recorded in the Condensed Consolidated Balance Sheets respecting asbestos-related claims are as follows:~~

September 30, December 31,
(in millions) 2017 2016
Assets:
Non-current assets $ 386.4
$ 386.4
Total insurance assets $ 386.4
$ 386.4
Liabilities:
Accounts payable and accrued expenses $ 52.3
$ 51.7
Other non-current liabilities 786.0
827.6
Total accrued liabilities $ 838.3
$ 879.3

~~(15) Restructuring~~

~~In the third quarter of 2017,~~2019, the Company recorded restructuring expense of ~~$12.6~~$7 million, primarily ~~due~~related to ~~the initiation~~professional fees and employee termination benefits, as a continuation of actions within ~~its emissions business in~~ the Engine segment ~~designed~~ to improve future profitability and ~~competitiveness. The Company plans to~~competitiveness and explore strategic options for non-core product lines to improve the overall competitiveness of its remaining European emissions business in the Engine segment. These actions may result in the recognition of impairment or additional restructuring charges that could be material.

~~On September 27, 2017, the~~lines. The Company ~~acquired 100% of the equity interests of Sevcon. In connection with this transaction, the Company~~also recorded restructuring expense of ~~$0.7~~$3 million induring the ~~third quarter of 2017, primarily~~three months ended March 31, 2019, related to ~~contractually required severance associated with Sevcon executive officers. Cash payments for these~~Corporate restructuring ~~activities are expected to be completed by Q1 2018.~~activities.

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 for the nine months ended September 30, 2016, which included employee termination benefits of $3.0 million for the nine months ended September 30, 2016. Additionally, the Company recorded other restructuring expense of $5.2 million for the nine months ended September 30, 2016.

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 nine months ended September 30, 2016, which included employee termination benefits of $4.1 million.

In the fourth quarter of 2015, the Company acquired 100% of the equity interests in Remy. As a result of actions following this transaction, the Company recorded restructuring expense of $1.3 million and $6.1 million in the three and nine months ended September 30, 2016, respectively. Included in this restructuring expense is $3.1 million related to winding down certain operations in North America in the nine months ended September 30, 2016. Additionally, the Company recorded employee termination benefits of $0.3 million and $2.0 million primarily related to contractually required severance associated with Remy executive officers and other employee termination benefits in Mexico in the three and nine months ended September 30, 2016, respectively. Cash payments for these restructuring activities are expected to be complete by the end of 2017.

~~Table of Contents~~

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 is evaluating numerous options across its operations and plans to take additional restructuring actions to reduce existing structural costs over the next few years. These actions are expected to result in significant restructuring expense.

The following tables display a rollforward of the severance accruals recorded within the Company's Condensed Consolidated Balance Sheet and the related cash flow activity for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016:~~2019:



	Severance Accruals
(in millions)	Drivetrain		Engine			Total
Balance at December 31, 2019	$	4	$	30		$	34
Provision	1		11			12
Cash payments	—		(13		)	(13		)
Balance at March 31, 2020	$	5	$	28		$	33

Severance Accruals
(in millions) Drivetrain Engine Total
Balance at December 31, 2016 $ 3.7
$ 2.7
$ 6.4
Cash payments (1.6 ) (2.1 ) (3.7 )
Translation adjustment —
0.1
0.1
Balance at March 31, 2017 $ 2.1
$ 0.7
$ 2.8
Cash payments (0.2 ) (0.4 ) (0.6 )
Translation adjustment 0.1
—
0.1
Balance at June 30, 2017 $ 2.0
$ 0.3
$ 2.3
Provision 0.7
0.7
1.4
Cash payments (0.2 ) —
(0.2 )
Translation adjustment 0.1
—
0.1
Balance at September 30, 2017 $ 2.6
$ 1.0
$ 3.6



	Severance Accruals
(in millions)	Drivetrain		Engine			Total
Balance at December 31, 2018	$	4	$	21		$	25
Provision	—		7			7
Cash payments	—		(20		)	(20		)
Balance at March 31, 2019	$	4	$	8		$	12

Severance Accruals
(in millions) Drivetrain Engine Total
Balance at December 31, 2015 $ 25.3
$ 4.1
$ 29.4
Provision 2.3
1.0
3.3
Cash payments (17.3 ) (2.3 ) (19.6 )
Translation adjustment 0.7
0.2
0.9
Balance at March 31, 2016 $ 11.0
$ 3.0
$ 14.0
Provision 2.4
4.6
7.0
Cash payments (5.3 ) (2.2 ) (7.5 )
Translation adjustment (0.2 ) (0.1 ) (0.3 )
Balance at June 30, 2016 $ 7.9
$ 5.3
$ 13.2
Provision 0.3
—
0.3
Cash payments (2.7 ) (1.3 ) (4.0 )
Translation adjustment 0.1
0.1
0.2
Balance at September 30, 2016 $ 5.6
$ 4.1
$ 9.7

~~(16)~~(19) Earnings Per Share

The Company presents both basic and diluted earnings per share of common stock (“EPS”). Basic EPS is calculated by dividing net earnings attributable to ~~BorgWarner Inc.~~the Company 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.~~the Company by the weighted average shares of common stock and common equivalent stock 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

~~Table of Contents~~

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~~The dilutive effects of performance-based stock awards described in the Note 14, "Stock-Based Compensation," to the Condensed Consolidated Financial Statements are ~~only dilutive when~~included in the ~~average market price~~computation of diluted earnings per share at the level the related performance criteria are met through the respective balance sheet date. The 114,720 of adjusted earnings per share performance share units granted in 2020 were excluded from the computation of the ~~underlying common stock exceeds~~diluted earnings per share for the ~~exercise price~~three months ended March 31, 2020 because the related performance criteria had not been met as of the ~~options.~~balance sheet date.

The following table reconciles the numerators and denominators used to calculate basic and diluted earnings per share of common stock:



	Three Months Ended March 31,
(in millions, except per share amounts)	2020		2019
Basic earnings per share:
Net earnings attributable to BorgWarner Inc.	$	129	$	160
Weighted average shares of common stock outstanding	205.7		206.5
Basic earnings per share of common stock	$	0.63	$	0.77

Diluted earnings per share:
Net earnings attributable to BorgWarner Inc.	$	129	$	160

Weighted average shares of common stock outstanding	205.7		206.5
Effect of stock-based compensation	0.5		0.6
Weighted average shares of common stock outstanding including dilutive shares	206.2		207.1
Diluted earnings per share of common stock	$	0.63	$	0.77

Anti-dilutive stock-based awards excluded from the calculation of diluted earnings per share:	—		0.5

Three Months Ended
September 30,

Nine Months Ended
September 30,
(in millions, except per share amounts) 2017 2016 2017 2016
Basic earnings per share:
Net earnings attributable to BorgWarner Inc. $ 184.9
$ 83.3
$ 586.1
$ 411.8
Weighted average shares of common stock outstanding 209.803
212.872
210.657
215.332
Basic earnings per share of common stock $ 0.88
$ 0.39
$ 2.78
$ 1.91

Diluted earnings per share:
Net earnings attributable to BorgWarner Inc. $ 184.9
$ 83.3
$ 586.1
$ 411.8

Weighted average shares of common stock outstanding 209.803

212.872

210.657

215.332
Effect of stock-based compensation 1.210
0.894
0.918
0.857
Weighted average shares of common stock outstanding including dilutive shares 211.013

213.766

211.575

216.189
Diluted earnings per share of common stock $ 0.88

$ 0.39

$ 2.77

$ 1.90

~~(17)~~(20) Reporting Segments

The Company's business is comprised of ~~two~~2 reporting segments: Engine and Drivetrain. These segments are strategic business groups ~~which~~that are managed separately as each represents a specific grouping of related automotive components and systems.

The Company allocates resources to each segment based upon the projected after-tax return on invested capital ("ROIC") of its business initiatives. ~~ROIC is comprised of Adjusted EBIT after deducting notional taxes compared to the projected average capital investment required.~~ Adjusted EBIT is comprised of earnings before interest, income taxes and noncontrolling interest (“EBIT") adjusted for restructuring, goodwill impairment charges, affiliates' earnings and other items not reflective of on-going operating income or ~~loss.~~loss ("Adjusted EBIT"). ROIC is comprised of Adjusted EBIT after deducting notional taxes compared to the projected average capital investment required.

Adjusted EBIT is the measure of segment income or loss used by the Company. The Company believes Adjusted EBIT is most reflective of the operational profitability or loss of ~~our~~its reporting segments. The following tables show segment information and Adjusted EBIT for the Company's reporting segments.

Net Sales by Reporting Segment



	Three Months Ended March 31,
(in millions)	2020			2019
Engine	$	1,434		$	1,598
Drivetrain	860			982
Inter-segment eliminations	(15		)	(14		)
Net sales	$	2,279		$	2,566

Three Months Ended
September 30,

Nine Months Ended
September 30,
(in millions) 2017 2016 2017 2016
Engine $ 1,506.4

$ 1,359.3

$ 4,483.6

$ 4,202.7
Drivetrain 921.8

865.9

2,767.7

2,640.5
Inter-segment eliminations (12.0 )
(11.0 )
(38.4 )
(31.2 )
Net sales $ 2,416.2

$ 2,214.2

$ 7,212.9

$ 6,812.0

~~Table of Contents~~

Adjusted ~~Earnings Before Interest, Income Taxes and Noncontrolling Interest (“Adjusted EBIT”)~~EBIT



	Three Months Ended March 31,
(in millions)	2020			2019
Engine	$	208		$	241
Drivetrain	63			105
Adjusted EBIT	271			346
Merger, acquisition and divestiture expense	21			1
Restructuring expense	15			14
Asset impairment	9			—
Unfavorable arbitration loss	—			14
Officer stock awards modification	—			2
Corporate, including stock-based compensation	37			51
Equity in affiliates' earnings, net of tax	(5		)	(9		)
Interest income	(2		)	(3		)
Interest expense	12			14
Other postretirement income	(2		)	—
Earnings before income taxes and noncontrolling interest	186			262
Provision for income taxes	49			91
Net earnings	137			171
Net earnings attributable to the noncontrolling interest, net of tax	8			11
Net earnings attributable to BorgWarner Inc.	$	129		$	160

Three Months Ended
September 30,

Nine Months Ended
September 30,
(in millions) 2017 2016 2017 2016
Engine $ 238.5

$ 221.5

$ 729.8

$ 696.3
Drivetrain 111.5

89.4

325.9

271.0
Adjusted EBIT 350.0

310.9

1,055.7

967.3
Restructuring expense 13.3
1.3
13.3
26.9
Merger and acquisition expense 6.4
5.9
6.4
18.9
Lease termination settlement —
—
5.3
—
Other expense, net 2.7
—
2.7
—
Asset impairment expense —
106.5
—
106.5
Contract expiration loss (gain) —

1.3

—

(6.2 )
Corporate, including equity in affiliates' earnings and stock-based compensation 37.3

33.2

121.4

105.7
Interest income (1.3 )
(1.6 )
(4.2 )
(4.7 )
Interest expense and finance charges 17.6

22.4

53.6

65.1
Earnings before income taxes and noncontrolling interest 274.0

141.9

857.2

655.1
Provision for income taxes 79.4

48.8

241.9

213.4
Net earnings 194.6

93.1

615.3

441.7
Net earnings attributable to the noncontrolling interest, net of tax 9.7

9.8

29.2

29.9
Net earnings attributable to BorgWarner Inc. $ 184.9

$ 83.3

$ 586.1

$ 411.8

Total Assets

September 30, December 31,
(in millions) 2017 2016
Engine $ 4,607.0
$ 4,134.6
Drivetrain 3,748.8
3,212.4
Total 8,355.8
7,347.0
Corporate * 1,460.4
1,487.7
Total assets $ 9,816.2
$ 8,834.7

* Corporate assets include investments and other long-term receivables and certain deferred income taxes.



	March 31,		December 31,
(in millions)	2020		2019
Engine	$	4,388	$	4,536
Drivetrain	3,887		4,075
Total	8,275		8,611
Corporate *	1,227		1,091
Total assets	$	9,502	$	9,702

____________________________________


*	Corporate assets include cash and cash equivalents, investments and other long-term receivables, and certain deferred income taxes.

~~(18) New Accounting Pronouncements~~(21) Recent Transactions and Events

Proposed Acquisition of Delphi Technologies PLC

On January 28, 2020, the Company entered into a definitive agreement (the "Transaction Agreement") to acquire Delphi Technologies PLC (“Delphi Technologies”) in an all-stock transaction. The transaction, which is expected to close in the second half of 2020, is subject to approval by Delphi Technologies' stockholders, receipt of regulatory approvals and satisfaction or waiver of other closing conditions.

On March 30, 2020, Delphi Technologies provided notice to the lenders pursuant to its credit agreement, dated September 7, 2017, as amended, to draw the full available amount under the revolving facility thereunder (the “Revolver Draw”), resulting in a total of $500 million outstanding under the revolving facility. Following the Revolver Draw, on March 30, 2020, the Company sent a written notice to Delphi Technologies asserting that Delphi Technologies materially breached the Transaction Agreement

~~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. The guidance is effective prospectively for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently assessing the guidance and does not expect the adoption to have a material impact on its Consolidated Financial Statements.

~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~"Scope of Modification Accounting."~~ ~~Under this guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification~~

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~~of the share-based payment award changes~~ as a result of Delphi Technologies effecting the ~~change in terms or conditions. This guidance is effective prospectively for interim~~Revolver Draw without the Company’s prior written consent and ~~annual periods beginning after December 15, 2017. Early adoption is permitted.~~asserting that, if such breach was not cured within 30 days, the Company had the right to terminate the Transaction Agreement. The Company received a response letter from Delphi Technologies on that date disputing the Company’s breach assertion on the basis that the Company unreasonably withheld and conditioned its consent to the Revolver Draw, in material breach of the Transaction Agreement.

On May 6, 2020, the Company and Delphi Technologies entered into an Amendment and Consent Agreement (the “Amendment”) pursuant to which, among other things, the Company consented to the Revolver Draw subject to the terms and conditions contained in the Amendment. The Amendment also amends the Transaction Agreement to include the following additional conditions to the Company's obligations to close the transaction (the “Closing”): (a) as of 11:59 p.m. (New York time) on the date immediately prior to the Closing, (i) the net amount of the revolver borrowings outstanding under the credit agreement (net of cash balances) does not ~~expect~~exceed $115 million, and (ii) the total amount of revolver borrowings outstanding under the credit agreement does not exceed$225 million, and (b) Delphi Technologies has satisfied a specified net-debt-to-adjusted EBITDA ratio. In addition, the Company and Delphi Technologies have agreed to reduce the exchange ratio such that, pursuant to the terms of the Transaction Agreement, the Company will issue, in exchange for each Delphi Technologies share, 0.4307 shares of BorgWarner common stock. Other than as set forth in the Amendment, no additional changes or waivers with respect to the Transaction Agreement and the obligations thereunder were made, granted or consented to by the Company and Delphi Technologies and the Transaction Agreement remains in full force and effect in all respects.

Upon closing of the transaction, current BorgWarner stockholders are expected to own approximately 85% of the combined company, while current Delphi Technologies shareholders are expected to own approximately 15%.

BorgWarner Morse TEC LLC

Like many other industrial companies that have historically operated in the United States, the Company, or parties that the Company was obligated to indemnify, had been named as one of many defendants in asbestos-related personal injury actions. On October 30, 2019, the Company entered into a Membership Interest Purchase Agreement (the "Purchase Agreement") with Enstar Holdings (US) LLC ("Enstar"). Pursuant to the Purchase Agreement, the Company transferred 100% of the equity interests of BorgWarner Morse TEC LLC ("Morse TEC") to Enstar. As Morse TEC was the obligor for the Company's asbestos-related liabilities and policyholder of the related insurance assets, the rights and obligations related to these items transferred upon the sale, and pursuant to the Purchase Agreement, Morse TEC indemnifies the Company 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 term is defined in the Purchase Agreement) is not subject to any cap or time limitation. Following the completion of this ~~guidance~~transfer, the Company has no obligation with respect to ~~have any impact on its Consolidated Financial Statements.~~

previously recorded asbestos-related liabilities. In ~~March 2017,~~accordance with ASC Topic 810, "Consolidation," this subsidiary was derecognized as the ~~FASB issued ASU No. 2017-07,~~ ~~"Improving~~Company ceased to control the ~~Presentation of Net Periodic Pension Cost~~entity, and ~~Net Periodic Postretirement Benefit Cost."~~ ~~It requires disaggregating~~ the ~~service cost component~~Company removed the associated assets and liabilities from the ~~other components of net benefit cost, provides explicit guidance on how to present~~consolidated balance sheet.

Romeo Systems, Inc.

In May 2019, the ~~service cost component~~Company invested $50 million in exchange for a 20% equity interest in Romeo, a technology-leading battery module and the other components of net benefit cost 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. Early adoption is permitted.pack supplier. The Company ~~does not expect~~accounts for this ~~guidance to have a material impact on its Consolidated Financial Statements.~~

~~In January 2017,~~investment in Series A-1 Preferred Stock of Romeo under the ~~FASB issued ASU No. 2017-04,~~ ~~"Simplifying the Test for Goodwill Impairment."~~ It eliminates Step 2 from the goodwill impairment test and an entity should recognize an impairment charge for the amount by which the carrying amount of goodwill exceeds the reporting unit's fair value, not to exceed the carrying amount of goodwill. This guidance is effective for annual and any interim impairment testsmeasurement alternative in fiscal years beginning after December 15, 2019. The Company plans to early adopt this guidance in the fourth quarter of 2017 in conjunction with the annual goodwill impairment test. The Company does not expect this guidance to have any impact on its Consolidated Financial Statements.

~~In January 2017, the FASB issued ASU No. 2017-01,~~ ASC Topic 321, "~~Clarifying the Definition of a Business."~~ It revises the definition of a business and provides a framework to evaluate when an input and 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 does not expect this guidance to have any impact on its 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. This guidance is effective for interim and annual reporting periods beginning after December 15, 2017. The Company does not expect this guidance to have a material impact 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. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The Company does not expect this guidance to have a material impact on its Consolidated Financial Statements.

~~In March 2016, the FASB issued ASU No. 2016-09,~~ ~~"Improvements to Employee Share-Based Payment Accounting."~~ Under this guidance, the areas of simplification involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, impact on earnings per share and classification on the statement of cash flows. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016. Upon adopting this guidance in the first nine months of 2017, the Company recorded a tax benefit of $0.8 million within provision for income tax related to the excess tax benefit on share-based awards and reflected the excess tax benefit in operating activities rather than financing activities in the Consolidated Statements of Cash Flows. The Company elected to apply this change in presentation prospectively and thus prior periods have not been adjusted. The Company also excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of diluted earnings per share for the three and nine months ended September 30, 2017. The impact of this change was de minimis. Additionally, the Company elected

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~~not to change its policy on accounting for forfeitures and continued to estimate the total number of awards for which the requisite service period will not be rendered.~~

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~"Leases (Topic 842).~~Investments - Equity Securities" ~~Under this guidance, lessees will be required to recognize a right-of-use asset and a lease liability~~ for ~~all operating leases defined under previous GAAP. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018.~~ ~~The Company is currently evaluating the impact this guidance will have on its Consolidated Financial Statements.~~

~~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 havewithout a readily determinable fair ~~values~~value. Such investments are measured at cost, ~~minus~~less any impairment, ~~if any,~~ plus or minus changes resulting from observable price changes in orderly transactions for ~~the~~an identical or a similar investment of the same issuer. ~~It also requires separate presentation~~During the three months ended March 31, 2020, after completing a qualitative assessment which indicated the Company's equity

investment in Romeo may have been impaired, the Company recorded a $9 million asset impairment cost to record this investment at its fair value of ~~financial~~$41 million at March 31, 2020. The estimated fair value of Romeo was determined using unobservable inputs including quantitative information from lower valuations in recently completed or proposed financings and the liquidation preferences included in the Romeo stock agreements. These unobservable inputs are considered Level 3.

In September 2019, the Company and Romeo contributed total equity of $10 million and formed a new joint venture, BorgWarner Romeo Power LLC (the "Romeo JV"), in which the Company owns 60% interest.

Rinehart Motion Systems LLC and AM Racing LLC

On January 2, 2019, the Company acquired Rinehart Motion Systems LLC and AM Racing LLC, two established companies in the specialty electric and hybrid propulsion market, for approximately $15 million, of which $10 million was paid in the first quarter of 2019, $2 million was paid in the first quarter of 2020 and the remaining $3 million will be paid upon satisfaction of certain conditions.

The Company created Cascadia Motion LLC ("Cascadia Motion") to combine assets and ~~financial liabilities by measurement category~~operations of these two acquired companies. Based in Oregon, Cascadia Motion specializes in design, development and ~~form~~production of ~~financial asset on~~hybrid and electric propulsion solutions for prototype and low-volume production applications. It allows the ~~balance sheet or~~Company to offer design, development and production of full electric and hybrid propulsion systems for niche and low-volume manufacturing applications.

(22) Subsequent Events

On April 13, 2020, a tornado struck the ~~accompanying notes~~Company’s facility in Seneca, South Carolina (the "Seneca Plant"), causing damage to the ~~financial statements. This guidance~~Company’s assets. The Seneca Plant, which is ~~effective~~one of the Company's largest drivetrain plants, was not in operation at the time.The Company is still assessing the full impact of the damage; however, the Company's insurance policies (less applicable deductibles) are expected to cover the repair or replacement of the Company’s assets that incurred loss or damage. In addition, the Company's insurance policies are expected to provide coverage for ~~interim~~interruption to its business, including lost profits, and ~~fiscal years beginning after December 15, 2017.~~reimbursement for other expenses and costs that have been incurred relating to the damages and losses sustained. The ~~Company expects~~Seneca Plant resumed limited production on May 2, 2020; however the time to ~~elect the measurement alternative for equity investments without readily determinable fair values and does not expect this guidance to have a material impact on its Consolidated Financial Statements.~~

~~In May 2014, the FASB amended the Accounting Standards Codification to add Topic 606,~~ ~~"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 most current revenue recognition guidance. The new guidance will also require new disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. This guidance is effective for interim and annual reporting periods beginning after December 15, 2017.resume full operations cannot be estimated. The Company has ~~continued~~not yet determined the full impact to ~~monitor FASB activity~~its financial position, results of operations, or cash flows, including the timing of those impacts.

On April 29, 2020, the Company entered into a $750 million delayed-draw term loan that matures 364 days after the closing date of the facility. The facility expires or must be mandatorily prepaid upon the termination of the agreement related to the ~~new standard, and has worked with various non-authoritative industry groups to assess~~anticipated acquisition of Delphi Technologies, the receipt of proceeds from certain ~~interpretative issues and~~capital markets transactions, or the ~~associated implementation~~receipt of proceeds from certain asset sales outside the ~~new standard. Based on this, the Company does not expect any changes to how it accounts for reimbursable pre-production costs, currently accounted for as a cost reduction.~~ordinary course of business. The Company ~~is currently analyzing the impact of the new guidance on its contracts and customer arrangements related to our highly customized products with no alternative use and for which the Company~~ has an enforceable right to payment. The new guidance may require revenue to be recognized over time as the parts are being produced rather than upon shipment or delivery of the parts. In addition, the Company is assessing the impact of pricing provisions contained in some of our contracts and customer arrangements which may represent variable consideration or provide the customer with a material right. Additional work needs to be completed in order to finalize the conclusion of the impact of pricing structures. During 2017, based on the Company’s assessment of existing contracts and revenue streams, the Company has refined its internal policy to include criteria for evaluating the impact of the new standard on thenot drawn any amounts ~~and timing of revenue recognition. Further, the Company is in the process of implementing appropriate refinements to the business processes, systems and controls to support recognition and disclosure~~ under ~~the new standard later in the fourth quarter of 2017 which will allow the Company to obtain the information necessary to determine the cumulative effect adjustment to be recorded upon adoption of~~ this guidance. Training of employees on the impacts of the standard and refinements to our processes, systems and controls will continue throughout 2017. The Company expects to adopt this guidance effective January 1, 2018 utilizing the Modified Retrospective approach and is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.facility.

~~(19) Recent Transactions~~

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 in October 2017 for Sevcon stock-based awards attributable to pre combination services.

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Sevcon is a global player in electrification technologies, serving customers in the U.S., U.K., France, Germany, Italy, China and the Asia Pacific region. Sevcon complements BorgWarner’s power electronics capabilities utilized to provide electrified propulsion solutions.

Sevcon's assets are reported within the Company's Drivetrain reporting segment as of the date of the acquisition. Sevcon's operating results from the date of acquisition through September 30, 2017 were insignificant. The Company paid $180.6 million in September 2017, which is reported as an investing activity in the Company's Consolidated Statement of Cash Flows.

~~The following table summarizes the aggregated preliminary 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 19.0
Other current assets 3.1
Property, plant and equipment, net 7.4
Goodwill 133.6
Other intangible assets 61.1
Deferred tax liabilities (8.6 )
Income taxes payable (0.7 )
Other assets and liabilities (2.7 )
Accounts payable and accrued expenses (23.3 )
Total consideration, net of cash acquired 204.8

Less: Assumed retirement-related liabilities 19.1
Less: Consideration paid in October 2017 5.1
Cash paid in September 2017, net of cash acquired $ 180.6

In connection with the acquisition, the Company capitalized $19.0 million for customer relationships, $37.9 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.

The Company is in the process of finalizing all purchase accounting adjustments related to the acquisition. Certain estimated values for the acquisition, including goodwill, intangible assets and deferred taxes are not yet finalized, and the preliminary purchase price allocations are subject to change as the Company completes its analysis of the fair value at the date of acquisition.

~~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.~~

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

BorgWarner Inc. and Consolidated Subsidiaries (the “Company” or "BorgWarner") is a global product leader in clean and efficient technology solutions for combustion, hybrid, and electric vehicles. Our products help improve vehicle performance, propulsion efficiency, stability and air quality. These products are manufactured and sold worldwide, primarily to original equipment manufacturers (“OEMs”) of light vehicles (passenger cars, sport-utility vehicles, ~~("SUVs"),~~ vans and light trucks). The Company's products are also sold to other 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 ~~manufacture~~manufactures and ~~sell our~~sells 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 every major automotive OEM in the world.

The Company's products fall into two reporting segments: Engine and Drivetrain. The Engine segment's products include turbochargers, timing ~~devices and chains,~~systems, emissions systems and thermal systems. The Drivetrain segment's products include transmission ~~components and~~ systems, ~~all-wheel drive~~ torque transfer systems and rotating electrical ~~devices.~~components.

COVID-19/CORONAVIRUS UPDATE

A novel strain of COVID-19/coronavirus was first identified in Wuhan, China in December 2019 and subsequently declared a pandemic by the World Health Organization on March 11, 2020. To date, COVID-19/coronavirus has surfaced in nearly all regions around the world and resulted in travel restrictions, closing of borders and business slowdowns or shutdowns in affected areas. Furthermore, COVID-19/coronavirus has impacted and may further impact the broader economies of affected countries, including negatively impacting economic growth, the proper functioning of financial and capital markets, foreign currency exchange rates and interest rates. The continued spread of COVID-19/coronavirus has led to disruption and volatility in the global capital markets, which adversely impacts the access to capital and increases the cost of capital.

As a result, COVID-19/coronavirus has impacted our business globally. Many OEMs have announced that they have suspended manufacturing operations, particularly in North America and Europe, on a temporary basis due to market conditions and matters associated with COVID-19/coronavirus. Significant reductions in automotive or truck production would have an adverse effect on the Company's sales to OEMs in these regions, which comprised approximately 70% of the Company's total sales in 2019. Additionally, as a global manufacturer, we are responding to shelter-in-place and similar government orders in various locations around the world, including throughout the United States and Europe.

In response to the outbreak and business disruption, we have, first and foremost, prioritized the health and safety of our employees. Lessons learned from the first interactions with the COVID-19/coronavirus led to a number of employee safety measures to contain the spread, including domestic and international travel restrictions, work-from-home practices, extensive cleaning protocols, and various temporary closures of our manufacturing and assembly facilities.

The Company has implemented a range of actions aimed at temporarily reducing costs and preserving liquidity. These actions include, but are not limited to:

a temporary 20% reduction in base salaries of the Company's senior executive leadership team and annual retainers of the Company’s non-employee directors;

up to 10% temporary base pay reductions for other salaried employees; and

reducing discretionary spending, such as outside professional services

~~On September 27, 2017,~~

The Company will continue to evaluate further ways to manage costs in line with reduced sales levels.

We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities, and may take additional actions based on their recommendations. In these circumstances, there may be developments outside of our control requiring us to adjust our operating plan. As such, given the dynamic nature of this situation, the Company ~~acquired 100%~~cannot reasonably estimate the impacts of COVID-19/coronavirus on our financial condition, results of operations or cash flows in the future. However, we do expect that it will have a material adverse impact on our revenue and overall profitability and may lead to additional temporary closure costs, supply chain disruptions and a volatile effective tax rate driven by changes in the mix of earnings across the Company’s jurisdictions.

As of March 31, 2020, the Company had liquidity of $2,401 million, comprised of cash balances of $901 million and an undrawn revolving credit facility of $1,500 million. The Company is in full compliance with its covenants under the revolving credit facility and has full access to its undrawn revolving credit facility. Total debt maturities through the end of 2021 of $284 million include $34 million in short-term borrowings and $250 million in current portion of long-term borrowings. Given its strong liquidity position, the Company believes it will have sufficient liquidity and maintain compliance with all covenants throughout the next 12 months even in an environment with significantly lower OEM production volumes.

PROPOSED ACQUISITION OF DELPHI TECHNOLOGIES PLC

On January 28, 2020, the Company entered into a definitive agreement to acquire Delphi Technologies PLC (“Delphi Technologies”) in an all-stock transaction. Refer to Note 21, “Recent Transactions and Events,” to the Condensed Consolidated Financial Statements in Item 1 of this report for more information. The Company expects to pay fees, costs and expenses associated with the transaction with available cash. The following discussion and analysis of financial condition and results of operations does not address matters associated with the anticipated acquisition.

SENECA, SOUTH CAROLINA FACILITY TORNADO

On April 13, 2020, a tornado struck the Company’s facility in Seneca, South Carolina (the "Seneca Plant"), causing damage to the Company’s assets. The Seneca Plant, which is one of the ~~equity interests~~Company's largest drivetrain plants, was not in operation at the time.The Company is still assessing the full impact of ~~Sevcon. Sevcon's assets are reported within~~the damage; however, the Company's ~~Drivetrain reporting segment as~~insurance policies (less applicable deductibles) are expected to cover the repair or replacement of the ~~date~~Company’s assets that incurred loss or damage. In addition, the Company's insurance policies are expected to provide coverage for interruption to its business, including lost profits, and reimbursement for other expenses and costs that have been incurred relating to the damages and losses sustained. The Seneca Plant resumed limited production on May 2, 2020; however the time to resume full operations cannot be estimated. The Company has not yet determined the full impact to its financial position, results of operations, or cash flows, including the ~~acquisition. Sevcon's operating results from the date~~timing of ~~acquisition through September 30, 2017 were insignificant.~~those impacts.

RESULTS OF OPERATIONS

Three Months Ended ~~September 30, 2017~~March 31, 2020 vs. Three Months Ended ~~September 30, 2016~~March 31, 2019

Net sales for the three months ended ~~September 30, 2017~~March 31, 2020 totaled ~~$2,416.2~~$2,279 million, a ~~9.1% increase~~decrease of 11.2% from the three months ended ~~September 30, 2016.~~March 31, 2019. Excluding the impact of ~~the Remy light vehicle aftermarket business divestiture and strengthening~~weaker foreign currencies relative to the U.S. dollar, primarily the Euro, Chinese Renminbi and Korean Won and the net impact of acquisitions and divestitures, net sales ~~increased~~decreased approximately ~~10.8%.~~8.1% primarily due to the COVID-19/coronavirus impacts discussed above, including production slowdowns and shutdowns.

Cost of sales as a percentage of net sales ~~decreased to 78.4% in~~was 80.4% during the three months ended ~~September 30, 2017 from 78.7% in~~March 31, 2020 compared to 79.8% during the three months ended ~~September 30, 2016.~~March 31, 2019. Gross profit and gross margin were ~~$522.7~~$447 million and ~~21.6% in~~19.6% during the three months ended ~~September 30, 2017~~March 31, 2020 compared to ~~$471.1~~$519 million and ~~21.3% in~~20.2% during the three months ended ~~September 30, 2016.~~March 31, 2019. The ~~Company's material cost of sales was approximately 55% of net sales~~decrease in ~~both the three months ended September 30, 2017 and 2016. The Company's remaining cost to convert raw material to finished product (conversion cost) slightly decreased~~gross margin is primarily due to ~~improved productivity compared to the three months ended September 30, 2016.~~lower sales.

Selling, general and administrative ("SG&A") expenses for the three months ended ~~September 30, 2017 increased $15.1 million to $224.8 million from $209.7~~March 31, 2020 were $213 million as compared to $226 million for the three months ended ~~September 30, 2016.~~March 31, 2019. SG&A as a percentage of net sales was 9.3% and 8.8% for the three months ended ~~September 30, 2017, down from 9.5% for the three months ended September 30, 2016.~~March 31, 2020 and 2019, respectively. The $13 million reduction in SG&A was primarily due to reduced compensation-related costs and discretionary spending reductions, partially offset by an increase in Research and Development ("R&D") expenses. R&D expenses, net of customer reimbursements, which are included in SG&A expenses, for the three months ended March 31, 2020, increased ~~$12.9~~$5 million to ~~$101.5 million from $88.6~~$109 million as compared to the three months ended September 30, 2016. As a percentage of net sales, R&D expenses were 4.2% and 4.0% in the three months ended September 30, 2017 and 2016, respectively. Our continued investment in a number of cross-business R&D programs, as well as other key programs, is necessary for the Company’s short- and long-term growth.

~~Other expense, net of $22.0~~$104 million for the three months ended ~~September 30, 2017~~March 31, 2019. R&D as a percentage of net sales was 4.8% and 4.1% for the three months ended March 31, 2020 and 2019, respectively. The increase in R&D expenses was primarily due to reduced customer reimbursements in the period. The Company's current long-term expectation for R&D spending remains in the range of 4.0% to 4.5% of net sales.

Other expense, net of $45 million for the three months ended March 31, 2020 includes ~~$13.3~~$21 million of expenses, primarily professional fees, related to the Company's strategic acquisition and divestiture activities, including the anticipated acquisition of Delphi Technologies, $15 million of restructuring expense primarily related to ~~initiation~~actions to reduce structural costs, and $9 million of asset impairment cost. Over the course of the next few years, the Company plans to take additional actions to reduce existing structural costs. These actions are expected to result in primarily cash restructuring costs in the $275 million to $300 million range through the end of 2023. The resulting annual cost savings are expected to be in the range of approximately $90 million to $100 million by 2023. The Company plans to utilize these savings to sustain the Company’s strong operating margin profile and long-term cost competitiveness.

Other expense, net of $29 million for the three months ended March 31, 2019 includes $14 million of restructuring expense primarily related to actions within ~~its emissions business in~~ the Engine segment designed to improve future profitability and competitiveness, ~~and $6.4~~$14 million of ~~merger~~

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~~and acquisition~~ expenses in connection with the acquisition of Sevcon. Other expense, net for the three months ended September 30, 2016 was $111.1 million including $106.5 million to adjust the net book value of the Remy light vehicle aftermarket business, based on the anticipated sale price, as it met the held for sale criteria during the three months ended September 30, 2016. The Company sold the Remy light vehicle aftermarket business for approximately $80 million in cash in the fourth quarter of 2016. Additionally, the Company recorded $1.3 million of restructuring expense associated with both the Drivetrain and Engine segments and $5.9 million related to ~~transition and realignment expenses and other professional fees~~the receipt of a final unfavorable arbitration decision associated with the ~~November 2015~~resolution of a matter related to a previous acquisition, and $1 million of ~~Remy.~~expenses primarily related to divestiture activities for non-core pipes and thermostat product lines.

Equity in affiliates’ earnings of ~~$14.4~~$5 million ~~increased $2.0~~decreased $4 million as compared with the three months ended ~~September 30, 2016 primarily~~March 31, 2019 due to ~~higher earnings from the Company's 50% interest in NSK-Warner as a result of improved business conditions in Asia.~~lower industry volumes and cost pressures.

Interest expense ~~and finance charges~~ of ~~$17.6~~$12 million decreased ~~$4.8~~$2 million as compared with the three months ended ~~September 30, 2016,~~March 31, 2019 primarily due to ~~the reduction in senior notes and increase in capitalized interest.~~lower debt.

for other one-time adjustments. The other one-time adjustments primarily relate to tax law changes in India that were enacted during the quarter and the release of certain unrecognized tax benefits due to the closure of~~$1.2 million~~, ~~$0.3 million, and $11.7 million which are associated with restructuring expense, merger and acquisition expense, and one-time tax adjustments that primarily resulted from tax audit settlements.~~ an audit. Excluding the impact of these non-comparable items, the Company ~~has~~ estimated its annual effective tax rate associated with ongoing operations to be approximately ~~29%~~28% for the year ending December 31, ~~2017.~~2020.

~~At September 30, 2016, the~~The Company's effective tax rate for the ~~first nine~~three months ended March 31, 2019 was ~~32.6%~~34.7%. This rate includes reductions of income tax ~~benefits~~expenses of ~~$27.6 millionand $5.9~~$3 million related to ~~asset impairment and~~ restructuring expense ~~respectively as discussed in the Other Expense, net footnote to the Condensed Consolidated Financial Statements,~~ and ~~$3.7~~$5 million related to other one-time ~~tax adjustments, as well as a~~adjustments. This rate also includes an increase in income tax expense of ~~$2.2~~$22 million due to the U.S. Department of the Treasury’s issuance of the final regulations in the first quarter of 2019 related to ~~a gain~~the calculation of the one-time transition tax associated with the ~~release~~Tax Cuts and Jobs Act of certain Remy light vehicle aftermarket liabilities due to the expiration of a customer contract. Excluding the impact of these non-comparable items, the Company had estimated its annual effective tax rate associated with ongoing operations to be approximately 31% for the year ending December 31, 2016.2017.

The Company’s earnings per diluted share were ~~$0.88~~$0.63 and ~~$0.39~~$0.77 for the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, respectively. The Company believes the following table is useful in highlighting non-comparable items that impacted its earnings per diluted share.

Three Months Ended
September 30,
2017 2016
Non-comparable items:
Restructuring expense $ (0.07 ) $ —
Merger and acquisition expense (0.03 ) (0.03 )
Asset impairment expense —
(0.37 )
Tax adjustments 0.02
0.01
Total impact of non-comparable items per share — diluted $ (0.08 ) $ (0.39 )

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~~Nine Months Ended September 30, 2017 vs. Nine Months Ended September 30, 2016~~

Net sales for the nine months ended September 30, 2017 totaled $7,212.9 million, a 5.9% increase from the nine months ended September 30, 2016. Excluding the impact of the Remy light vehicle aftermarket business divestiture and weakening foreign currencies, primarily the Euro and Chinese Renminbi, net sales increased approximately 10.4%.

Cost of sales as a percentage of net sales decreased to 78.5% in the nine months ended September 30, 2017 from 79.0% in the nine months ended September 30, 2016. Gross profit and gross margin were $1,554.2 million and 21.5% in the nine months ended September 30, 2017 compared to $1,432.1 million and 21.0% in the nine months ended September 30, 2016. The Company's material cost of sales was approximately 55% of net sales in both the nine months ended September 30, 2017 and 2016. The Company's remaining cost to convert raw material to finished product (conversion cost) slightly decreased due to improved productivity compared to the nine months ended September 30, 2016.

SG&A expenses for the nine months ended September 30, 2017 increased $58.2 million to $658.6 million from $600.4 million as compared to the nine months ended September 30, 2016. SG&A as a percentage of net sales was 9.1% for the nine months ended September 30, 2017, up from 8.8% for the nine months ended September 30, 2016, primarily due to higher R&D expenses, stock-based compensation and other employee costs. R&D expenses, which are included in SG&A expenses, increased $43.9 million to $302.8 million from $258.9 million as compared to the nine months ended September 30, 2016. As a percentage of net sales, R&D expenses were 4.2% and 3.8% in the nine months ended September 30, 2017 and 2016, respectively. Our continued investment in a number of cross-business R&D programs, as well as other key programs, is necessary for the Company’s short- and long-term growth.

Other expense, net of $27.5 million for the nine months ended September 30, 2017 includes $13.3 million of restructuring expense primarily related to initiation of actions within its emissions business in the Engine segment designed to improve future profitability and competitiveness, $6.4 million of merger and acquisition expenses associated with the acquisition of Sevcon, and a loss of $5.3 million related to the termination of a long term property lease for a manufacturing facility located in Europe. Other expense, net for the nine months ended September 30, 2016 was $147.8 million including $106.5 million to adjust the net book value of the Remy light vehicle aftermarket business to fair value, based on the anticipated sale price, as it met the held for sale criteria during the nine months ended September 30, 2016. The Company sold the Remy light vehicle aftermarket business for approximately $80 million in cash in the fourth quarter of 2016. Other expense, net for the nine months ended September 30, 2016 also includes $26.9 million of restructuring expense associated with both the Drivetrain and Engine segments and $18.9 million related to transition and realignment expenses and other professional fees associated with the November 2015 acquisition of Remy.

Equity in affiliates’ earnings of $38.5 million increased $6.9 million as compared with the nine months ended September 30, 2016 primarily due to higher earnings from the Company's 50% interest in NSK-Warner as a result of improved business conditions in Asia.

Interest expense and finance charges of $53.6 million decreased $11.5 million as compared with the nine months ended September 30, 2016, primarily due to the reduction in average outstanding short term borrowings and senior notes and increase in capitalized interest.

~~At September 30, 2017, the Company's effective tax rate for the first nine months was 28.2%. This rate includes respective tax benefits of$1.2 million~~, $0.3 million, and $11.7 million which are associated with restructuring expense, merger and acquisition expense, and one-time tax adjustments that primarily resulted from tax audit settlements. Excluding the impact of these non-comparable items, the Company has estimated its annual effective tax rate associated with ongoing operations to be approximately 29% for the year ending December 31, 2017.

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~~At September 30, 2016, the Company's effective tax rate for the first nine months was 32.6%. This rate includes tax benefits of $27.6 million~~and $5.9 million related to asset impairment and restructuring expense, respectively as discussed in the Other Expense, net footnote to the Condensed Consolidated Financial Statements, and $3.7 million related to other one-time tax adjustments, as well as a tax expense of $2.2 million related to a gain associated with the release of certain Remy light vehicle aftermarket liabilities due to the expiration of a customer contract. Excluding the impact of these non-comparable items, the Company had estimated its annual effective tax rate associated with ongoing operations to be approximately 31% for the year ending December 31, 2016.

The Company’s earnings per diluted share were $2.77 and $1.90 for the nine months ended September 30, 2017 and 2016, respectively. The Company believes the following table is useful in highlighting non-comparable items that impacted its earnings per diluted share.


	Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2020			2019
Non-comparable items:
Merger, acquisition and divestiture expense							$	(0.10	)	$	(0.01	)
Restructuring expense	$	(0.07	)	$	(0.10	)	(0.06		)	(0.05		)
Merger and acquisition expense	(0.03		)	(0.09		)
Asset impairment expense	—			(0.36		)
Contract expiration gain	—			0.02
Asset impairment							(0.04		)	—
Unfavorable arbitration loss							—			(0.07		)
Officer stock awards modification							—			(0.01		)
Tax adjustments	0.06			0.02			0.06			(0.09		)
Total impact of non-comparable items per share — diluted	$	(0.04	)	$	(0.51	)	$	(0.14	)	$	(0.23	)

~~Emissions Business Restructuring~~

In the third quarter of 2017, the Company recorded restructuring expense of $12.6 million, primarily due to the initiation of actions within its emissions business in the Engine segment designed to improve future profitability and competitiveness. The Company plans to explore strategic options for non-core product lines to improve the overall competitiveness of its remaining European emissions business in the Engine segment. These actions may result in the recognition of impairment or additional restructuring charges that could be material.

Reporting Segments

The Company's business is comprised of two reporting segments: Engine and Drivetrain. These segments are strategic business groups, which are managed separately as each represents a specific grouping of related automotive components and systems.

The Company allocates resources to each segment based upon the projected after-tax return on invested capital ("ROIC") of its business initiatives. ROIC is comprised of Adjusted EBIT after deducting notional taxes compared to the projected average capital investment required. Adjusted EBIT is comprised of earnings before interest, income taxes and noncontrolling interest (“EBIT") adjusted for restructuring, goodwill impairment charges, 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 Adjusted EBIT is most reflective of the operational profitability or loss of our reporting segments. The following tables show segment information and Adjusted EBIT for the Company's reporting segments.

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Net Sales by Reporting Segment


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(in millions)	2017			2016			2017			2016			2020			2019
Engine	$	1,506.4		$	1,359.3		$	4,483.6		$	4,202.7		$	1,434		$	1,598
Drivetrain	921.8			865.9			2,767.7			2,640.5			860			982
Inter-segment eliminations	(12.0		)	(11.0		)	(38.4		)	(31.2		)	(15		)	(14		)
Net sales	$	2,416.2		$	2,214.2		$	7,212.9		$	6,812.0		$	2,279		$	2,566

Adjusted ~~Earnings Before Interest, Income Taxes and Noncontrolling Interest (“Adjusted EBIT”)~~EBIT


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(in millions)	2017			2016			2017			2016			2020			2019
Engine	$	238.5		$	221.5		$	729.8		$	696.3		$	208		$	241
Drivetrain	111.5			89.4			325.9			271.0			63			105
Adjusted EBIT	350.0			310.9			1,055.7			967.3			271			346
Merger, acquisition and divestiture expense													21			1
Restructuring expense	13.3			1.3			13.3			26.9			15			14
Merger and acquisition expense	6.4			5.9			6.4			18.9
Lease termination settlement	—			—			5.3			—
Other expense, net	2.7			—			2.7			—
Asset impairment expense	—			106.5			—			106.5
Contract expiration loss (gain)	—			1.3			—			(6.2		)
Corporate, including equity in affiliates' earnings and stock-based compensation	37.3			33.2			121.4			105.7
Asset impairment													9			—
Unfavorable arbitration loss													—			14
Officer stock awards modification													—			2
Corporate, including stock-based compensation													37			51
Equity in affiliates' earnings, net of tax													(5		)	(9		)
Interest income	(1.3		)	(1.6		)	(4.2		)	(4.7		)	(2		)	(3		)
Interest expense and finance charges	17.6			22.4			53.6			65.1
Interest expense													12			14
Other postretirement income													(2		)	—
Earnings before income taxes and noncontrolling interest	274.0			141.9			857.2			655.1			186			262
Provision for income taxes	79.4			48.8			241.9			213.4			49			91
Net earnings	194.6			93.1			615.3			441.7			137			171
Net earnings attributable to the noncontrolling interest, net of tax	9.7			9.8			29.2			29.9			8			11
Net earnings attributable to BorgWarner Inc.	$	184.9		$	83.3		$	586.1		$	411.8		$	129		$	160

Three Months Ended ~~September 30, 2017~~March 31, 2020 vs. Three Months Ended ~~September 30, 2016~~March 31, 2019

The Engine segment net sales ~~increased $147.1~~decreased $164 million, or ~~10.8%~~10.3%, from the three months ended ~~September 30, 2016.~~March 31, 2019. Excluding the impact of ~~strengthening~~weaker foreign currencies relative to the U.S. dollar, primarily the Euro, Chinese Renminbi, and Korean Won, and the net impact of acquisitions and divestitures, net sales ~~increased~~decreased approximately ~~8.7%~~6.4% from the three months ended ~~September 30, 2016,~~March 31, 2019, due to ~~higher sales of light vehicle turbochargers, thermal products~~the COVID-19/coronavirus impacts discussed above, including production slowdowns and ~~engine timing systems, including variable cam timing.~~shutdowns. The Engine segment Adjusted EBIT margin was ~~15.8% in~~14.5% during the three months ended ~~September 30, 2017~~March 31, 2020, down from ~~16.3% in~~15.1% during the three months ended ~~September 30, 2016,~~March 31, 2019, primarily due to ~~operational inefficiencies in~~ the ~~Company's emissions business.~~impact of lower sales.

The Drivetrain segment net sales ~~increased $55.9~~decreased $122 million, or ~~6.5%~~12.4%, from the three months ended ~~September 30, 2016.~~March 31, 2019. Excluding the impact of ~~the Remy light vehicle aftermarket business divestiture and strengthening~~weaker foreign currencies relative to the U.S. dollar, primarily the Euro, Chinese Renminbi, and Korean Won, net sales ~~increased~~decreased approximately ~~14.4%~~10.6% from the three months ended ~~September 30, 2016,~~March 31, 2019, primarily due to ~~higher sales of all-wheel drive systems~~the COVID-19/coronavirus impacts discussed above, including production slowdowns and ~~transmission components.~~shutdowns. The Drivetrain segment Adjusted EBIT margin was ~~12.1% in~~7.3% during the three months ended ~~September 30, 2017 up~~March 31, 2020 down from ~~10.3% in~~10.7% during the three months ended ~~September 30, 2016,~~March 31, 2019, primarily due to the ~~sale~~impact of ~~the Remy light vehicle aftermarket business~~lower sales and ~~conversion on~~ higher ~~sales.~~

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net research and development spending.

~~Nine Months Ended September 30, 2017 vs. Nine Months Ended September 30, 2016~~

The Engine segment net sales increased $280.9 million, or 6.7%, from the nine months ended September 30, 2016. Excluding the impact of weakening foreign currencies, primarily the Euro and Chinese Renminbi, net sales increased approximately 7.5% from the nine months ended September 30, 2016, due to higher sales of light vehicle turbochargers, thermal products, and engine timing systems, including variable cam timing. The Engine segment Adjusted EBIT margin was 16.3% in the nine months ended September 30, 2017 down from 16.6% in the nine months ended September 30, 2016, primarily due to operational inefficiencies in the Company's emissions business.

The Drivetrain segment net sales increased $127.2 million, or 4.8%, from the nine months ended September 30, 2016. Excluding the impact of the Remy light vehicle aftermarket business divestiture and weakening foreign currencies, primarily the Euro and Chinese Renminbi, net sales increased approximately 15.6% from the nine months ended September 30, 2016, primarily due to higher sales of all-wheel drive systems and transmission components. The Drivetrain segment Adjusted EBIT margin was 11.8% in the nine months ended September 30, 2017 up from 10.3% in the nine months ended September 30, 2016, primarily due to the sale of the Remy light vehicle aftermarket business and conversion on higher sales.

Outlook ~~for 2017~~

~~Our overall outlook for 2017 is positive.~~The Company expects industry production to significantly decline in Europe, North America and China during 2020 driven mainly by the negative production impact caused by COVID-19/coronavirus. Net new business-related sales growth, due to increased penetration of BorgWarner products around the world, is expected to ~~drive growth above~~only partially offset the ~~modest~~impact of declining global industry production ~~growth expected~~expected. As a result, the Company expects declining revenue in ~~2017.~~2020, excluding the impact of foreign currencies and the net impact of acquisitions and divestitures.

The Company maintains a positive long-term outlook for its global business and is committed to new product development and strategic capital investments to enhance its product leadership strategy. The several trends that are driving ~~our~~the Company's long-term growth are expected to continue, including ~~the~~ increased turbocharger adoption in North America and Asia, the increased adoption of automated transmissions in ~~Europe~~Asia Pacific, and ~~Asia-Pacific, and the move to variable cam and chain engine timing systems in Europe and Asia-Pacific. Our~~increased global penetration of all-wheel drive. The Company's long-term growth is also expected to benefit from the adoption of product offerings for hybrid and electric vehicles.

FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY

The Company maintains various liquidity sources including cash and cash equivalents and the unused portion of ~~our~~its multi-currency revolving credit agreement. At ~~September 30, 2017,~~March 31, 2020, the Company had ~~$414.3~~$901 million of cash, of which ~~$407.6~~$571 million of cash is held by our subsidiaries outside of the United States. Cash held by these subsidiaries is used to fund foreign operational activities and future investments, including acquisitions.

The ~~vast~~ majority of cash held outside the United States is available for repatriation, however, doing so could result in increased foreign and U.S. federal, state and local income taxes. A deferred tax liability has been recorded for the portion of these funds anticipated to be repatriated to the United States.repatriation. The Company uses its U.S. liquidity primarily for various corporate purposes, including but not limited to debt service, share repurchases, dividend distributions and other corporate expenses.

On ~~June 29, 2017,~~March 13, 2020, the Company amended ~~and extended~~ its ~~$1 billion~~ multi-currency revolving credit facility ~~(which included a feature that allowed~~by increasing the ~~Company's borrowings~~size of the facility from $1.2 billion to ~~be increased to $1.25 billion) to a $1.2~~$1.5 billion and by extending the maturity until March, 13, 2025. The multi-currency revolving credit agreement provides for the facility ~~(which includes a feature that~~to automatically increase to $2.0 billion upon the closing of the anticipated acquisition of Delphi Technologies PLC. Additionally, the agreement allows the ~~Company's borrowings~~Company the ability to ~~be increased to $1.5 billion).~~increase the facility by $1.0 billion with bank group approval. The ~~facility provides for borrowings through June 29, 2022~~. ~~The Company has~~credit agreement contains customary events of default and one key financial covenant ~~as part of the credit agreement~~ which is a debt to ~~EBITDA ("~~Earnings Before Interest, Taxes, Depreciation and ~~Amortization"~~Amortization ("EBITDA") ratio. The Company was in compliance with the financial covenant at ~~September 30, 2017 and expects to remain compliant in future periods.~~ March 31, 2020. At ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, the Company had no outstanding borrowings under this facility.

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The Company's commercial paper program allows the Company to issue short-term, unsecured commercial paper notes up to a maximum aggregate principal amount outstanding, which increased from ~~$1.0~~$1.2 billionto~~$1.2~~ $1.5 billion effective ~~July 26, 2017.~~March 13, 2020. Under this program, the Company may issue notes from time to time and ~~will~~ use the proceeds for general corporate purposes. ~~At September 30, 2017~~The Company had no outstanding borrowings under this program as of March 31, 2020 and December 31, 2016, the Company had outstanding borrowings of $200.0 million and $50.8 million, respectively, under this program, which is classified in the Condensed Consolidated Balance Sheets in Notes payable and other short-term debt. 2019.

The total current combined borrowing capacity under the multi-currency revolving credit facility and commercial paper program cannot exceed ~~$1.2~~$1.5 billion.

In addition to the credit facility, the Company's universal shelf registration ~~has an unlimited amount of~~provides the ability to issue various debt and equity instruments subject to market conditions. On April 29, 2020, the Company entered into a $750 million delayed-draw term loan that ~~could~~matures 364 days after the closing date of the facility. The facility expires or must be ~~issued.~~mandatorily prepaid upon the termination of the agreement related

to the anticipated acquisition of Delphi Technologies, the receipt of proceeds from a capital markets transaction, or the receipt of proceeds from any asset sales outside the ordinary course of business. The Company has not drawn any amounts under this facility and may alternatively issue an unsecured senior note.

On February ~~08, 2017,~~12, 2020 and April ~~26, 2017, and July 26, 2017,~~29, 2020, the Company’s Board of Directors declared quarterly cash dividends of ~~$0.14~~$0.17 per share of common stock. ~~These~~The dividends declared in the first quarter were paid on March ~~15, 2017,~~16, 2020, and the dividends declared in the second quarter will be paid on June 15, ~~2017, and September 15, 2017.~~2020.

~~The Company's net debt to net capital ratio was 33.6% at September 30, 2017 versus 35.0% at December 31, 2016.~~

~~The~~From a credit quality perspective, the Company ~~has~~had a credit rating of BBB+ from both Standard & ~~Poor’s~~Poor's and Fitch Ratings and Baa1 from ~~Moody's.~~Moody's as of December 31, 2019, with a stable outlook from all rating agencies. On January 28, 2020, the Company entered into a definitive agreement to acquire Delphi Technologies. Due to uncertainties surrounding this anticipated transaction and the recent business disruptions from COVID-19/coronavirus, Moody's placed the Company's Baa1 rating under review for possible downgrade, while Standard & Poor's placed the Company on CreditWatch with negative implications. The Company’s current outlook from ~~Standard & Poor’s and~~ Fitch Ratings isremained stable. ~~During 2016, Moody's revised its outlook from stable to negative.~~ None of the ~~Company’s~~Company's debt agreements require accelerated repayment in the event of a downgrade in credit ratings.

Net cash provided by operating activities increased ~~$30.8 million~~ to ~~$623.9~~$263 million in the first ~~nine~~three months of ~~2017~~2020 from ~~$593.1~~$40 million in the first ~~nine~~three months of ~~2016.~~2019. The ~~$30.8~~$223 million increase in cash provided by operating activities primarily reflects ~~higher~~favorable changes in working capital, partially offset by lower net earnings adjusted for non-cash charges to ~~operations, offset by changes in working capital.~~operations.

Net cash used in investing activities increased ~~$228.3~~$16 million to ~~$570.7~~$120 million in the first ~~nine~~three months of ~~2017~~2020 from ~~$342.4~~$104 million in the first ~~nine~~three months of ~~2016.~~2019. This increase is primarily due to the ~~acquisition~~non-recurrence of ~~Sevcon~~the 2019 proceeds from the sale of the non-core pipe and ~~higher capital expenditures, including tooling outlays.~~thermostat product lines, partially offset by the 2019 acquisitions of Rinehart Motion Systems LLC and AM Racing LLC.

Net cash used in financing activities decreased ~~$203.9~~$91 million to ~~$106.2~~$62 million in the first ~~nine~~three months of ~~2017~~2020 from ~~$310.1~~$153 million in the first ~~nine~~three months of ~~2016.~~2019. This decrease is primarily driven by share repurchases of $67 million in the first three months of 2019 and lower repayments of debt in the first three months of 2020.

COVID-19/coronavirus has resulted in, and may continue to result in, significant disruption of global financial markets, which may reduce the Company's ability to access capital or its customers’ ability to pay the Company ~~stock~~for past or future purchases, ~~and higher short term borrowings.~~

~~We believe~~which could negatively affect the Company's liquidity. The Company, however, believes that the combination of cash balances, cash from operations, ~~cash balances,~~ available credit facilities, and the universal shelf registration capacity will be sufficient to satisfy ~~our~~its cash needs for ~~our~~ current level of operations, ~~our~~ planned operations for the foreseeable future and ~~our~~the current share repurchase program. ~~We will~~The Company intends to continue to balance ~~our~~capital allocation to support its needs for internal growth, external growth, the return of capital to stockholders, debt reduction and cash conservation.

CONTINGENCIES

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's management does not expect that an adverse outcome in any of these other commercial and legal

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claims, actions and complaints will have a material adverse effect on the Company's results of operations, financial position or cash flows, although itsuch adverse outcome could be material to the results of operations in a particular quarter.

Environmental

~~See~~Refer to Note ~~14 - Contingencies~~17, "Contingencies," to the Condensed Consolidated Financial Statements for further details and information respecting the Company’s environmental liability.

~~Asbestos-related Liability~~

Like many other industrial companies that have historically operated in the United States, the Company, or parties the Company is obligated to indemnify, continues to be named as one of many defendants in asbestos-related personal injury actions. The Company has an estimated liability of $838.3 million as of September 30, 2017 for asbestos-related claims and associated costs through 2067, which is the last date by which the Company currently estimates it is likely to have resolved all asbestos-related claims. The Company additionally estimates that, as of September 30, 2017, it has aggregate insurance coverage available in the amount of $386.4 million to satisfy asbestos-related claims already satisfied by the Company but not yet reimbursed by insurers, asbestos-related claims asserted but not yet resolved, and asbestos-related claims not yet asserted, as well as defense costs associated with each. See Note 14 - Contingencies to the Condensed Consolidated Financial Statements for further details and information respecting the Company’s asbestos-related liability and corresponding insurance asset.

New Accounting Pronouncements

~~See~~Refer to Note ~~18 - New~~2, "New Accounting Pronouncements," to the Condensed Consolidated Financial Statements for a detailed description of new applicable accounting pronouncements.

~~CAUTIONARY STATEMENTS FOR FORWARD-LOOKING STATEMENTS~~

Statements contained in this Form 10-Q (including Management's Discussion and Analysis of Financial Condition and Results of Operations) may contain forward-looking statements as contemplated by the 1995 Private Securities Litigation Reform Act (the “Act”) that are based on management's current outlook, expectations, estimates and projections. Words such as "anticipates," "believes," "continues," "could," "designed," "effect," "estimates," "evaluates," "expects," "forecasts," "goal," "initiative," "intends," "outlook," "plans," "potential," "project," "pursue," "seek," "should," "target," "when," "would," and variations of such words and similar expressions are intended to identify such forward-looking statements. All statements, other than statements of historical fact contained or incorporated by reference in this Form 10-Q, that we expect or anticipate will or may occur in the future regarding our financial position, business strategy and measures to implement that strategy, including changes to operations, competitive strengths, goals,

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expansion and growth of our business and operations, plans, references to future success and other such matters, are forward-looking statements. Accounting estimates, such as those described under the heading "Critical Accounting Policies" in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2016, are inherently forward-looking. These statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. Forward-looking statements are not guarantees of performance and the Company's actual results may differ materially from those expressed, projected or implied in or by the forward-looking statements.

You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report. Forward-looking statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond our control. Such risks and uncertainties include: fluctuations in domestic or foreign vehicle production; the continued use by original equipment manufacturers of outside suppliers, the ability to achieve anticipated benefits from, and to successfully integrate, acquisitions, fluctuations in demand for vehicles containing our products; changes in general economic conditions; and the other risks noted under Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 and in other reports that we file with the Securities and Exchange Commission. We do not undertake any obligation to update or announce publicly any updates to or revision to any of the forward-looking statements in this Form 10-Q to reflect any change in our expectations or any change in events, conditions, circumstances, or assumptions underlying the statements.

This section and the discussions contained in Item 1A, "Risk Factors," and in Item 7, subheading "Critical Accounting Policies" in our Annual Report on Form 10-K for the year ended December 31, 2016, are intended to provide meaningful cautionary statements for purposes of the safe harbor provisions of the Act. This should not be construed as a complete list of all of the economic, competitive, governmental, technological and other factors that could adversely affect our expected consolidated financial position, results of operations or liquidity. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair our business, operations, liquidity, financial condition and prospects.

~~Use of Non-GAAP Financial Measures~~

In addition to results presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), this report includes non-GAAP financial measures. The Company believes these non-GAAP financial measures provide additional information that is useful to investors in understanding the underlying performance and trends of the Company. Readers should be aware that non-GAAP financial measures have inherent limitations and should be cautious with respect to the use of such measures. To compensate for these limitations, we use non-GAAP measures as comparative tools, together with GAAP measures, to assist in the evaluation of our operating performance or financial condition. We ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and that they are computed in a manner intended to facilitate consistent period-to-period comparisons. The Company's method of calculating these non-GAAP measures may differ from methods used by other companies. These non-GAAP measures should not be considered in isolation or as a substitute for those financial measures prepared in accordance with GAAP or in-effect regulatory requirements. Where non-GAAP financial measures are used, the most directly comparable GAAP or regulatory financial measure, as well as the reconciliation to the most directly comparable GAAP or regulatory financial measure, can be found in this report.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to the information concerning our exposures to interest rate risk or commodity price risk as stated in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

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Foreign currency exchange rate risk is the risk that wethe Company will incur economic losses due to adverse changes in foreign currency exchange rates. Currently, ~~our~~the Company's most significant currency exposures relate to ~~the British Pound,~~ the Chinese Renminbi, the Euro, the Hungarian Forint, the Japanese Yen, the Mexican Peso, the Swedish Krona and the South Korean Won. ~~We mitigate our~~The Company mitigates its foreign currency exchange rate risk by establishing local production facilities and related supply chain participants in the markets ~~we serve,~~it serves, by invoicing customers in the same currency as the source of the products and by funding some of ~~our~~its investments in foreign markets through local currency loans. WeThe Company also ~~monitor our~~monitors its foreign currency exposure in each country and ~~implement~~implements strategies to respond to changing economic and political environments. The depreciation of the British Pound post the United Kingdom's 2016 vote to leave the European Union is not expected to have a significant impact on the Company since net sales from the United Kingdom represent less than 2% of the Company's net sales in 2016. In addition, the Company periodically enters

into forward currency contracts in order to reduce exposure to exchange rate risk related to transactions denominated in currencies other than the functional currency.

The foreign currency translation adjustment ~~gain~~loss of ~~$64.2~~$74 million and ~~$186.6~~$9 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2020 and 2019, respectively, ~~and the foreign currency translation gain of $27.9 million and $41.8 million for the three and nine months ended September 30, 2016~~ contained within ~~our~~the Company's Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~ represent the foreign currency translational impacts of converting ~~our~~its non-U.S. dollar subsidiaries' financial statements to the Company’s reporting currency (U.S. ~~Dollar).~~dollar) and the related gains and losses arising from its net investment hedges. The foreign currency translation adjustment ~~gain~~loss of ~~$64.2~~$74 million ~~and $186.6 million in~~during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 was primarily due to the impact of a ~~weakening~~strengthening U.S. dollar against the ~~Euro,~~Korean Won, Chinese Renminbi, and Brazilian Real, which increased approximately 5%, 2% and 23%, respectively, and decreased ~~approximately 4% and 13% since June 30, 2017 and~~other comprehensive income from December 31, ~~2016,~~2019 by approximately $21 million, $19 million and $19 million, respectively. The foreign currency translation adjustment ~~gain~~loss of ~~$27.9~~$9 million induring the three months ended ~~September 30, 2016~~March 31, 2019 was primarily due to the impact of a ~~weakening~~strengthening U.S. dollar against the Euro, ~~Korean Won,~~which increased approximately 2% and ~~Japanese Yen. The first nine months of 2016 foreign currency translation adjustment gain of $41.8~~decreased other comprehensive income by approximately $46 million, ~~was primarily due to~~offset by the impact of ~~the~~a weakening U.S. dollar against ~~the Euro, Korean Won,~~Chinese Renminbi and ~~Japanese Yen, partially offset by a strengthening U.S. dollar against~~ British Pound, which decreased approximately 3% and ~~Chinese Renminbi.~~2% and increased other comprehensive income by $24 million and $6 million, respectively, from December 31, 2018.

Item 4.Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the ~~Securities and Exchange Commission's~~SEC's rules and forms. Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective. There have been no changes in internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1.	Legal Proceedings

The Company is subject to a number of claims and judicial and administrative proceedings (some of which involve substantial amounts) arising out of the Company’s business or relating to matters for which the Company may have a contractual indemnity obligation. ~~See~~Refer to Note ~~14 — Contingencies,~~17, "Contingencies," to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for a discussion of environmental, ~~asbestos-related liability~~an open SEC investigation and other litigation which is incorporated herein by reference.

Item 1A. Risk Factors

During the three months ended March 31, 2020, there have been no material changes from the risk factors disclosed in the Company's Annual Report on the Form 10-K for the year ended December 31, 2019, except as described below:

Other risks

We face risks related to COVID-19/coronavirus pandemic that could adversely affect our business and financial performance.

The COVID-19/coronavirus pandemic has disrupted, and is likely to continue to disrupt, the global automotive industry and customer sales, production volumes, and purchases of light vehicles by end consumers. Global vehicle production has decreased, and some vehicle manufacturers have completely shut down manufacturing operations in some countries and regions, including the United States and Europe. As a result, we have experienced, and are likely to continue to experience, delays in the production and distribution of our products and the loss of sales. If the global economic effects caused by COVID-19/coronavirus continue or increase, overall customer demand may continue to decrease which could have a further adverse effect on our business, results of operations, and financial condition.

Global government directives and initiatives to reduce the transmission of COVID-19/coronavirus, such as the imposition of travel restrictions, closing of borders, stay-at-home directives and closing of entire plants, cities and countries, have materially impacted our operations. Furthermore, COVID-19/coronavirus has impacted and may further impact the broader economies of affected countries, including negatively impacting economic growth, the proper functioning of financial and capital markets, foreign currency exchange rates, and interest rates. For example, the continued spread of COVID-19/coronavirus has led to disruption and volatility in the global capital markets, which adversely impacts access to capital and increases the cost of capital.

Due to the speed with which the situation is developing and the uncertainty of its duration and the timing of recovery, we are not able at this time to predict the extent to which COVID-19/coronavirus pandemic may have an adverse effect on our business, financial condition, and operating results. The extent of the impact of COVID-19/coronavirus on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frames, will depend on future developments, including, but not limited to, the duration and spread of COVID-19/coronavirus, its severity, the actions to contain COVID-19/coronavirus or treat its impact, related restrictions on travel, and the duration, timing and severity of the impact on customer production, including any recession resulting from COVID-19/coronavirus, all of which are uncertain and cannot be predicted. An extended period of global supply chain and economic disruption as a result of COVID-19/coronavirus would have a further material negative impact on our business, results of operations, access to sources of liquidity and financial condition, though the full extent and duration are uncertain.

~~Table of Contents~~


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

~~The~~In January 2020, the Company's Board of Directors authorized the purchase of up to ~~$1.0~~$1 billion of the Company's common stock, ~~over three years and authorized~~which replaced the ~~purchase of up to 79.6 million shares in the aggregate.~~previous share repurchase program. As of ~~September 30, 2017,~~March 31, 2020, the Company had not repurchased ~~69,742,810~~any shares ~~in the aggregate~~ under ~~the Common Stock Repurchase Program.~~this common stock repurchase program. All shares purchased under this authorization ~~have been and~~ will ~~continue to~~ be repurchased in the open market at prevailing prices and at times and in amounts to be determined by management as market conditions and the Company's capital position warrant. The Company may use Rule 10b5-1 and 10b-18 plans to facilitate share repurchases. Repurchased shares will be deemed common stock held in treasury and may subsequently be ~~reissued for general corporate purposes.~~reissued.

Employee transactions include restricted ~~shares~~stock withheld to offset statutory minimum tax withholding that occurs upon vesting of restricted ~~shares.~~stock. The BorgWarner Inc. ~~Amended and Restated 2004~~2014 Stock Incentive Plan, as amended, and the BorgWarner Inc. ~~2014~~2018 Stock Incentive Plan provide that the withholding obligations be settled by the Company retaining stock that is part of the ~~Award.~~award. Withheld shares will be deemed common stock held in treasury and may subsequently be reissued for general corporate purposes.

The following table provides information about the Company's purchases of its equity securities that are registered pursuant to Section 12 of the Exchange Act during the quarter ended ~~September 30, 2017:~~March 31, 2020:

												Issuer Purchases of Equity Securities
Period	Total number of shares purchased	Average price per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs	Total number of shares purchased	Average price per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under plans or programs (in millions)
Month Ended July 31, 2017
Common Stock Repurchase Program	264,258	$	45.41	264,258	9,891,660
Month Ended August 31, 2017
Month Ended January 31, 2020
Common Stock Repurchase Program	34,380	$	45.90	34,380	9,857,280	—	$	—	—	$	1,000
Employee transactions	2,808	$	45.74	—		2,435	$	48.20	—
Month Ended September 30, 2017
Month Ended February 29, 2020
Common Stock Repurchase Program	—	$	—	—	9,857,280	—	$	—	—	$	1,000
Employee transactions	247	$	46.07	—		364,748	$	32.37	—
Month Ended March 31, 2020
Common Stock Repurchase Program						—	$	—	—	$	1,000
Employee transactions						360	$	25.49	—


Item 6.	Exhibits




	Exhibit 2.1		Transaction Agreement, dated January 28, 2020 (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of BorgWarner Inc. filed on January 29, 2020).

	Exhibit 4.1		Fourth Amended and Restated Credit Agreement, dated as of March 13, 2020, among BorgWarner Inc., Bank of America, N.A., as Administrative Agent for the Lenders and as Swingline Lender, and the Lenders party thereto from time to time (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of BorgWarner Inc. filed on March 16, 2020).

	Exhibit 10.1		Form of 2020 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Agreement for Employees.*

	Exhibit 10.2		Form of 2020 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Units Agreement for Non-U.S. Employees.*

	Exhibit 10.3		Form of 2020 BorgWarner Inc. 2018 Stock Incentive Plan Performance Share Award Agreement.*

	Exhibit 31.1		Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer.*

	Exhibit 31.2		Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer.*

	Exhibit 32.1		Section 1350 Certifications.*

	~~Exhibit 101.INS~~		XBRL Instance Document.*

	Exhibit 101.SCH		XBRL Taxonomy Extension Schema Document.*

	Exhibit 101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.*

	Exhibit 101.LAB		XBRL Taxonomy Extension Label Linkbase Document.*

	Exhibit 101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.*

	Exhibit 101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.*

	Exhibit 104.1		The cover page from this Quarterly Report on Form 10-Q, formatted as Inline XBRL.*

*Filed herewith.

~~Table of Contents~~

SIGNATURES

Pursuant to the requirements 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.~~authorized, and the undersigned also has signed this report in his capacity as the Registrant’s Controller (Principal Accounting Officer).




			BorgWarner Inc.

			(Registrant)

	By		/s/ ~~Anthony D. Hensel~~Thomas J. McGill
			(Signature)

			~~Anthony D. Hensel~~Thomas J. McGill

			Vice President and Controller
			(Principal Accounting Officer)

Date: ~~October 26, 2017~~May 6, 2020

4140



	September 30,			December 31,
(in millions)	2017			2016
Raw material and supplies	$	454.0		$	378.6
Work in progress	126.8			102.9
Finished goods	207.4			174.9
FIFO inventories	788.2			656.4
LIFO reserve	(14.8		)	(15.2		)
Inventories, net	$	773.4		$	641.2



			Basis of fair value measurements
(in millions)	Balance at December 31, 2016		Quoted prices in active markets for identical items (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Valuation technique
Assets:
Commodity contracts	$	0.1	$	—	$	0.1	$	—	A
Foreign currency contracts	$	7.2	$	—	$	7.2	$	—	A
Other long-term receivables (insurance settlement agreement note receivable)	$	71.5	$	—	$	71.5	$	—	C
Liabilities:
Foreign currency contracts	$	1.1	$	—	$	1.1	$	—	A



	Commodity derivative contracts
Commodity	Volume hedged September 30, 2017	Volume hedged December 31, 2016	Units of measure	Duration
Copper	49.1	213.8	Metric Tons	Dec -17



		Gain (loss) reclassified from AOCI to income (effective portion)							Gain (loss) recognized in income (ineffective portion)
(in millions)		Three Months Ended							Three Months Ended
Contract Type	Location	September 30, 2017			September 30, 2016			Location	September 30, 2017			September 30, 2016
Foreign currency	Sales	$	1.3		$	0.7		SG&A expense	$	—		$	—
Foreign currency	Cost of goods sold	$	(0.4	)	$	(0.4	)	SG&A expense	$	(0.1	)	$	0.1
Commodity	Cost of goods sold	$	0.1		$	(0.4	)	Cost of goods sold	$	—		$	—



(in millions)		Three Months Ended September 30, 2017				Three Months Ended September 30, 2016
Contract Type	Location	Gain (loss) on swaps		Gain (loss) on borrowings		Gain (loss) on swaps			Gain (loss) on borrowings
Interest rate swap	Interest expense and finance charges	$	—	$	—	$	(2.8	)	$	2.8



(in millions)		Nine Months Ended September 30, 2017				Nine Months Ended September 30, 2016
Contract Type	Location	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	)



	Shares under option (thousands)		Weighted average exercise price		Weighted average remaining contractual life (in years)	Aggregate intrinsic value (in millions)
Outstanding and exercisable at December 31, 2016	473		$	17.47	0.1	$	10.4
Exercised	(473	)	$	17.47
Outstanding and exercisable at September 30, 2017	—




	2017		2016
Beginning Claims January 1	9,385		10,061
New Claims Received	1,597		1,626
Dismissed Claims	(1,273	)	(1,942	)
Settled Claims	(326	)	(256	)
Ending Claims September 30	9,383		9,489



(in millions)
Asbestos Liability as of December 31, 2016	$	879.3
Indemnity and Defense Related Costs	(41.0		)
Asbestos Liability as of September 30, 2017	$	838.3



(millions of dollars)
Receivables, net	$	15.9
Inventories, net	19.0
Other current assets	3.1
Property, plant and equipment, net	7.4
Goodwill	133.6
Other intangible assets	61.1
Deferred tax liabilities	(8.6		)
Income taxes payable	(0.7		)
Other assets and liabilities	(2.7		)
Accounts payable and accrued expenses	(23.3		)
Total consideration, net of cash acquired	204.8

Less: Assumed retirement-related liabilities	19.1
Less: Consideration paid in October 2017	5.1
Cash paid in September 2017, net of cash acquired	$	180.6