UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
QUARTERLY REPORT
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 20222023
OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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) 754-9200
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareBWANew York Stock Exchange
1.00% Senior Notes due 2031BWA31New 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  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).                        Yes   No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting company
Emerging growth company
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. ☐  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No
As of April 29, 2022,28, 2023, the registrant had 239,574,862234,373,353 shares of voting common stock outstanding.



BORGWARNER INC.
FORM 10-Q
THREE MONTHS ENDED MARCH 31, 20222023
INDEX
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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 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 and Estimates” in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 20212022 (“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 under 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 supply disruptions impacting us or our customers, such as the current shortage of semiconductor chips that has impacted original equipment manufacturer (“OEM”) customers and their suppliers, including us; commoditiescommodity availability and pricing;pricing, and an inability to achieve expected levels of recoverability in commercial negotiations with customers concerning these costs; competitive challenges from existing and new competitors including OEM customers; the challenges associated with rapidly-changingrapidly changing technologies, particularly as relates to electric vehicles, and our ability to innovate in response; uncertainties regarding the extent and duration of impacts of matters associated with the COVID-19/coronavirus pandemic, (“COVID-19”), including additional production disruptions; the difficulty in forecasting demand for electric vehicles and our electric vehicles revenue growth; potential disruptions in the global economy caused by Russia’s invasion of Ukraine; the ability to identify targets and consummate acquisitions on acceptable terms; failure to realize the expected benefits of acquisitions on a timely basis includingbasis; our 2021 acquisition of AKASOL AG (“AKASOL”) and our 2020 acquisition of Delphi Technologies PLC (“Delphi Technologies”); the ability to identify appropriate combustion portfolio businesses for dispositioneffect the intended tax-free spin-off of our Fuel Systems and consummate planned dispositionsAftermarket segments into a separate, publicly traded company on acceptable terms;a timely basis or at all; the potential that uncertainty during the pendency of the spin-off transaction could affect our financial performance; the possibility that the spin-off transaction will not achieve its intended benefits; the failure to promptly and effectively integrate acquired businesses; the potential for unknown or inestimable liabilities relating to the acquired businesses; our dependence on automotive and truck production, both of which are highly cyclical and subject to disruptions; our reliance on major OEM customers; fluctuations in interest rates and foreign currency exchange rates; 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;claims, or governmental investigations, including related litigation; future changes in laws and regulations, including, by way of example, taxes and tariffs, in the countries in which we operate; impacts from any potential future acquisition or disposition transactions; and the other risks, 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. 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


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any change in our expectations or any change in events, conditions, circumstances, or assumptions underlying the statements.



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This section and the discussions contained in Item 1A, “Risk Factors,” and in Item 7, subheading “Critical Accounting Policies and Estimates” 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. We believe that 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. Our 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.



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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions)(in millions)March 31,
2022
December 31,
2021
(in millions)March 31,
2023
December 31,
2022
ASSETSASSETSASSETS
Cash and cash equivalents$1,501 $1,841 
Restricted cash
Cash, cash equivalents and restricted cashCash, cash equivalents and restricted cash$950 $1,338 
Receivables, netReceivables, net3,166 2,898 Receivables, net3,566 3,323 
Inventories, netInventories, net1,644 1,534 Inventories, net1,800 1,687 
Prepayments and other current assetsPrepayments and other current assets326 321 Prepayments and other current assets291 269 
Total current assetsTotal current assets6,640 6,597 Total current assets6,607 6,617 
Property, plant and equipment, netProperty, plant and equipment, net4,337 4,395 Property, plant and equipment, net4,463 4,365 
Investments and long-term receivablesInvestments and long-term receivables473 530 Investments and long-term receivables895 896 
GoodwillGoodwill3,388 3,279 Goodwill3,420 3,397 
Other intangible assets, netOther intangible assets, net1,147 1,091 Other intangible assets, net1,033 1,051 
Other non-current assetsOther non-current assets693 683 Other non-current assets699 668 
Total assetsTotal assets$16,678 $16,575 Total assets$17,117 $16,994 
LIABILITIES AND EQUITYLIABILITIES AND EQUITYLIABILITIES AND EQUITY
Notes payable and other short-term debtNotes payable and other short-term debt$64 $66 Notes payable and other short-term debt$62 $62 
Accounts payableAccounts payable2,465 2,276 Accounts payable2,676 2,684 
Other current liabilitiesOther current liabilities1,330 1,456 Other current liabilities1,410 1,490 
Total current liabilitiesTotal current liabilities3,859 3,798 Total current liabilities4,148 4,236 
Long-term debtLong-term debt4,223 4,261 Long-term debt4,175 4,166 
Retirement-related liabilitiesRetirement-related liabilities270 290 Retirement-related liabilities223 223 
Other non-current liabilitiesOther non-current liabilities988 964 Other non-current liabilities892 861 
Total liabilitiesTotal liabilities9,340 9,313 Total liabilities9,438 9,486 
Commitments and contingenciesCommitments and contingencies00Commitments and contingencies
Common stockCommon stockCommon stock
Capital in excess of par valueCapital in excess of par value2,617 2,637 Capital in excess of par value2,661 2,675 
Retained earningsRetained earnings6,830 6,671 Retained earnings7,632 7,454 
Accumulated other comprehensive lossAccumulated other comprehensive loss(564)(551)Accumulated other comprehensive loss(824)(876)
Common stock held in treasury, at costCommon stock held in treasury, at cost(1,836)(1,812)Common stock held in treasury, at cost(2,031)(2,032)
Total BorgWarner Inc. stockholders’ equityTotal BorgWarner Inc. stockholders’ equity7,050 6,948 Total BorgWarner Inc. stockholders’ equity7,441 7,224 
Noncontrolling interestNoncontrolling interest288 314 Noncontrolling interest238 284 
Total equityTotal equity7,338 7,262 Total equity7,679 7,508 
Total liabilities and equityTotal liabilities and equity$16,678 $16,575 Total liabilities and equity$17,117 $16,994 

See accompanying Notes to Condensed Consolidated Financial Statements.
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BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31,Three Months Ended March 31,
(in millions, except per share amounts)(in millions, except per share amounts)2022 2021(in millions, except per share amounts)2023 2022
Net salesNet sales$3,874 $4,009 Net sales$4,180 $3,874 
Cost of salesCost of sales3,124 3,191 Cost of sales3,430 3,124 
Gross profitGross profit750 818 Gross profit750 750 
Selling, general and administrative expensesSelling, general and administrative expenses388 377 Selling, general and administrative expenses384 388 
Restructuring expenseRestructuring expense15 30 Restructuring expense15 
Other operating (income) expense, net(5)
Other operating expense (income), netOther operating expense (income), net19 (5)
Operating incomeOperating income352 403 Operating income340 352 
Equity in affiliates’ earnings, net of taxEquity in affiliates’ earnings, net of tax(8)(12)Equity in affiliates’ earnings, net of tax(4)(8)
Unrealized loss on equity securities39 272 
Unrealized loss on debt and equity securitiesUnrealized loss on debt and equity securities15 39 
Interest expense, netInterest expense, net15 18 Interest expense, net10 15 
Other postretirement income(9)(11)
Other postretirement expense (income)Other postretirement expense (income)(9)
Earnings before income taxes and noncontrolling interestEarnings before income taxes and noncontrolling interest315 136 Earnings before income taxes and noncontrolling interest317 315 
Provision for income taxesProvision for income taxes91 42 Provision for income taxes87 91 
Net earningsNet earnings224 94 Net earnings230 224 
Net earnings attributable to noncontrolling interest, net of taxNet earnings attributable to noncontrolling interest, net of tax24 29 Net earnings attributable to noncontrolling interest, net of tax13 24 
Net earnings attributable to BorgWarner Inc. Net earnings attributable to BorgWarner Inc. $200 $65 Net earnings attributable to BorgWarner Inc. $217 $200 
Earnings per share attributable to BorgWarner Inc. — basicEarnings per share attributable to BorgWarner Inc. — basic$0.84 $0.27 Earnings per share attributable to BorgWarner Inc. — basic$0.93 $0.84 
Earnings per share attributable to BorgWarner Inc. — dilutedEarnings per share attributable to BorgWarner Inc. — diluted$0.84 $0.27 Earnings per share attributable to BorgWarner Inc. — diluted$0.93 $0.84 
Weighted average shares outstanding:Weighted average shares outstanding: Weighted average shares outstanding: 
BasicBasic238.2 237.7 Basic232.8 238.2 
DilutedDiluted239.0 238.4 Diluted234.4 239.0 

See accompanying Notes to Condensed Consolidated Financial Statements.
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BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended March 31,Three Months Ended March 31,
(in millions)(in millions)20222021(in millions)20232022
Net earnings attributable to BorgWarner Inc. Net earnings attributable to BorgWarner Inc. $200 $65 Net earnings attributable to BorgWarner Inc. $217 $200 
Other comprehensive income (loss)Other comprehensive income (loss)Other comprehensive income (loss)
Foreign currency translation adjustments*Foreign currency translation adjustments*(18)(87)Foreign currency translation adjustments*39 (18)
Hedge instruments*Hedge instruments*— (6)Hedge instruments*14 — 
Defined benefit postretirement plans*Defined benefit postretirement plans*Defined benefit postretirement plans*(1)
Total other comprehensive loss attributable to BorgWarner Inc.(13)(85)
Total other comprehensive income (loss) attributable to BorgWarner Inc.Total other comprehensive income (loss) attributable to BorgWarner Inc.52 (13)
Comprehensive income (loss) attributable to BorgWarner Inc.*187 (20)
Comprehensive income attributable to BorgWarner Inc.*Comprehensive income attributable to BorgWarner Inc.*269 187 
Net earnings attributable to noncontrolling interest, net of taxNet earnings attributable to noncontrolling interest, net of tax24 29 Net earnings attributable to noncontrolling interest, net of tax13 24 
Other comprehensive loss attributable to noncontrolling interest*Other comprehensive loss attributable to noncontrolling interest*(1)(5)Other comprehensive loss attributable to noncontrolling interest*(1)(1)
Comprehensive incomeComprehensive income$210 $Comprehensive income$281 $210 

*    Net of income taxes.

See accompanying Notes to Condensed Consolidated Financial Statements.

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BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31,Three Months Ended March 31,
(in millions)(in millions)20222021(in millions)20232022
OPERATINGOPERATINGOPERATING
Net cash provided by operating activities (see Note 23)$116 $342 
Net cash (used in) provided by operating activities (see Note 23)Net cash (used in) provided by operating activities (see Note 23)$(12)$116 
INVESTINGINVESTING INVESTING 
Capital expenditures, including tooling outlaysCapital expenditures, including tooling outlays(177)(195)Capital expenditures, including tooling outlays(278)(177)
Capital expenditures for damage to property, plant and equipment— (2)
Payments for businesses acquired, net of cash acquiredPayments for businesses acquired, net of cash acquired(157)— Payments for businesses acquired, net of cash acquired(19)(157)
Proceeds from settlement of net investment hedges, netProceeds from settlement of net investment hedges, net12 11 Proceeds from settlement of net investment hedges, net13 12 
Proceeds from (payments for) investments in equity securities30 (2)
Proceeds from investments in debt and equity securities, netProceeds from investments in debt and equity securities, net— 30 
Proceeds from the sale of business, netProceeds from the sale of business, net25 — Proceeds from the sale of business, net— 25 
Proceeds from asset disposals and other, netProceeds from asset disposals and other, net13 Proceeds from asset disposals and other, net13 
Net cash used in investing activitiesNet cash used in investing activities(254)(185)Net cash used in investing activities(282)(254)
FINANCINGFINANCING FINANCING 
Net increase in notes payable— 
Additions to debtAdditions to debt— 22 Additions to debt— 
Payments for debt issuance costs— (1)
Repayments of debt, including current portionRepayments of debt, including current portion(2)(26)Repayments of debt, including current portion(2)(2)
Payments for purchase of treasury stockPayments for purchase of treasury stock(40)— Payments for purchase of treasury stock— (40)
Payments for stock-based compensation itemsPayments for stock-based compensation items(17)(13)Payments for stock-based compensation items(25)(17)
Purchase of noncontrolling interestPurchase of noncontrolling interest(59)— Purchase of noncontrolling interest— (59)
Dividends paid to BorgWarner stockholdersDividends paid to BorgWarner stockholders(41)(40)Dividends paid to BorgWarner stockholders(39)(41)
Dividends paid to noncontrolling stockholdersDividends paid to noncontrolling stockholders(36)— Dividends paid to noncontrolling stockholders(25)(36)
Net cash used in financing activitiesNet cash used in financing activities(195)(51)Net cash used in financing activities(90)(195)
Effect of exchange rate changes on cashEffect of exchange rate changes on cash(7)(1)Effect of exchange rate changes on cash(4)(7)
Net (decrease) increase in cash, cash equivalents and restricted cash(340)105 
Net decrease in cash, cash equivalents and restricted cashNet decrease in cash, cash equivalents and restricted cash(388)(340)
Cash, cash equivalents and restricted cash at beginning of yearCash, cash equivalents and restricted cash at beginning of year1,844 1,650 Cash, cash equivalents and restricted cash at beginning of year1,338 1,844 
Cash, cash equivalents and restricted cash at end of periodCash, cash equivalents and restricted cash at end of period$1,504 $1,755 Cash, cash equivalents and restricted cash at end of period$950 $1,504 

See accompanying Notes to Condensed Consolidated Financial Statements.
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BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 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. Certain prior period amounts have been reclassified to conform to the current period presentation. Operating results for the three months ended March 31, 20222023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.2023. The balance sheet as of December 31, 20212022 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, 2021.2022.

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.

COVID-19 PandemicOn December 6, 2022, the Company announced its intention to execute a tax-free spin-off of the Fuel Systems and Other Supply Disruptions

Industry production levels were challenged during 2021 primarilyAftermarket segments into a separate, publicly traded company. The intended separation of its Fuel Systems and Aftermarket segments would support optimizing the Company’s combustion portfolio and advancing its electrification journey, while at the same time creating a new, focused company that would be able to pursue growth opportunities in alternative fuels, such as a result of COVID-19 related constrained supply of components, particularly semiconductor chips.hydrogen, and in Aftermarket. The Company expects production levels to modestly increase during 2022, however these improvements could be partially offsetcomplete the transaction by various global disruptions, including but not limitedthe end of the third quarter of 2023, subject to input cost inflation, supply chain shutdowns, a potential more widespread resurgencesatisfaction of COVID-19 and impacts from Russia’s invasion of Ukraine.customary conditions.


NOTE 2 NEW ACCOUNTING PRONOUNCEMENTS

In November 2021, the FASB issued ASU No. 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance.” It is expected to increase transparency in financial reporting by requiring business entities to disclose information about certain types of government assistance they receive. The amendments require the following annual disclosures about transactions with a government: (i) information about the nature of the transactions and the related accounting policy used to account for the transactions; (ii) the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item; and (iii) significant terms and conditions of the transactions, including commitments and contingencies. This guidance was effective for annual reporting periods beginning after December 15, 2021. The Company adopted this guidance prospectively as of January 1, 2022, and there was no impact on these Condensed Consolidated Financial Statements; however, the Company will include the annual disclosures as required in its Annual Report on Form 10-K for the year ended December 31, 2022.

In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” It requires entities to apply ASC Topic 606, “Revenue from Contracts with Customers,” to recognize and measure contract assets and contract liabilities in a business combination.
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The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. This guidance is effective for interim and annual reporting periods beginning after December 15, 2022. The Company does not expectadopted this guidance to have a materialprospectively as of January 1, 2023, and there was no impact on itsthe Condensed Consolidated Financial Statements.


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NOTE 3 ACQUISITIONS

In accordance with ASC Topic 805, “Business Combinations,” acquisitions are recorded using the acquisition method of accounting. The Company recognizes and measures the acquisition date fair value of the identifiable assets acquired, liabilities assumed, and any non-controlling interest using a range aof methodologies as indicated by generally accepted valuation practices. Various valuation techniques are used to determine the fair value of intangible assets, with the primary techniques being forms of the income approach, specifically the relief-from-royalty and multi-period excess earnings valuation methods. Under these valuation approaches, the Company is required to make estimates and assumptions from a market participant perspective and may include revenue growth rates, estimated earnings, royalty rates, obsolescence factors, contributory asset charges, customer attrition and discount rates.

Santroll Automotive ComponentsDue to the insignificant size of the 2023 and 2022 acquisitions, both individually and in the aggregate, relative to the Company, supplemental pro forma financial information for the current and prior reporting periods is not provided.

Hubei Surpass Sun Electric Charging Business

On March 31, 2022,1, 2023, the Company completed its acquisition of 100% of Santroll Automotive Componentsthe electric vehicle solution, smart grid and smart energy businesses (“Santroll”SSE”), a carve-out of SantrollHubei Surpass Sun Electric, Auto’s eMotor business, pursuant to the terms of an Equity Transfer Agreement (“ETA”).Agreement. The acquisition complements the Company’s existing European and North American charging footprint by adding a presence in China. The total consideration is $212¥288 million ($42 million), including approximately ¥1.1 billion¥268 million ($17239 million) of base purchase price and ¥0.25 billion¥20 million ($403 million) of estimated earn-out payments. The Company paid $157¥129 million ($19 million) of base purchase price in the three months ended March 31, 2022. The2023. Of the remaining $15¥139 million ($20 million) of base purchase price, ¥119 million ($17 million) is payable in May 2022by June 30, 2023 and is recorded in Other current liabilities in the Company’s Condensed Consolidated Balance Sheet as of March 31, 2022. Pursuant to the ETA, the obligation of the Company to remit up to ¥0.3 billion (approximately $472023. The remaining ¥20 million ($3 million) of earn-out paymentsbase purchase price is contingent upon achievement of certain sales volume targets and certain estimated future volume targets associated with newly awarded business. As ofpayable before March 31, 2022, the Company’s current estimate of the earn-out payments2025 and is approximately $40 million, of which $16 million is recorded in Other current liabilities and $24 million in Other non-current liabilities in the Company’s Condensed Consolidated Balance Sheet. The acquisition is expectedSheet as of March 31, 2023. Pursuant to strengthenthe agreement, the Company’s vertical integration, scaleobligation to remit up to ¥103 million ($15 million) of earn-out payments is contingent upon the achievement of certain revenue and portfolio breadthpre-tax profit margin targets in light vehicle eMotors while allowing for increased speed to market.2023 and 2024 as well as the retention of key employees during the same time period. As of March 31, 2023, the Company’s estimate of the earn-out payments was approximately ¥20 million ($3 million), of which half is recorded in Other current liabilities and half is recorded in Other non-current liabilities in the Company’s Condensed Consolidated Balance Sheet.

The purchase price was allocated on a provisional basis as of March 1, 2023. Assets acquired and
liabilities assumed were recorded at estimated fair values based on management’s estimates, available
information, and supportable assumptions that management considered reasonable. Certain estimated
values for the acquisition, including goodwill, tangible, and intangible assets and deferred taxes, are not
yet finalized, and the provisional purchase price allocations are subject to change as the Company
completes its analysis of the fair value at the date of acquisition. The final valuation of assets acquired
and liabilities assumed may be materially different than the estimated values shown below.

The estimated fair values of assets acquired and liabilities assumed as of March 1, 2023 were assets of $50 million, including goodwill and intangibles of $12 million, and liabilities of $8 million.

Any excess of the purchase price over the estimated fair value of net assets was recognized as goodwill.
Goodwill of $8 million was recorded within the Company’s Air Management segment. The goodwill
consists of the Company’s expected future economic benefits that will be realized from expanding the
Company’s electric vehicle portfolio as electric vehicle production continues to increase. The goodwill is
not expected to be deductible for tax purposes in China.

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In connection with the acquisition, the Company preliminarily recorded $4 million for intangible assets, primarily for customer relationships and developed technology. The provisional fair values of goodwill and identifiable intangible assets were valued using the market approach.

The impact of the SSE acquisition on net sales and net earnings was immaterial for the three months ended March 31, 2023.

Drivetek AG

On December 1, 2022, the Company completed its acquisition of 100% of Drivetek AG (“Drivetek”), an engineering and product development company located in Switzerland. This acquisition strengthens the Company’s power electronics capabilities in auxiliary inverters, which the Company expects will accelerate the growth of its High Voltage eFan business. The Company paid ₣27 million ($29 million) at closing, and up to ₣10 million ($10 million) could be paid in the form of contingent earn-out payments over the three years following closing. The earn-out payments are contingent upon achievement of estimated future sales targets associated with newly awarded business and future turnover rate targets. As of March 31, 2023, the Company’s estimate of the earn-out payments was approximately ₣10 million ($11 million), which is recorded in Other non-current liabilities in the Company’s Condensed Consolidated Balance Sheet.

The purchase price was allocated on a preliminary basis as of December 1, 2022. Assets acquired and liabilities assumed were recorded at estimated fair values based on management’s preliminary estimates, available information, and supportable assumptions that management considered reasonable. Certain estimated values for the acquisition, including goodwill, tangible and intangible assets and deferred taxes, are not yet finalized, and the provisionalpreliminary purchase price allocations are subject to change as the Company completes its analysis of the fair value at the date of acquisition. The final valuation of assets acquired and liabilities assumed may be materially different from the estimated values shown below.

The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of March 31,December 1, 2022 the acquisition date:were assets
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(in millions)Initial Allocation
ASSETS
Receivables, net$
Inventories, net
Property, plant and equipment, net
Goodwill132 
Other intangible assets, net87 
Total assets acquired236 
LIABILITIES
Accounts payable
Other non-current liabilities22 
Total liabilities assumed24 
Net assets acquired$212 
$49 million, including goodwill and intangibles of $40 million, and liabilities of $10 million.

Any excess of the purchase price over the estimated fair value of net assets was recognized as goodwill. Goodwill of $132$22 million was recorded within the Company’s e-Propulsion & DrivetrainAir Management segment. The goodwill consists of the Company’s expected future economic benefits that will arisebe realized from future product sales andexpanding the added capabilities from vertical integration of eMotors.Company’s electric vehicle portfolio as electric vehicle production continues to increase. The goodwill is not expected to be deductible for tax purposes.purposes in Switzerland.

In connection withThe following table summarizes the acquisition, the Company preliminarily recorded $87 million forother intangible assets primarily for customeracquired:
(in millions)Estimated LifeEstimated Fair Value
Developed technology8 years$11 
Customer relationships12 years
Total other intangible assets$18 

Goodwill and manufacturing processes (know-how). As described above, various valuation techniquesidentifiable intangible assets were used to determinevalued using the provisional fair value of intangible assets. Management used a third-party valuation firm to assist in the determination of the provisional purchase accounting fair values; however, management ultimately oversees the third-party valuation firm to ensure that the transaction-specific assumptions are appropriate for the Company.market approach.

The impact of the SantrollDrivetek acquisition on net sales and net earnings was immaterial for the three months ended March 31, 2022. Due to2023.

Rhombus Energy Solutions

On July 29, 2022, the Company completed its insignificant size relativeacquisition of 100% of Rhombus Energy Solutions (“Rhombus”), a provider of charging solutions in the North American market, pursuant to the Company, supplemental pro forma financial informationterms of the combined entity for the current and prior reporting periods is not provided.an
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AKASOL AGAgreement and Plan of Merger (the “Agreement”). The acquisition complements the Company’s existing European charging footprint to accelerate organic growth and adds North American regional presence to its charging business.

On June 4, 2021, the Company completed its voluntary public takeover offer for shares of AKASOL AG (“AKASOL”), resulting in ownership of 89% of AKASOL’s outstanding shares. The Company paid approximately €648$131 million ($788 million)at closing. Pursuant to settle the offer from current cash balances, which included proceeds received from its public offering of 1.00% Senior Notes due 2031 completed on May 19, 2021. Following the settlement of the offer, AKASOL became a consolidated majority-owned subsidiary of the Company. Upon that settlement,Agreement, the Company also consolidated approximately €64is obligated to remit up to $30 million ($77 million) of earn-out payments, payable in 2025, contingent upon achievement of certain sales dollars, sales volume, and gross debt of AKASOL. Subsequent tomargin targets. The Company’s current estimates indicate that the completion of the voluntary public takeover offer, the Company purchased additional shares of AKASOLminimum thresholds for €28 million ($33 million) increasing its ownership to 93% as of December 31, 2021. The acquisition further strengthens BorgWarner’s commercial vehicle and industrial electrification capabilities, which positions the Company to capitalize on what it believes tothese earn-out targets will not be a fast-growing battery module and pack market.

On August 2, 2021, the Company initiated a merger squeeze-out process under German lawachieved; thus, no amount for the purpose of acquiring 100% of AKASOL. On December 17, 2021, the shareholders of AKASOL voted to mandatorily transfer to ABBA BidCo. AG, a wholly owned indirect subsidiary of the Company, each issued and outstanding share of AKASOL held by shareholders that did not tender their sharesearn-out payments has been included in the Company’s previously completed exchange offer for AKASOL shares (the “Squeeze Out”). In exchange for the AKASOL shares transferred in the Squeeze Out, the Company paid appropriate cash compensation, in the amount of €119.16 per share, which was determined after an assessment by a third-party valuation firm, the adequacy of which was examined by an independent, court-appointed auditor. At December 31, 2021, the noncontrolling interest in AKASOL of approximately €51 million ($58 million) to be acquired through the Squeeze Out was reclassified to Other current liabilitiespurchase consideration or in the Company’s Condensed Consolidated Balance Sheet as it was deemed mandatorily redeemable. No shareholder objections were filed duringSheet. Additionally, pursuant to the statutory contestation period, and on February 10, 2022,Agreement, the Company completedis obligated to remit up to $25 million over the registration of the Squeeze Out resultingthree years following closing in 100% ownership.key employee retention-related payments, which include certain performance targets. The Company settled the Squeeze Out with AKASOL minority shareholders in the first quarter of 2022.amounts will be accounted for as post-combination expense.

The purchase price was allocated on a preliminary basis as of June 4, 2021.July 29, 2022. Assets acquired and liabilities assumed were recorded at estimated fair values based on management’s estimates, available information, and supportable assumptions that management considered reasonable. Certain estimated values for the acquisition, including goodwill and deferred taxes, are not yet finalized, and the preliminary purchase price allocations are subject to change as the Company completes its analysis of the fair value at the date of acquisition. The final valuation of assets acquired and liabilities assumed may be materially different from the preliminary estimated values shown below.

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The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of June 4, 2021, the acquisition date:
(in millions)Initial AllocationMeasurement Period AdjustmentsRevised Allocation
ASSETS
Cash and cash equivalents (including restricted cash of $16 million)$29 $— $29 
Receivables, net16 — 16 
Inventories, net42 (2)40 
Prepayments and other current assets— 
Property, plant and equipment, net106 (3)103 
Goodwill707 (3)704 
Other intangible assets, net130 — 130 
Other non-current assets— 
Total assets acquired1,035 (1)1,034 
LIABILITIES
Notes payable and other short-term debt— 
Accounts payable22 — 22 
Other current liabilities13 19 
Long-term debt69 — 69 
Other non-current liabilities39 (7)32 
Total liabilities assumed151 (1)150 
Noncontrolling interest96 — 96 
Net assets and noncontrolling interest acquired$788 $— $788 
values.

Any excess of the purchase price over the estimated fair value of net assets was recognized as goodwill. Goodwill of $704$104 million including the impact of measurement period adjustments, was recorded within the Company’s Air Management segment. The goodwill consists of the Company’s expected future economic benefits that will arisebe realized from acquiring this business, which is established in making next-generation products forexpanding the Company’s electric vehicles and the potential development and deployment of future technologies, across a global customer base, in this market and across adjacent industries.vehicle portfolio as electric vehicle production continues to increase. The goodwill is not expected to be deductible for tax purposes.

The following table summarizes the other intangible assets acquired:
(in millions)Estimated LifeEstimated Fair Value
Amortized intangible assets:
Developed technology513 years$7022 
Customer relationships118 years25 
Total amortized intangible assets95 
Unamortized trade nameIndefinite355 
Total other intangible assets$13027 

The property, plant and equipment acquired were valued using a combination of cost and market approaches. Goodwill and identifiable intangible assets were valued using the income approach. Noncontrolling interests were valued using a market approach. Management used a third-party valuation firm to assist in the determination of the preliminary purchase accounting fair values; however, management ultimately oversees the third-party valuation firm to ensure that the transaction-specific assumptions are appropriate for the Company.

The impact of the Rhombus acquisition on net sales and net earnings was immaterial for the three months ended March 31, 2023.

Santroll Automotive Components

On March 31, 2022, the Company completed its acquisition of 100% of Santroll Automotive Components (“Santroll”), a carve-out of Santroll Electric Auto’s eMotor business, pursuant to the terms of an Equity Transfer Agreement (“ETA”). The acquisition is expected to strengthen the Company’s vertical integration, scale and portfolio breadth in light vehicle eMotors while allowing for increased speed to market.

The total final consideration was $192 million, including approximately ¥1.0 billion ($152 million) of base purchase price and ¥0.25 billion ($40 million) of originally estimated earn-out payments. The Company paid approximately ¥1.0 billion ($157 million) of base purchase price in the year ended December 31, 2022 and expects to recapture approximately $5 million of post-closing adjustments through a reduction of the second earn-out payment. Pursuant to the ETA, the obligation of the Company to remit up to ¥0.3 billion (approximately $47 million) of earn-out payments is contingent upon achievement of certain sales
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Duevolume targets and certain estimated future volume targets associated with newly awarded business. As of March 31, 2023, the Company’s estimate of the earn-out payments was approximately ¥0.2 billion ($24 million), or $19 million net of the post-closing adjustments noted above. This liability is recorded in Other current liabilities in the Company’s Condensed Consolidated Balance Sheet.

The Company finalized its valuation of the assets and liabilities of the Santroll acquisition during the first quarter of 2023. Any excess of the purchase price over the estimated fair value of net assets was recognized as goodwill. Goodwill of $112 million was recorded within the Company’s ePropulsion segment. The goodwill consists of the Company’s expected future economic benefits that will arise from future product sales and the added capabilities from vertical integration of eMotors. The goodwill is not expected to its insignificant size relative tobe deductible for tax purposes in China.

The following table summarizes the other intangible assets acquired:
(in millions)Estimated LifeEstimated Fair Value
Customer relationships12 years$62 
Manufacturing processes (know-how)10 years25 
Total other intangible assets$87 

Goodwill and identifiable intangible assets were valued using the income approach.

The impact of the Santroll acquisition on net sales and net earnings was immaterial for the three months ended March 31, 2023.

AKASOL AG

On June 4, 2021, the Company supplemental pro forma financial informationcompleted its voluntary public takeover offer for shares of AKASOL AG (“AKASOL”), resulting in ownership of 89% of AKASOL’s outstanding shares. The Company paid approximately €648 million ($788 million) to settle the offer. During 2021, the Company increased its ownership to 93% through the subsequent purchase of additional shares. At December 31, 2021, the noncontrolling interest in AKASOL was approximately €51 million ($58 million), which was to be acquired through a merger squeeze-out process (the “Squeeze Out”). On February 10, 2022, the Company completed the registration of the combined entity forSqueeze Out resulting in 100% ownership. The Company settled the current and prior reporting periods is not provided.Squeeze Out with AKASOL minority shareholders in the first quarter of 2022.

Romeo Power, Inc.

In May 2019, the Company invested $50 million in exchange for a 20% equity interest in Romeo Systems, Inc., now known as Romeo Power, Inc., (“Romeo”) a technology-leading battery module and pack supplier that was then privately held. On December 29, 2020, through the business combination of Romeo Systems, Inc. and special purpose acquisition company RMG Acquisition Corporation, a new entity, Romeo Power, Inc., became a publicly listed company. The Company’s ownership in Romeo was reduced to 14%, and the investment was recorded at fair value on an ongoing basis with changes in fair value being recognized in Unrealized loss (gain) on debt and equity securities in the Condensed Consolidated Statements of Operations. During the three months ended March 31, 2021, the Company recorded a loss of $272 million, to adjust the carrying value of the Company’s investment to fair value. As of December 31, 2021, the investment’s fair value was $70 million, which is reflected in Investments and long-term receivables in the Company’s Condensed Consolidated Balance Sheet. During the three months ended March 31, 2022, the Company recorded a loss of $39 million and liquidated its investment in Romeo shares at a fair value of $31 million. As of March 31,17, 2022, the Company no longer holdsheld any investment in Romeo.

In September 2019, the Company and Romeo contributed total equity of $10 million and formed a new joint venture, BorgWarner Romeo Power LLC (“Romeo JV”), in which the Company owned a 60% interest. Romeo JV was a variable interest entity focusing on producing battery module and pack technology. The Company was the primary beneficiary of Romeo JV and had consolidated Romeo JV in its consolidated financial statements. On October 25, 2021, the Company delivered written notice to
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Romeo that the Company was electing to exercise its right to put its ownership stake in Romeo JV to Romeo. Based on an independent appraisal, the Company’s interest in Romeo JV was valued at $30 million. In February 2022, the Company completed the sale of its 60% interest in Romeo JV for $29 million, which was the fair value of $30 million reduced by a 5% discount pursuant to the joint venture agreement. During the three months ended March 31, 2022, the Company recorded a gain of $24 million in Other operating expense (income) expense,, net, which represented the difference between the Company’s book value of its interest in Romeo JV compared to the fair value of consideration received. As a result of the sale, the Company has no further rights in or involvement with Romeo JV.


NOTE 4 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 and off-highway vehicles, to certain Tier Onetier one vehicle systems suppliers and into the aftermarket. The Company’s payment terms are based on customary business practices and vary by customer type and products offered. We haveThe Company evaluated the terms of ourits arrangements and determined that they do not contain significant financing components.
Generally, revenue is recognized upon shipment or delivery; however, a limited number of the Company’s customer arrangements for its 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 $19$14 million and $17$16 million at March 31, 20222023 and December 31, 2021,2022, respectively, for these arrangements. These amounts are reflected in Prepayments and other current assets in the Company’s Condensed Consolidated Balance Sheets.
In limited instances, certain customers have provided payments in advance of receiving related products, typically at the onset of an arrangement prior to the beginning of production. These contract liabilities are reflected as Other current liabilities and Other non-current liabilities in the Condensed Consolidated
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Balance Sheets and were $22 million and less than $1$12 million at March 31, 20222023 and $21 million and $1$16 million at December 31, 2021, respectively.2022. These amounts are reflected as revenue over the term of the arrangement (typically 3 to 7 years) as the underlying products are shipped and represent the Company’s remaining performance obligations as of the end of the period.
The Company continually seeks business development opportunities and at times provides customer incentives for new program awards. 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. As of March 31, 20222023 and December 31, 2021,2022, the Company recorded customer incentive payments of $37$34 million and $36 million, respectively, in Prepayments and other current assets, and $127$90 million and $137$99 million, respectively, in Other non-current assets in the Condensed Consolidated Balance Sheets.
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The following tables represent a disaggregation of revenue from contracts with customers by reporting segment and region. The balances for the three months ended March 31, 2022 have been recast for a change in reporting segments that was made during the three months ended March 31, 2023. Refer to Note 22, “Reporting Segments And Related Information,” to the Condensed Consolidated Financial Statements for more information.

Three Months Ended March 31, 2022Three Months Ended March 31, 2023
(in millions)(in millions)Air Managemente-Propulsion & DrivetrainFuel InjectionAftermarketTotal(in millions)Air ManagementDrivetrain & Battery SystemsFuel SystemsePropulsionAftermarketTotal
North AmericaNorth America$529 $522 $45 $75 $1,171 North America$520 $371 $152 $128 $171 $1,342 
EuropeEurope796 240 223 99 1,358 Europe890 300 227 60 112 1,589 
AsiaAsia526 575 144 14 1,259 Asia491 283 117 251 16 1,158 
OtherOther44 18 15 86 Other52 11 — 27 91 
TotalTotal$1,895 $1,346 $430 $203 $3,874 Total$1,953 $955 $507 $439 $326 $4,180 
Three Months Ended March 31, 2021Three Months Ended March 31, 2022
(in millions)(in millions)Air Managemente-Propulsion & DrivetrainFuel InjectionAftermarketTotal(in millions)Air ManagementDrivetrain & Battery SystemsFuel SystemsePropulsionAftermarketTotal
North AmericaNorth America$532 $535 $$67 $1,137 North America$459 $306 $116 $123 $168 $1,172 
EuropeEurope833 276 271 102 1,482 Europe733 234 241 50 99 1,357 
AsiaAsia572 602 137 13 1,324 Asia516 355 154 221 13 1,259 
OtherOther31 15 14 66 Other44 — 18 — 24 86 
TotalTotal$1,968 $1,419 $426 $196 $4,009 Total$1,752 $895 $529 $394 $304 $3,874 


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NOTE 5 RESTRUCTURING

The Company’s restructuring activities are undertaken, as necessary, to execute management’s strategy and streamline operations, consolidate and take advantage of available capacity and resources, and ultimately achieve net cost reductions. Restructuring activities include efforts to integrate and rationalize the Company’s business and to relocate operations to best costbest-cost locations.

The Company’s restructuring expenses consist primarily of employee termination benefits (principally severance and/or termination benefits) and other costs, which are primarily professional fees and costs related to facility closures and exits. The balances for the three months ended March 31, 2022 have been recast for a change in reporting segments that was made during the three months ended March 31, 2023. Refer to Note 22, “Reporting Segments And Related Information,” to the Condensed Consolidated Financial Statements for more information.
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Three Months Ended March 31, 2022Three Months Ended March 31, 2023
(in millions)(in millions)Air Managemente-Propulsion & DrivetrainFuel InjectionCorporateTotal(in millions)Air ManagementDrivetrain & Battery SystemsFuel SystemsePropulsionCorporateTotal
Employee termination benefitsEmployee termination benefits$$— $$— $Employee termination benefits$$— $$— $— $
OtherOther— — — Other— — — — 
Total restructuring expenseTotal restructuring expense$$$$— $15 Total restructuring expense$$— $$— $— $
Three Months Ended March 31, 2021Three Months Ended March 31, 2022
(in millions)(in millions)Air Managemente-Propulsion & DrivetrainFuel InjectionCorporateTotal(in millions)Air ManagementDrivetrain & Battery SystemsFuel SystemsePropulsionCorporateTotal
Employee termination benefitsEmployee termination benefits$14 $$$— $21 Employee termination benefits$$— $$— $— $
OtherOther— — Other— — — — 
Total restructuring expenseTotal restructuring expense$17 $10 $$— $30 Total restructuring expense$$$$— $— $15 

The following tables display a rollforward of the restructuring liability recorded within the Company’s Condensed Consolidated Balance Sheets and the related cash flow activity:

(in millions)(in millions)Employee Termination BenefitsOtherTotal
Balance at January 1, 2023Balance at January 1, 2023$59 $$68 
Restructuring expense, netRestructuring expense, net
Cash paymentsCash payments(21)(2)(23)
Foreign currency translation adjustment and otherForeign currency translation adjustment and other— — — 
Balance at March 31, 2023Balance at March 31, 202344 52 
Less: Non-current restructuring liabilityLess: Non-current restructuring liability10 — 10 
Current restructuring liability at March 31, 2023Current restructuring liability at March 31, 2023$34 $$42 
(in millions)(in millions)Employee Termination BenefitsOtherTotal(in millions)Employee Termination BenefitsOtherTotal
Balance at January 1, 2022Balance at January 1, 2022$126 $13 $139 Balance at January 1, 2022$126 $13 $139 
Restructuring expense, netRestructuring expense, net15 Restructuring expense, net15 
Cash paymentsCash payments(38)(12)(50)Cash payments(38)(12)(50)
Foreign currency translation adjustment and otherForeign currency translation adjustment and other(3)— Foreign currency translation adjustment and other(3)— 
Balance at March 31, 2022Balance at March 31, 202293 11 104 Balance at March 31, 202293 11 104 
Less: Non-current restructuring liabilityLess: Non-current restructuring liability25 27 Less: Non-current restructuring liability25 27 
Current restructuring liability at March 31, 2022Current restructuring liability at March 31, 2022$68 $$77 Current restructuring liability at March 31, 2022$68 $$77 
(in millions)Employee Termination BenefitsOtherTotal
Balance at January 1, 2021$160 $13 $173 
Restructuring expense, net21 30 
Cash payments(54)(12)(66)
Balance at March 31, 2021127 10 137 
Less: Non-current restructuring liability48 51 
Current restructuring liability at March 31, 2021$79 $$86 
During the three months ended March 31, 2023, the Company recorded $4 million of restructuring costs for individually approved restructuring actions that primarily related to reductions in headcount.

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2020 Structural Costs Plan In February 2020, the Company announced a $300 million restructuring plan to address existing structural costs. During the three months ended March 31, 20222023 and 2021,2022, the Company recorded $13$3 million and $24$13 million of restructuring charges related to this plan, respectively. Cumulatively, the Company has incurred $264$290 million of restructuring charges related to this plan. ThisThe actions under this plan is expected to result in a total of $300 million of restructuring costs through 2022. Nearly all of the restructuring charges are expected to be cash expenditures.substantially complete.

2019 Legacy Delphi Technologies Plan In 2019, legacy Delphi Technologies announced a restructuring plan to reshape and realign its global technical center footprint and reduce salaried and contract staff. The Company continued actions under this programplan post-acquisition and has recorded cumulative charges of $64
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$67 million since October 1, 2020, including approximately $2 million and $5 million in restructuring charges during the three months ended March 31, 2022, and 2021, respectively.2022. The majority of the actions under this program have been completed.plan are substantially complete.

The following provides details of restructuring expense incurred by the Company’s reporting segments during the three months ended March 31, 20222023 and 2021,2022, related to the two plans and actions discussed above:

Air Management
2020 Structural Costs Plan
During the three months ended March 31, 2023, the segment recorded $3 million of restructuring costs under this plan, primarily related to $2 million for a voluntary termination program.
During the three months ended March 31, 2022, the segment recorded $6 million of restructuring costs under this plan. This primarily related to $5 million for a voluntary termination program pursuant to which approximately 25 employees accepted termination packages in 2022.
During the three months ended March 31, 2021, the segment recorded $15 million of restructuring costs under this plan. This primarily related to $12 million for a voluntary termination program pursuant to which approximately 36 employees accepted termination packages in 2021 and $3 million for other specific actions to reduce structural costs.
2019 Legacy Delphi Technologies Plan
During the three months ended March 31, 2022, and 2021, the segment recorded $1 million and $2 million of restructuring costs respectively, primarily related to severance costs.

e-PropulsionDrivetrain & DrivetrainBattery Systems
2020 Structural Costs Plan
During the three months ended March 31, 2022, the segment recorded $7 million of restructuring costs, related to this plan. These costs primarily related to contractual settlements, professional fees and otherseverance costs associated with the announced closure of a facilitytechnical center in Europe.
During the three months ended March 31, 2021, the segment recorded $10 million of restructuring costs related to this plan. Of these costs, $6 million primarily related to severance costs, equipment relocation and professional fees to reduce existing structural costs, and $4 million related to contractual settlements, professional fees and other costs associated with the announced closure of a facility in Europe.Europe affecting approximately 80 employees.
Fuel InjectionSystems
2019 Legacy Delphi Technologies Plan
During the three months ended March 31, 2022, and 2021, the segment recorded $1 million and $3 million of restructuring costs respectively, underrelated to this plan. These costs wereplan, primarily for the statutory minimum benefitsrelated to employee severance and incremental one-time termination benefits negotiated with local labor authorities.equipment moves.
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Estimates of restructuring expense are based on information available at the time such charges are recorded. Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially recorded. Accordingly, the Company may record revisions of previous estimates by adjusting previously established accruals.

The Company continues to evaluate different options across its operations to reduce existing structural costs over the next few years. The Company will recognize restructuring expense associated with any future actions at the time they are approved and become probable or are incurred. Any future actions could result in significant restructuring expense.


NOTE 6 RESEARCH AND DEVELOPMENT COSTS

The Company’s net Research & Development (“R&D”) expenditures are included in 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
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satisfied in accordance with the contract. Financial risks and rewards transfer upon shipment, acceptance of a prototype component by the customer or upon completion of the performance obligation, as stated in the respective customer agreement. The Company has contracts with several customers relating to R&D activities that the Company performs at the Company’s various R&D locations.

The following table presents the Company’s gross and net expenditures on R&D activities:
Three Months Ended March 31,
(in millions)20222021
Gross R&D expenditures$232 $200 
Customer reimbursements(41)(17)
Net R&D expenditures$191 $183 

Three Months Ended March 31,
(in millions)
20232022
Gross R&D expenditures$244 $232 
Customer reimbursements(51)(41)
Net R&D expenditures$193 $191 

NOTE 7 OTHER OPERATING EXPENSE (INCOME) EXPENSE,, NET

Items included in Other operating expense (income), net consist of:
Three Months Ended March 31,
(in millions)20222021
Merger, acquisition and divestiture expense$23 $13 
Gain on sale of business (Note 3)(24)— 
Net gain on insurance recovery for property damage— (2)
Other income, net(4)(3)
Other operating (income) expense, net$(5)$

Three Months Ended March 31,
(in millions)
20232022
Merger, acquisition and divestiture expense, net$22 $23 
Gain on sale of business (Note 3)— (24)
Other income, net(3)(4)
Other operating expense (income), net$19 $(5)

Merger, acquisition and divestiture expense:expense, net: During the three months ended March 31, 2023, the Company recorded merger, acquisition and divestiture expense, net of $22 million primarily related to professional fees associated with the intended separation of its Fuel Systems and Aftermarket segments and other specific acquisition and disposition initiatives. During the three months ended March 31, 2022, the Company recorded merger, acquisition and divestiture expense, net of $23 million primarily related to professional fees associated with specific acquisition and disposition initiatives. During the three months ended March 31, 2021, the Company recorded merger, acquisition and divestiture expense of $13 million. The expense for 2021 primarily related to professional fees for integration and other support associated with the Company’s acquisition of Delphi Technologies and professional fees associated with the acquisition of AKASOL.
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NOTE 8 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.

The Company’s effective tax rate for the three months ended March 31, 2023 and 2022 was 27% and 2021 was 29% and 31%, respectively. During the three months ended March 31, 2023, a discrete tax benefit of approximately $13 million was recorded related to the resolution of tax audits, and a $10 million discrete tax expense was recorded for the impact of enacted tax law changes.

The annual effective tax rates differ from the U.S. statutory rate primarily due to foreign rates which vary from those in the U.S., jurisdictions with pretax losses for which no tax benefit could be realized, U.S. taxes on foreign earnings, the realization of certain business tax credits (including foreign tax credits), and permanent differences between book and tax treatment for certain items (including the Foreign-Derived Intangible Income (“FDII”) deduction and the enhanced deduction of research and development expenses in certain jurisdictions).


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NOTE 9 INVENTORIES, NET

A summary of Inventories, net is presented below:
March 31,December 31,March 31,December 31,
(in millions)(in millions)20222021(in millions)20232022
Raw material and suppliesRaw material and supplies$1,114 $1,057 Raw material and supplies$1,279 $1,203 
Work in progressWork in progress182 175 Work in progress180 176 
Finished goodsFinished goods380 327 Finished goods371 333 
FIFO inventoriesFIFO inventories1,676 1,559 FIFO inventories1,830 1,712 
LIFO reserveLIFO reserve(32)(25)LIFO reserve(30)(25)
Inventories, netInventories, net$1,644 $1,534 Inventories, net$1,800 $1,687 


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NOTE 10 OTHER CURRENT AND NON-CURRENT ASSETS

Additional detail related to assets is presented below:
March 31,December 31,March 31,December 31,
(in millions)20222021
(in millions)
(in millions)
20232022
Prepayments and other current assets:Prepayments and other current assets:Prepayments and other current assets:
Prepaid toolingPrepaid tooling$75 $81 Prepaid tooling$83 $82 
Prepaid taxesPrepaid taxes71 64 Prepaid taxes40 40 
Customer incentive payments (Note 4)Customer incentive payments (Note 4)37 36 Customer incentive payments (Note 4)34 34 
Prepaid engineering26 27 
Derivative instrumentsDerivative instruments29 18 
Contract assets (Note 4)Contract assets (Note 4)19 17 Contract assets (Note 4)14 16 
OtherOther98 96 Other91 79 
Total prepayments and other current assetsTotal prepayments and other current assets$326 $321 Total prepayments and other current assets$291 $269 
Investments and long-term receivables:Investments and long-term receivables:Investments and long-term receivables:
Investment in debt securitiesInvestment in debt securities$441 $455 
Investment in equity affiliatesInvestment in equity affiliates$305 $298 Investment in equity affiliates287 279 
Long-term receivablesLong-term receivables108 102 Long-term receivables92 87 
Equity securities (Note 3)60 130 
Equity securitiesEquity securities75 75 
Total investments and long-term receivablesTotal investments and long-term receivables$473 $530 Total investments and long-term receivables$895 $896 
Other non-current assets:Other non-current assets:Other non-current assets:
Deferred income taxesDeferred income taxes$270 $254 Deferred income taxes$280 $239 
Operating leasesOperating leases184 185 Operating leases197 199 
Customer incentive payments (Note 4)Customer incentive payments (Note 4)127 137 Customer incentive payments (Note 4)90 99 
Derivative instrumentsDerivative instruments68 68 
OtherOther112 107 Other64 63 
Total other non-current assetsTotal other non-current assets$693 $683 Total other non-current assets$699 $668 


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NOTE 11 GOODWILL AND OTHER INTANGIBLES

During the fourth quarter of each year, the Company assesses its goodwill and indefinite livedindefinite-lived intangible assets assigned to each of its reporting units. In addition, the Company may test goodwill in between annual test dates if an event occurs or circumstances change that could more-likely-than-not reduce the fair value of a reporting unit below its carrying value. No events or circumstances were noted in the first three months of 20222023 requiring additional assessment or testing. Future changes in the judgments, assumptions and estimates from those used in acquisition-related valuations and goodwill impairment testing, including discount rates or future operating results and related cash flow projections, could result in significantly different estimates of the fair values in the future. An increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated fair values, which may result in impairment charges that could materially affect the Company’s financial statements in any given year.

A summary of the changes in the carrying amount of goodwill are as follows:
(in millions)Air Managemente-Propulsion & DrivetrainAftermarketTotal
Gross goodwill balance, December 31, 2021$2,169 $1,301 $311 $3,781 
Accumulated impairment losses, December 31, 2021(502)— — (502)
Net goodwill balance, December 31, 2021$1,667 $1,301 $311 $3,279 
Goodwill during the period:
Acquisition— 132 — 132 
Other, primarily translation adjustment(28)(4)(23)
Ending balance, March 31, 2022$1,639 $1,429 $320 $3,388 
(in millions)Air ManagementDrivetrain & Battery SystemsePropulsionAftermarketFuel SystemsTotal
Gross goodwill balance, December 31, 2022$1,566 $1,434 $480 $374 $45 $3,899 
Accumulated impairment losses, December 31, 2022(502)— — — — (502)
Net goodwill balance, December 31, 2022*$1,064 $1,434 $480 $374 $45 $3,397 
Goodwill during the period:
Acquisitions— — — — 
Other, primarily translation adjustment(2)— 15 
Ending balance, March 31, 2023$1,077 $1,443 $478 $377 $45 $3,420 

*The December 31, 2022 balances have been recast for a change in reporting segments that was made during the three months ended March 31, 2023. Refer to Note 22, “Reporting Segments And Related Information” for more information.

The Company’s other intangible assets, primarily from acquisitions, consist of the following:
March 31, 2022December 31, 2021March 31, 2023December 31, 2022
(in millions)(in millions)Estimated useful lives (years)Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
(in millions)Estimated useful lives (years)Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Amortized intangible assets:Amortized intangible assets:Amortized intangible assets:
Patented and unpatented technologyPatented and unpatented technology5 - 15$465 $113 $352 $443 $105 $338 Patented and unpatented technology5 - 15$496 $153 $343 $492 $141 $351 
Customer relationshipsCustomer relationships7 - 15929 319 610 877 310 567 Customer relationships7 - 15906 366 540 901 351 550 
MiscellaneousMiscellaneous2 - 1314 14 Miscellaneous2 - 510 10 
Total amortized intangible assetsTotal amortized intangible assets1,408 439 969 1,334 422 912 Total amortized intangible assets1,412 525 887 1,403 498 905 
Unamortized trade namesUnamortized trade names178 — 178 179 — 179 Unamortized trade names146 — 146 146 — 146 
Total other intangible assetsTotal other intangible assets$1,586 $439 $1,147 $1,513 $422 $1,091 Total other intangible assets$1,558 $525 $1,033 $1,549 $498 $1,051 


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NOTE 12 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, 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 product warranty accrual is allocated to current and non-current liabilities in the Condensed Consolidated Balance Sheets.

The following table summarizes the activity in the product warranty accrual accounts:
(in millions)(in millions)20222021(in millions)20232022
Beginning balance, January 1Beginning balance, January 1$236 $253 Beginning balance, January 1$245 $236 
Provisions for current period salesProvisions for current period sales24 28 Provisions for current period sales29 24 
Adjustments of prior estimatesAdjustments of prior estimates(2)13 Adjustments of prior estimates(3)(2)
PaymentsPayments(25)(29)Payments(39)(25)
Other, primarily translation adjustmentOther, primarily translation adjustment(3)(5)Other, primarily translation adjustment(3)
Ending balance, March 31Ending balance, March 31$230 $260 Ending balance, March 31$234 $230 

The product warranty liability is classified in the Condensed Consolidated Balance Sheets as follows:
March 31,December 31,March 31,December 31,
(in millions)(in millions)20222021(in millions)20232022
Other current liabilitiesOther current liabilities$120 $128 Other current liabilities$120 $142 
Other non-current liabilitiesOther non-current liabilities110 108 Other non-current liabilities114 103 
Total product warranty liabilityTotal product warranty liability$230 $236 Total product warranty liability$234 $245 


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NOTE 13 NOTES PAYABLE AND DEBT

As of March 31, 20222023 and December 31, 2021,2022, the Company had debt outstanding as follows:
March 31,December 31,March 31,December 31,
(in millions)
(in millions)
20222021
(in millions)
20232022
Short-term borrowingsShort-term borrowings$60 $62 Short-term borrowings$58 $58 
Long-term debtLong-term debtLong-term debt
3.375% Senior notes due 03/15/25 ($500 million par value)3.375% Senior notes due 03/15/25 ($500 million par value)498 498 3.375% Senior notes due 03/15/25 ($500 million par value)499 499 
5.000% Senior notes due 10/01/25 ($800 million par value)*5.000% Senior notes due 10/01/25 ($800 million par value)*884 889 5.000% Senior notes due 10/01/25 ($800 million par value)*860 866 
2.650% Senior notes due 07/01/27 ($1,100 million par value)2.650% Senior notes due 07/01/27 ($1,100 million par value)1,090 1,092 2.650% Senior notes due 07/01/27 ($1,100 million par value)1,092 1,092 
7.125% Senior notes due 02/15/29 ($121 million par value)7.125% Senior notes due 02/15/29 ($121 million par value)120 119 7.125% Senior notes due 02/15/29 ($121 million par value)120 120 
1.000% Senior Notes due 05/19/31 (€1,000 million par value)1.000% Senior Notes due 05/19/31 (€1,000 million par value)1,087 1,117 1.000% Senior Notes due 05/19/31 (€1,000 million par value)1,066 1,051 
4.375% Senior notes due 03/15/45 ($500 million par value)4.375% Senior notes due 03/15/45 ($500 million par value)494 494 4.375% Senior notes due 03/15/45 ($500 million par value)495 495 
Term loan facilities, finance leases and otherTerm loan facilities, finance leases and other54 56 Term loan facilities, finance leases and other47 47 
Total long-term debtTotal long-term debt4,227 4,265 Total long-term debt4,179 4,170 
Less: current portionLess: current portionLess: current portion
Long-term debt, net of current portionLong-term debt, net of current portion$4,223 $4,261 Long-term debt, net of current portion$4,175 $4,166 
_____________________________
*IncludesThese notes include the fair value step-up from the Delphi Technologies acquisition, whichacquisition. The fair value step-up was calculated based on observable market data and will beis amortized as a reduction to interest expense over the remaining life of the instrument using the effective interest method.

The Company may utilize uncommitted lines of credit for short-term working capital requirements. As of March 31, 20222023 and December 31, 2021,2022, the Company had $60$58 million, and $62 million, respectively,in both periods, in borrowings under these facilities, which are classified in Notes payable and other short-term debt on the Condensed Consolidated Balance Sheets.

The following table provides details on Interest expense, net included in the Condensed Consolidated Statements of Operations:
Three Months Ended March 31,Three Months Ended March 31,
(in millions)(in millions)20222021(in millions)20232022
Interest expenseInterest expense$19 $21 Interest expense$20 $19 
Interest incomeInterest income(4)(3)Interest income(10)(4)
Interest expense, netInterest expense, net$15 $18 Interest expense, net$10 $15 

The Company has a $2.0$2 billion multi-currency revolving credit facility that includes a feature allowingallows the Company the ability to increase the facility by $1.0$1 billion with bank group approval. This facility matures in March 2025. The credit agreement contains customary events of default and one key financial covenant, which is a debt-to-EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) ratio. The Company was in compliance with the financial covenant at March 31, 2022.2023. At March 31, 20222023 and December 31, 2021,2022, the Company had no outstanding borrowings under this facility.

The Company’s commercial paper program allows the Company to issue up to $2.0$2 billion of short-term, unsecured commercial paper notes under the limits of its multi-currency revolving credit facility. Under this program, the Company may issue notes from time to time and use the proceeds for general corporate purposes. The Company had no outstanding borrowings under this program as of March 31, 20222023 and December 31, 2021.2022.

The total current combined borrowing capacity under the multi-currency revolving credit facility and commercial paper program cannot exceed $2 billion.

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As of March 31, 20222023 and December 31, 2021,2022, the estimated fair values of the Company’s senior unsecured notes totaled $4,020$3,698 million and $4,421$3,553 million, respectively. The estimated fair values were $153$434 million lower than their carrying value at March 31, 20222023 and $212$570 million higherlower than their carrying value at December 31, 2021.2022. 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, commercial paper program and other debt facilities approximate fair value. The fair value estimates do not necessarily reflect the values the Company could realize in the current markets.

The Company had outstanding letters of credit of $43$40 million and $35$38 million at March 31, 20222023 and December 31, 2021,2022, respectively. The letters of credit typically act as guarantees of payment to certain third parties in accordance with specified terms and conditions.


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NOTE 14 OTHER CURRENT AND NON-CURRENT LIABILITIES

Additional detail related to liabilities is presented in the table below:
March 31,December 31,March 31,December 31,
(in millions)
(in millions)
20222021
(in millions)
20232022
Other current liabilities:Other current liabilities:Other current liabilities:
Payroll and employee relatedPayroll and employee related$232 $330 Payroll and employee related$245 $398 
Customer relatedCustomer related220 220 Customer related212 202 
Product warranties (Note 12)120 128 
Income taxes payableIncome taxes payable102 105 Income taxes payable154 142 
Indirect taxesIndirect taxes87 106 Indirect taxes131 125 
Employee termination benefits (Note 5)69 85 
Product warranties (Note 12)Product warranties (Note 12)120 142 
Dividends payableDividends payable54 21 
Accrued freightAccrued freight56 46 Accrued freight49 44 
Operating leasesOperating leases40 43 Operating leases42 42 
InterestInterest37 23 Interest37 22 
Employee termination benefits (Note 5)Employee termination benefits (Note 5)34 37 
Deferred engineering reimbursementsDeferred engineering reimbursements35 44 Deferred engineering reimbursements33 39 
Dividends payable27 18 
Supplier relatedSupplier related22 18 Supplier related24 23 
Earn-out liability (Note 3)Earn-out liability (Note 3)21 16 
InsuranceInsurance21 19 
Other non-income taxesOther non-income taxes19 19 
Legal and professional feesLegal and professional fees14 15 
Retirement relatedRetirement related13 13 
Derivative instrumentsDerivative instruments13 
Contract liabilities (Note 4)Contract liabilities (Note 4)22 21 Contract liabilities (Note 4)12 16 
Other non-income taxes21 22 
Insurance18 19 
Earn-out liability (Note 3)16 — 
Retirement related16 16 
Mandatorily redeemable noncontrolling interest liability (Note 3)— 58 
OtherOther190 154 Other162 146 
Total other current liabilitiesTotal other current liabilities$1,330 $1,456 Total other current liabilities$1,410 $1,490 
Other non-current liabilities:Other non-current liabilities:Other non-current liabilities:
Other income tax liabilitiesOther income tax liabilities$281 $274 Other income tax liabilities$234 $242 
Deferred income taxesDeferred income taxes240 206 Deferred income taxes225 194 
Operating leasesOperating leases153 152 Operating leases163 166 
Product warranties (Note 12)Product warranties (Note 12)110 108 Product warranties (Note 12)114 103 
Deferred incomeDeferred income65 68 Deferred income65 66 
Derivative instruments27 54 
Earn-out liability (Note 3)Earn-out liability (Note 3)12 10 
Employee termination benefits (Note 5)Employee termination benefits (Note 5)25 41 Employee termination benefits (Note 5)10 22 
Earn-out liability (Note 3)24 — 
OtherOther63 61 Other69 58 
Total other non-current liabilitiesTotal other non-current liabilities$988 $964 Total other non-current liabilities$892 $861 


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NOTE 15 FAIR VALUE MEASUREMENTS

ASC Topic 820 emphasizes that fair value is a market-based measurement, not an 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;
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Level 2:Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3:Unobservable inputs for 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).

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The following tables classify assets and liabilities measured at fair value on a recurring basis as of March 31, 20222023 and December 31, 2021:2022:
 Basis of fair value measurements   Basis of fair value measurements 
(in millions)(in millions)Balance at March 31, 2022Quoted prices in active markets for identical items
(Level 1)
Significant other observable inputs
(Level 2)
Significant unobservable inputs
(Level 3)
Valuation technique(in millions)Balance at March 31, 2023Quoted prices in active markets for identical items
(Level 1)
Significant other observable inputs
(Level 2)
Significant unobservable inputs
(Level 3)
Valuation technique
Assets measured at NAV1
Assets:Assets:     Assets:     
Long-term receivables$35 $— $17 $18 C
Current earn-out receivableCurrent earn-out receivable$$— $— $C$— 
Investment in debt securitiesInvestment in debt securities$441 $— $441 $— A$— 
Investment in equity securitiesInvestment in equity securities$28 $— $— $— $28 
Foreign currency contractsForeign currency contracts$16 $— $16 $— AForeign currency contracts$35 $— $35 $— A$— 
Net investment hedge contractsNet investment hedge contracts$11 $— $11 $— ANet investment hedge contracts$62 $— $62 $— A$— 
Liabilities:Liabilities:     Liabilities:     
Current earn-out liability$16 $— $— $16 C
Non-current earn-out liability$24 $— $— $24 C
Current earn-out liabilitiesCurrent earn-out liabilities$26 $— $— $26 C$— 
Non-current earn-out liabilitiesNon-current earn-out liabilities$12 $— $— $12 C$— 
Foreign currency contractsForeign currency contracts$11 $— $11 $— AForeign currency contracts$17 $— $17 $— A$— 
Net investment hedge contracts$27 $— $27 $— A
  Basis of fair value measurements 
(in millions)Balance at
December 31, 2021
Quoted prices in active markets for identical items
(Level 1)
Significant other observable inputs
(Level 2)
Significant unobservable inputs
(Level 3)
Valuation
technique
Assets:     
Investment in equity securities$70 $70 $— $— A
Long-term receivables$35 $— $17 $18 C
Foreign currency contracts$13 $— $13 $— A
Net investment hedge contracts$$— $$— A
Liabilities:     
Foreign currency contracts$$— $$— A
Net investment hedge contracts$54 $— $54 $— A
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  Basis of fair value measurements 
(in millions)Balance at
December 31, 2022
Quoted prices in active markets for identical items
(Level 1)
Significant other observable inputs
(Level 2)
Significant unobservable inputs
(Level 3)
Valuation
technique
Assets measured at NAV1
Assets:     
Current earn-out receivable$$— $— $C$— 
Investment in debt securities$455 $— $455 $— A$— 
Investment in equity securities$29 $— $— $— $29 
Foreign currency contracts$18 $— $18 $— A$— 
Net investment hedge contracts$68 $— $68 $— A$— 
Liabilities:     
Current earn-out liability$21 $— $— $21 C$— 
Non-current earn-out liability$10 $— $— $10 C$— 
Foreign currency contracts$11 $— $11 $— A$— 
Net investment hedge contracts$$— $$— A$— 
_____________________________
1 Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. These amounts represent investments in commingled and managed funds that have underlying assets in fixed income securities, equity securities, and other assets and the fair values have been estimated using the net asset value of the Company's ownership interest in partners' capital. The Company’s redemption of its investments with the funds is governed by the partnership agreements and subject to approval from the general partners. With the exception of annual distributions in connection with the Company’s deemed tax liability, distributions from each fund will be received as the underlying investments of the funds are liquidated, the timing of which is unknown.


NOTE 16 FINANCIAL INSTRUMENTS

The Company’s financial instruments include cash and cash equivalents, marketable 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 also include long-term debt, investments in equity securities, interest rate and cross-currency swaps, commodity derivative contracts and foreign currency derivative contracts. All derivative contracts are placed with counterparties that have an S&P, or equivalent, investment grade credit rating at the time of the contracts’ placement. An adjustment for non-performance risk is considered in the estimate of fair value in derivative assets based on the counterparty credit default swap (“CDS”) rate. When the Company is in a net derivative liability position, the non-performance risk adjustment is based on its CDS rate. At March 31, 20222023 and December 31, 2021,2022, the Company had no derivative contracts that contained credit risk-relatedcredit-risk-related contingent features.

The Company, at times, uses certain commodity derivative contracts to protect against commodity price changes related to forecasted raw material and component purchases. At March 31, 20222023 and December 31, 2021,2022, the Company had no material commodity derivative contracts. The Company primarily utilizes forward and option contracts, which are designated as cash flow hedges.

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, at times, 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 March 31, 20222023 and December 31, 2021,2022, the Company had no outstanding interest rate swaps or options.

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The Company uses foreign currency forward and option contracts to protect against exchange rate movements for forecasted cash flows, including capital expenditures, purchases, operating expenses or sales transactions designated in currencies other than the functional currency of the operating unit. In addition, the Company uses foreign currency forward contracts to hedge exposure associated with its net
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investment in certain foreign operations (net investment hedges). Foreign currency derivative contracts require the Company, at a future date, to either buy or sell foreign currency in exchange for the operating units’ local currency. At March 31, 20222023 and December 31, 2021,2022, the following foreign currency derivative contracts were outstanding and mature through the ending duration noted below:
Foreign currency derivatives (in millions)*Foreign currency derivatives (in millions)*Foreign currency derivatives (in millions)*
Functional CurrencyFunctional CurrencyTraded CurrencyNotional in traded currency
March 31, 2022
Notional in traded currency
December 31, 2021
Ending DurationFunctional CurrencyTraded CurrencyNotional in traded currency
March 31, 2023
Notional in traded currency
December 31, 2022
Ending Duration
Brazilian RealBrazilian RealUS Dollar16 23 Dec - 22Brazilian RealUS Dollar10 14 Dec - 23
British PoundBritish PoundEuro— 42 N/ABritish PoundEuro10 10 May - 23
Chinese RenminbiChinese RenminbiBritish Pound20 26 Dec - 22Chinese RenminbiBritish Pound17 23 Dec - 23
Chinese RenminbiChinese RenminbiEuro19 26 Dec - 22Chinese RenminbiEuro32 42 Dec - 23
Chinese RenminbiChinese RenminbiUS Dollar126 185 Dec - 22Chinese RenminbiUS Dollar343 276 Dec - 24
EuroEuroBritish Pound40 Dec - 22EuroBritish Pound71 63 Dec - 24
EuroEuroHungarian Forint8,282 — Dec - 24
EuroEuroPolish Zloty276 394 Dec - 22EuroPolish Zloty501 489 Dec - 24
EuroEuroUS Dollar63 86 Dec - 22EuroUS Dollar198 139 Dec - 24
US DollarUS DollarBritish Pound13 Dec - 22US DollarBritish Pound12 17 Dec - 23
US DollarUS DollarChinese Renminbi81 — Dec - 22US DollarChinese Renminbi1,402 1,402 Jun - 23
US DollarUS DollarEuro39 28 Jun - 22US DollarEuro36 45 Apr - 23
US DollarUS DollarKorean Won59,818 49,919 Dec - 22US DollarKorean Won31,150 51,786 Nov - 23
US DollarUS DollarMexican Peso1,830 2,619 Dec - 22US DollarMexican Peso3,378 3,465 Dec - 24
US DollarSingapore Dollar18 27 Dec - 22
US DollarUS DollarThailand Baht1,920 1,720 May - 22US DollarThailand Baht1,990 1,790 May - 23
*Table above excludes non-significant traded currency pairings with total notional amounts less than $10 million U.S. dollar equivalent as of March 31, 2022 and December 31, 2021.
*Table above excludes non-significant traded currency pairings with total notional amounts less than $10 million U.S. dollar equivalent as of March 31, 2023 and December 31, 2022.*Table above excludes non-significant traded currency pairings with total notional amounts less than $10 million U.S. dollar equivalent as of March 31, 2023 and December 31, 2022.

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 March 31, 20222023 and December 31, 2021,2022, the following cross-currency swap contracts were outstanding:
Cross-currency swapsCross-currency swaps
(in millions)(in millions)March 31, 2022December 31, 2021Ending duration(in millions)March 31, 2023December 31, 2022Ending duration
US dollar to Euro:US dollar to Euro:US dollar to Euro:
Fixed receiving notionalFixed receiving notional$1,100 $1,100 Jul - 27Fixed receiving notional$1,100 $1,100 Jul - 27
Fixed paying notionalFixed paying notional976 976 Jul - 27Fixed paying notional976 976 Jul - 27
US dollar to Euro:US dollar to Euro:US dollar to Euro:
Fixed receiving notionalFixed receiving notional$500 $500 Mar - 25Fixed receiving notional$500 $500 Mar - 25
Fixed paying notionalFixed paying notional450 450 Mar - 25Fixed paying notional450 450 Mar - 25
US dollar to Japanese yen:US dollar to Japanese yen:US dollar to Japanese yen:
Fixed receiving notionalFixed receiving notional$100 $100 Feb - 23Fixed receiving notional$100 $100 Feb - 29
Fixed paying notionalFixed paying notional¥10,978 ¥10,978 Feb - 23Fixed paying notional¥12,724 ¥12,724 Feb - 29
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At March 31, 20222023 and December 31, 2021,2022, the following amounts were recorded in the Condensed Consolidated Balance Sheets as being payable to or receivable from counterparties under ASC Topic 815:815, “Derivatives and Hedging”:
(in millions)(in millions)AssetsLiabilities(in millions)AssetsLiabilities
Derivatives designated as hedging instruments Under 815:Derivatives designated as hedging instruments Under 815:LocationMarch 31, 2022December 31, 2021LocationMarch 31, 2022December 31, 2021Derivatives designated as hedging instruments Under 815:LocationMarch 31, 2023December 31, 2022LocationMarch 31, 2023December 31, 2022
Foreign currencyForeign currencyPrepayments and other current assets$$Other current liabilities$11 $Foreign currencyPrepayments and other current assets$27 $15 Other current liabilities$13 $
Foreign currencyForeign currencyOther non-current assets$$— Other non-current liabilities$$
Net investment hedgesNet investment hedgesOther non-current assets$11 $Other non-current liabilities$27 $54 Net investment hedgesOther non-current assets$62 $68 Other non-current liabilities$— $
Derivatives not designated as hedging instruments:Derivatives not designated as hedging instruments:Derivatives not designated as hedging instruments:
Foreign currencyForeign currencyPrepayments and other current assets$$Other current liabilities$— $— Foreign currencyPrepayments and other current assets$$Other current liabilities$— $

Effectiveness for cash flow hedges is assessed at the inception of the hedging relationship and quarterly, thereafter. Gains and losses arising from these contracts that are included in the assessment of effectiveness are deferred into accumulated other comprehensive lossincome (loss) (“AOCI”) and reclassified into income as the underlying operating transactions are recognized. These realized gains or losses offset the hedged transaction and are recorded on the same line in the statement of operations. The initial value of any component excluded from the assessment of effectiveness will beis recognized in income using a systematic and rational method over the life of the hedging instrument. Any difference between the change in fair value of the excluded component and amounts recognized in income under that systematic and rational method will beis recognized in AOCI.

Effectiveness for net investment hedges is assessed at the inception of the hedging relationship and quarterly, thereafter. Gains and losses arising from these contracts that are included in the assessment of effectiveness are deferred into foreign currency translation adjustments and only released when the subsidiary being hedged is sold or substantially liquidated. The initial value of any component excluded from the assessment of effectiveness will beis recognized in income using a systematic and rational method over the life of the hedging instrument. Any difference between the change in fair value of the excluded component and amounts recognized in income under that systematic and rational method will beis 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 for designated net investment hedges. The amount expected to be reclassified to income in one year or less assumes no change in the current relationship of the hedged item at March 31, 20222023 market rates.
(in millions)(in millions)Deferred gain (loss) in AOCI atGain (loss) expected to be reclassified to income in one year or less(in millions)Deferred gain (loss) in AOCI atGain (loss) expected to be reclassified to income in one year or less
Contract TypeContract TypeMarch 31, 2022December 31, 2021Contract TypeMarch 31, 2023December 31, 2022
Net investment hedges:Net investment hedges:Net investment hedges:
Foreign currency Foreign currency$(10)$(10)$—  Foreign currency$(4)$(4)$— 
Cross-currency swaps Cross-currency swaps(15)(46)—  Cross-currency swaps62 67 — 
Foreign currency-denominated debt Foreign currency-denominated debt97 66 —  Foreign currency-denominated debt119 133 — 
TotalTotal$72 $10 $— Total$177 $196 $— 
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Derivative instruments designated as hedging instruments as defined by ASC Topic 815 held during the period resulted in the following gains and losses recorded in income:
Three Months Ended March 31, 2022Three Months Ended March 31, 2023
(in millions)(in millions)Net salesCost of salesSelling, general and administrative expensesOther comprehensive income (loss)(in millions)Net salesCost of salesSelling, general and administrative expensesOther comprehensive income (loss)
Total amounts of earnings and other comprehensive income(loss) line items in which the effects of cash flow hedges are recorded$3,874 $3,124 $388 $(13)
Total amounts of earnings and other comprehensive income (loss) line items in which the effects of cash flow hedges are recordedTotal amounts of earnings and other comprehensive income (loss) line items in which the effects of cash flow hedges are recorded$4,180 $3,430 $384 $52 
Gain (loss) on cash flow hedging relationships:Gain (loss) on cash flow hedging relationships:Gain (loss) on cash flow hedging relationships:
Foreign currency:Foreign currency:Foreign currency:
Gain (loss) recognized in other comprehensive incomeGain (loss) recognized in other comprehensive income$(1)Gain (loss) recognized in other comprehensive income$14 
Gain (loss) reclassified from AOCI to income$— $(1)$— 


Three Months Ended March 31, 2021Three Months Ended March 31, 2022
(in millions)(in millions)Net salesCost of salesSelling, general and administrative expensesOther comprehensive income (loss)(in millions)Net salesCost of salesSelling, general and administrative expensesOther comprehensive income (loss)
Total amounts of earnings and other comprehensive income(loss) line items in which the effects of cash flow hedges are recorded$4,009 $3,191 $377 $(85)
Total amounts of earnings and other comprehensive income (loss) line items in which the effects of cash flow hedges are recordedTotal amounts of earnings and other comprehensive income (loss) line items in which the effects of cash flow hedges are recorded$3,874 $3,124 $388 $(13)
Gain (loss) on cash flow hedging relationships:Gain (loss) on cash flow hedging relationships:Gain (loss) on cash flow hedging relationships:
Foreign currency:Foreign currency:Foreign currency:
Gain (loss) recognized in other comprehensive incomeGain (loss) recognized in other comprehensive income$(6)Gain (loss) recognized in other comprehensive income$(1)
Gain (loss) reclassified from AOCI to incomeGain (loss) reclassified from AOCI to income$— $(1)$— 

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.

Gains and (losses)losses on derivative instruments designated as net investment hedges were recognized in other comprehensive income (loss) during the periods presented below.
(in millions)(in millions)Three Months Ended March 31,(in millions)Three Months Ended March 31,
Net investment hedgesNet investment hedges20222021Net investment hedges20232022
Cross-currency swapsCross-currency swaps$31 $44 Cross-currency swaps$(5)$31 
Foreign currency-denominated debtForeign currency-denominated debt$31 $25 Foreign currency-denominated debt$(14)$31 

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 on components excluded from the assessment of effectiveness:
(in millions)(in millions)Three Months Ended March 31,(in millions)Three Months Ended March 31,
Net investment hedgesNet investment hedges20222021Net investment hedges20232022
Cross-currency swapsCross-currency swaps$$Cross-currency swaps$$
There were 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.

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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'units’ functional currency. These derivatives resulted in the following gains recorded in income:
(in millions)Three Months Ended March 31,
Contract TypeLocation20222021
Foreign CurrencySelling, general and administrative expenses$(1)$

(in millions)Three Months Ended March 31,
Contract TypeLocation20232022
Foreign CurrencySelling, general and administrative expenses$— $(1)

NOTE 17 RETIREMENT BENEFIT PLANS

The Company has a number of defined benefit pension plans and other postemployment benefit plans covering eligible salaried and hourly employees and their dependents. The estimated contributions to the Company'sCompany’s defined benefit pension plans for 20222023 range from $20 million to $30 million, of which $5$6 million has been contributed through the first three months of the year. The other postemployment benefit plans, which provide medical and life insurance benefits, are funded on a pay-as-you-go basis.

The components of net periodic benefit (income) costincome recorded in the Condensed Consolidated Statements of Operations are as follows:
Pension benefitsOther postemployment benefits Pension benefits
(in millions)(in millions)20222021(in millions)20232022
Three Months Ended March 31,Three Months Ended March 31,USNon-USUSNon-US20222021Three Months Ended March 31,USNon-USUSNon-US
Service costService cost$— $$— $$— $— Service cost$— $$— $
Interest costInterest cost10 — — Interest cost16 10 
Expected return on plan assetsExpected return on plan assets(2)(20)(3)(21)— — Expected return on plan assets(2)(15)(2)(20)
Amortization of unrecognized prior service creditAmortization of unrecognized prior service credit— — — — — — Amortization of unrecognized prior service credit— — — — 
Amortization of unrecognized lossAmortization of unrecognized loss— — — Amortization of unrecognized loss— — 
Net periodic benefit income$(1)$(3)$(1)$(4)$— $— 
Net periodic benefit expense (income)Net periodic benefit expense (income)$$$(1)$(3)

The components of net periodic benefit income other than the service cost component are included in Other postretirement income in the Condensed Consolidated Statements of Operations.


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NOTE 18 STOCKHOLDERS' EQUITY

The changes of the Stockholders’ Equity items during the three months ended March 31, 20222023 and 2021,2022, are as follows:
BorgWarner Inc. stockholders' equity
(in millions)Issued common stockCapital in excess of par valueTreasury stockRetained earningsAccumulated other comprehensive income (loss)Noncontrolling interests
Balance, December 31, 2021$$2,637 $(1,812)$6,671 $(551)$314 
Dividends declared ($0.17 per share*)— — — (41)— (45)
Net issuance for executive stock plan— (6)— — — 
Net issuance of restricted stock— (15)12 — — — 
Purchase of treasury stock— — (40)— — — 
Purchase/sale of noncontrolling interest— — — — (4)
Net earnings— — — 200 — 24 
Other comprehensive loss— — — — (13)(1)
Balance, March 31, 2022$$2,617 $(1,836)$6,830 $(564)$288 

BorgWarner Inc. stockholders' equity
(in millions)Issued common stockCapital in excess of par valueTreasury stockRetained earningsAccumulated other comprehensive income (loss)Noncontrolling interests
Balance, December 31, 2022$$2,675 $(2,032)$7,454 $(876)$284 
Dividends declared ($0.17 per share*)— — — (39)— (58)
Net issuance for executive stock plan— (10)— — — 
Net issuance of restricted stock— (4)(4)— — — 
Net earnings— — — 217 — 13 
Other comprehensive income (loss)— — — — 52 (1)
Balance, March 31, 2023$$2,661 $(2,031)$7,632 $(824)$238 

BorgWarner Inc. stockholders' equityBorgWarner Inc. stockholders' equity
(in millions)(in millions)Issued common stockCapital in excess of par valueTreasury stockRetained earningsAccumulated other comprehensive income (loss)Noncontrolling interests(in millions)Issued common stockCapital in excess of par valueTreasury stockRetained earningsAccumulated other comprehensive income (loss)Noncontrolling interests
Balance, December 31, 2020$$2,614 $(1,834)$6,296 $(651)$296 
Balance, December 31, 2021Balance, December 31, 2021$$2,637 $(1,812)$6,671 $(551)$314 
Dividends declared ($0.17 per share*)Dividends declared ($0.17 per share*)— — — (40)— (33)Dividends declared ($0.17 per share*)— — — (41)— (45)
Net issuance for executive stock planNet issuance for executive stock plan— (2)— — — Net issuance for executive stock plan— (6)— — — 
Net issuance of restricted stockNet issuance of restricted stock— (23)21 — — — Net issuance of restricted stock— (15)12 — — — 
Purchase/sale of noncontrolling interestPurchase/sale of noncontrolling interest— — — — (4)
Purchase of treasury stockPurchase of treasury stock— — (40)— — — 
Net earningsNet earnings— — — 65 — 29 Net earnings— — — 200 — 24 
Other comprehensive lossOther comprehensive loss— — — — (85)(5)Other comprehensive loss— — — — (13)(1)
Balance, March 31, 2021$$2,589 $(1,810)$6,321 $(736)$287 
Balance, March 31, 2022Balance, March 31, 2022$$2,617 $(1,836)$6,830 $(564)$288 

* Per share dividends amount declared relate to BorgWarner common stock.


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NOTE 19 ACCUMULATED OTHER COMPREHENSIVE LOSS

The following tables summarize the activity within accumulated other comprehensive loss during the three months ended March 31, 20222023 and 2021:2022:

(in millions)(in millions)Foreign currency translation adjustmentsHedge instrumentsDefined benefit retirement plansTotal(in millions)Foreign currency translation adjustmentsHedge instrumentsDefined benefit retirement plansTotal
Beginning balance, December 31, 2021$(423)$— $(128)$(551)
Beginning balance, December 31, 2022Beginning balance, December 31, 2022$(750)$$(130)$(876)
Comprehensive (loss) income before reclassificationsComprehensive (loss) income before reclassifications(18)(1)(16)Comprehensive (loss) income before reclassifications34 14 (2)46 
Income taxes associated with comprehensive (loss) income before reclassificationsIncome taxes associated with comprehensive (loss) income before reclassifications— — — — Income taxes associated with comprehensive (loss) income before reclassifications— — 
Reclassification from accumulated other comprehensive lossReclassification from accumulated other comprehensive loss— Reclassification from accumulated other comprehensive loss— — 
Income taxes reclassified into net earnings— — — — 
Ending balance, March 31, 2022$(441)$— $(123)$(564)
Ending balance, March 31, 2023Ending balance, March 31, 2023$(711)$18 $(131)$(824)

(in millions)Foreign currency translation adjustmentsHedge instrumentsDefined benefit retirement plansTotal
Beginning balance, December 31, 2020$(321)$— $(330)$(651)
Comprehensive (loss) income before reclassifications(73)(6)(75)
Income taxes associated with comprehensive (loss) income before reclassifications(14)— (13)
Reclassification from accumulated other comprehensive loss— — 
Income taxes reclassified into net earnings— — (1)(1)
Ending balance, March 31, 2021$(408)$(6)$(322)$(736)
(in millions)Foreign currency translation adjustmentsHedge instrumentsDefined benefit retirement plansTotal
Beginning balance, December 31, 2021$(423)$— $(128)$(551)
Comprehensive (loss) income before reclassifications(18)(1)(16)
Reclassification from accumulated other comprehensive loss— 
Ending balance, March 31, 2022$(441)$— $(123)$(564)


NOTE 20 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 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 management does not expectbelieve that an adverse outcomeoutcomes in any of these commercial and legal claims, actions and complaints that are currently pending willreasonably likely to have a material adverse effect on the Company’s results of operations, financial position or cash flows. An adverse outcome could, nonetheless, be material to the results of operations or cash flows.

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 be presently be liable for the cost of clean-up and other remedial activities at 26 such sites as of March 31, 20222023 and December 31, 2021.2022. 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
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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.

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The Company had an accrual for environmental liabilities of $7 million as of both March 31, 20222023 and December 31, 20212022, included in Other current and Other non-current liabilities in the Condensed Consolidated Balance Sheets. This accrual, comprising 8which relates to eight of the sites, 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 whomwhich are large, solvent public companies, will fully pay the cost apportioned to them; currently available information from PRPs and/or federal or state environmental agencies concerning the scope of contamination and estimated remediation and consulting costs; and remediation alternatives). Clean-up and other remedial activities are complete or nearing completion at the other 18 sites, offor which there was no accrual as of March 31, 2022 and December 31, 2021.2023.


NOTE 21 EARNINGS PER SHARE

The Company presents both basic and diluted earnings per share of common stock (“EPS”) amounts. Basic EPS is calculated by dividing net earnings attributable to BorgWarner Inc. by the weighted average shares of common stock outstanding during the reporting period. Diluted EPS is calculated by dividing net earnings attributable to BorgWarner Inc. by the weighted average shares of common stock and common stock equivalents outstanding during the reporting period.

The dilutive impact of stock-based compensation is calculated using the treasury stock method. The treasury stock method assumes that the Company uses the assumed proceeds from the exercise of awards to repurchase common stock at the average market price during the period. The assumed proceeds under the treasury stock method include the purchase price that the grantee will pay in the future and compensation cost for future service that the Company has not yet recognized. The dilutive effects of performance-based stock awards are included in the computation of diluted earnings per share at the level the related performance criteria are met through the respective balance sheet date. There were 1.00.5 million and 0.91.0 million performance share units excluded from the computation of the diluted earnings for the three months ended March 31, 2023 and 2022, and 2021, respectively,respectively. These units were excluded because the related performance criteria had not been met as of the balance sheet dates.

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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,Three Months Ended March 31,
(in millions, except per share amounts)(in millions, except per share amounts)20222021(in millions, except per share amounts)20232022
Basic earnings per share:Basic earnings per share:  Basic earnings per share:  
Net earnings attributable to BorgWarner Inc. Net earnings attributable to BorgWarner Inc. $200 $65 Net earnings attributable to BorgWarner Inc. $217 $200 
Weighted average shares of common stock outstandingWeighted average shares of common stock outstanding238.2 237.7 Weighted average shares of common stock outstanding232.8 238.2 
Basic earnings per share of common stockBasic earnings per share of common stock$0.84 $0.27 Basic earnings per share of common stock$0.93 $0.84 
Diluted earnings per share:Diluted earnings per share:  Diluted earnings per share:  
Net earnings attributable to BorgWarner Inc. Net earnings attributable to BorgWarner Inc. $200 $65 Net earnings attributable to BorgWarner Inc. $217 $200 
Weighted average shares of common stock outstandingWeighted average shares of common stock outstanding238.2 237.7 Weighted average shares of common stock outstanding232.8 238.2 
Effect of stock-based compensationEffect of stock-based compensation0.8 0.7 Effect of stock-based compensation1.6 0.8 
Weighted average shares of common stock outstanding including dilutive sharesWeighted average shares of common stock outstanding including dilutive shares239.0 238.4 Weighted average shares of common stock outstanding including dilutive shares234.4 239.0 
Diluted earnings per share of common stockDiluted earnings per share of common stock$0.84 $0.27 Diluted earnings per share of common stock$0.93 $0.84 


NOTE 22 REPORTING SEGMENTS AND RELATED INFORMATION

The Company’s business is aggregated of 4into five reporting segments: Air Management, e-PropulsionDrivetrain & Drivetrain,Battery Systems, Fuel InjectionSystems, ePropulsion and Aftermarket. These segments are strategic business
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groups that are managed separately as each represents a specific grouping of related automotive components and systems.

In the first quarter of 2023, the Company elected to disaggregate the former e-Propulsion & Drivetrain reporting segment into two separate reporting segments of Drivetrain & Battery Systems and ePropulsion. The Drivetrain & Battery Systems segment’s technologies include battery management systems and control modules, software, friction and mechanical products for automatic transmissions and torque-management products. The ePropulsion segment primarily includes rotating electrical components, power electronics, inverters and electric motors.

In the first quarter of 2022, the Company announced that the Americas starter and alternator business, previously reported in its former e-Propulsion & Drivetrain segment, willwould transition to the Aftermarket segment. This transition is in process, and as of March 31, 2022, management continued to assess the performance of reporting segments using the structure that was in place in 2021. The Company has also announced in 2022 that the canisters and fuel delivery modules product lines currentlybusiness, previously reported in its Air Management segment, willwould transition to the Fuel Injection segment later in 2022. WhenSystems segment. Both of these transitions arewere completed and performance is assessed using the new structures, the reporting segment disclosures will be updated accordingly.

Additionally, during the firstsecond quarter of 2022. Additionally, in the fourth quarter of 2022, the Company moved its battery systems business, previously reported in its Air Management segment, to the former e-Propulsion & Drivetrain segment.

The reporting segment disclosures have been updated the definition of its measure of segment income or loss to exclude the impact of intangible asset amortization expense. The Company believes this change improves comparability of ongoing operations, given the increasing operating margin impact of intangible asset amortization arising from the Company’s merger and acquisition activity. Theaccordingly, including recasting prior period information disclosed below has been recast to reflect this change. Further,for the Company renamed its measure of segment income or loss from Segment Adjusted EBIT to Segment Adjusted Operating Income.new reporting structures.

Segment Adjusted Operating Income (Loss) is the measure of segment income or loss used by the Company. Segment Adjusted Operating Income (Loss) is comprised of operating income adjusted for restructuring, merger, acquisition and divestiture expense, intangible asset amortization expense, impairment charges and other items not reflective of ongoing operating income or loss.

Segment Adjusted Operating Income is the measure of segment income or loss used by the Company. The Company believes Segment Adjusted Operating Income (Loss) is most reflective of the operational profitability or loss of our reporting segments.

The following tables show segment information and Segment Adjusted Operating Income (Loss) for the Company’s reporting segments:

Net Sales by Reporting Segment
Three Months Ended March 31, 2023
(in millions)CustomersInter-segmentNet
Air Management$1,953 $26 $1,979 
Drivetrain & Battery Systems955 — 955 
Fuel Systems507 61 568 
ePropulsion439 48 487 
Aftermarket326 330 
Inter-segment eliminations— (139)(139)
Net sales$4,180 $— $4,180 

Three Months Ended March 31, 2022
(in millions)CustomersInter-segmentNet
Air Management$1,752 $16 $1,768 
Drivetrain & Battery Systems895 — 895 
Fuel Systems529 62 591 
ePropulsion394 46 440 
Aftermarket304 307 
Inter-segment eliminations— (127)(127)
Net sales$3,874 $— $3,874 
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Net Sales

Total Assets by Reporting Segment
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
(in millions)CustomersInter-segmentNetCustomersInter-segmentNet
Air Management$1,895 $36 $1,931 $1,968 $43 $2,011 
e-Propulsion & Drivetrain1,346 44 1,390 1,419 47 1,466 
Fuel Injection430 42 472 427 48 475 
Aftermarket203 205 195 197 
Inter-segment eliminations— (124)(124)— (140)(140)
Net sales$3,874 $— $3,874 $4,009 $— $4,009 
(in millions)March 31, 2023December 31, 2022
Air Management$5,497 $5,376 
Drivetrain & Battery Systems3,830 3,963 
ePropulsion2,517 2,453 
Fuel Systems2,155 2,227 
Aftermarket1,309 1,281 
Total15,308 15,300 
Corporate1,809 1,694 
Consolidated$17,117 $16,994 

Segment Adjusted Operating Income (Loss)
Three Months Ended March 31,Three Months Ended March 31,
(in millions)(in millions)20222021(in millions)20232022
Air ManagementAir Management$257 $329 Air Management$285 $251 
e-Propulsion & Drivetrain119 149 
Fuel Injection52 34 
Drivetrain & Battery SystemsDrivetrain & Battery Systems110 113 
Fuel SystemsFuel Systems48 66 
AftermarketAftermarket24 21 Aftermarket45 39 
ePropulsionePropulsion(34)(17)
Segment Adjusted Operating IncomeSegment Adjusted Operating Income452 533 Segment Adjusted Operating Income454 452 
Corporate, including stock-based compensationCorporate, including stock-based compensation63 69 Corporate, including stock-based compensation58 63 
Merger, acquisition and divestiture expense23 13 
Merger, acquisition and divestiture expense, netMerger, acquisition and divestiture expense, net25 23 
Intangible asset amortization expenseIntangible asset amortization expense23 20 Intangible asset amortization expense24 23 
Restructuring expense (Note 5)Restructuring expense (Note 5)15 30 Restructuring expense (Note 5)15 
Gain on sale of business (Note 3)(24)— 
Net gain on insurance recovery for property damage— (2)
Gain on sale of businessGain on sale of business— (24)
Equity in affiliates’ earnings, net of taxEquity in affiliates’ earnings, net of tax(8)(12)Equity in affiliates’ earnings, net of tax(4)(8)
Unrealized loss on equity securities39 272 
Unrealized loss on debt and equity securitiesUnrealized loss on debt and equity securities15 39 
Interest expense, netInterest expense, net15 18 Interest expense, net10 15 
Other postretirement income(9)(11)
Other postretirement expense (income)Other postretirement expense (income)(9)
Earnings before income taxes and noncontrolling interestEarnings before income taxes and noncontrolling interest315 136 Earnings before income taxes and noncontrolling interest317 315 
Provision for income taxesProvision for income taxes91 42 Provision for income taxes87 91 
Net earningsNet earnings224 94 Net earnings230 224 
Net earnings attributable to noncontrolling interest, net of taxNet earnings attributable to noncontrolling interest, net of tax24 29 Net earnings attributable to noncontrolling interest, net of tax13 24 
Net earnings attributable to BorgWarner Inc. Net earnings attributable to BorgWarner Inc. $200 $65 Net earnings attributable to BorgWarner Inc. $217 $200 


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NOTE 23 OPERATING CASH FLOWS AND OTHER SUPPLEMENTAL FINANCIAL INFORMATION

Three Months Ended March 31,Three Months Ended March 31,
(in millions)(in millions)20222021(in millions)20232022
OPERATINGOPERATINGOPERATING
Net earningsNet earnings$224 $94 Net earnings$230 $224 
Adjustments to reconcile net earnings to net cash flows from operations:Adjustments to reconcile net earnings to net cash flows from operations: Adjustments to reconcile net earnings to net cash flows from operations: 
Depreciation and tooling amortizationDepreciation and tooling amortization157 175 Depreciation and tooling amortization159 157 
Intangible asset amortizationIntangible asset amortization23 20 Intangible asset amortization24 23 
Restructuring expense, net of cash paidRestructuring expense, net of cash paid12 18 Restructuring expense, net of cash paid12 
Stock-based compensation expenseStock-based compensation expense12 12 Stock-based compensation expense12 12 
Gain on sale of businessGain on sale of business(26)— Gain on sale of business— (26)
Deferred income tax benefitDeferred income tax benefit(8)(64)Deferred income tax benefit(3)(8)
Unrealized loss on equity securities39 272 
Unrealized loss on debt and equity securitiesUnrealized loss on debt and equity securities15 39 
Other non-cash adjustmentsOther non-cash adjustments(10)(16)Other non-cash adjustments(10)
Net earnings adjustments to reconcile to net cash flows from operations423 511 
Adjustments to reconcile net earnings to net cash (used in) provided by operating activitiesAdjustments to reconcile net earnings to net cash (used in) provided by operating activities447 423 
Retirement plan contributionsRetirement plan contributions(5)(7)Retirement plan contributions(6)(5)
Changes in assets and liabilities, excluding effects of acquisitions, divestitures and foreign currency translation adjustments:Changes in assets and liabilities, excluding effects of acquisitions, divestitures and foreign currency translation adjustments: Changes in assets and liabilities, excluding effects of acquisitions, divestitures and foreign currency translation adjustments: 
ReceivablesReceivables(282)(290)Receivables(224)(282)
InventoriesInventories(124)(104)Inventories(100)(124)
Prepayments and other current assetsPrepayments and other current assets— Prepayments and other current assets(9)
Accounts payable and accrued expensesAccounts payable and accrued expenses109 172 Accounts payable and accrued expenses(138)109 
Prepaid taxes and income taxes payablePrepaid taxes and income taxes payable(9)18 Prepaid taxes and income taxes payable13 (9)
Other assets and liabilitiesOther assets and liabilities42 Other assets and liabilities
Net cash provided by operating activities$116 $342 
Net cash (used in) provided by operating activitiesNet cash (used in) provided by operating activities$(12)$116 
SUPPLEMENTAL CASH FLOW INFORMATIONSUPPLEMENTAL CASH FLOW INFORMATIONSUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:Cash paid during the period for:Cash paid during the period for:
Interest, net$27 $25 
InterestInterest$27 $27 
Income taxes, net of refundsIncome taxes, net of refunds$96 $75 Income taxes, net of refunds$88 $96 
Balance as of:Balance as of:
Non-cash investing transactions:Non-cash investing transactions:March 31,
2022
December 31,
2021
Non-cash investing transactions:March 31,
2023
December 31,
2022
Period end accounts payable related to property, plant and equipment purchasesPeriod end accounts payable related to property, plant and equipment purchases$107 $142 Period end accounts payable related to property, plant and equipment purchases$166 $241 


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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. The Company’sBorgWarner’s products help improve vehicle performance, propulsion efficiency, stability and air quality. TheseThe Company manufactures and sells 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). The Company also manufactures and 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 nearly every major automotive OEM in the world.

Acquisition of AKASOLCharging Forward - Electrification Portfolio Strategy

On June 4,In 2021, the Company announced its strategy to aggressively grow its electrification product portfolio over time through organic investments and technology-focused acquisitions. The Company believes it is well positioned for the industry’s anticipated migration to electric vehicles (“EV”). The Company is targeting its revenue from products for pure electric vehicles to be over 25% of its total revenue in 2025 and approximately 45% of its total revenue in 2030. The Company believes it is on track to exceed its 2025 organic EV-related sales target. Based on new business awards and acquisitions completed a voluntary public takeover offer for shares of AKASOL AG (“AKASOL”), resulting in ownership of 89% of AKASOL’s outstanding shares. During 2021,to date, the Company increased its ownershipbelieves it is on track to 93% through the subsequent purchaseachieve $4.3 billion of additional shares. On February 10, 2022, the Company completed a merger squeeze out process (the “Squeeze Out”) to obtain the remaining shares, resultingEV-related revenue in 100% ownership. The acquisition further strengthens BorgWarner’s commercial vehicle and industrial electrification capabilities, which positions the Company to capitalize on what it believes to be a fast-growing battery module and pack market. Results of operations for AKASOL are included in the Company’s financial information following the date of acquisition and therefore are not included for2025. During the three months ended March 31, 2021. 2023, the Company’s EV-related revenue was approximately $270 million, or 6%, of its total revenue.

On December 6, 2022, the Company announced its intention to execute a tax-free spin-off of its Fuel Systems and Aftermarket segments into a separate, publicly traded company. The intended separation of its Fuel Systems and Aftermarket segments would support optimizing the Company’s combustion portfolio and advancing its electrification journey, while at the same time creating a new, focused company that would be able to pursue growth opportunities in alternative fuels, such as hydrogen, and in Aftermarket. The Company expects to complete the transaction by the end of the third quarter of 2023, subject to satisfaction of customary conditions.

Acquisitions

Hubei Surpass Sun Electric Charging Business

On March 1, 2023, the Company completed its acquisition of the electric vehicle solution, smart grid and smart energy businesses (“SSE”) of Hubei Surpass Sun Electric, pursuant to an Equity Transfer Agreement. The acquisition complements the Company’s existing European and North American charging footprint by adding a presence in China. The total consideration is ¥288 million ($42 million), including ¥268 million ($39 million) of base purchase price and ¥20 million ($3 million) of estimated earn-out payments. The Company paid ¥129 million ($19 million) of the base purchase price in the three months ended March 31, 2023. The remaining ¥139 million ($20 million) of base purchase price is payable in two installments with the last payment due before March 31, 2025. In addition, pursuant to the agreement, the Company could be obligated to remit up to ¥103 million ($15 million), in the form of contingent payments over approximately two years following the closing.
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Drivetek AG

On December 1, 2022, the Company acquired Drivetek AG (“Drivetek”), an engineering and product development company located in Switzerland. This acquisition strengthens the Company’s power electronics capabilities in auxiliary inverters, which the Company expects will accelerate the growth of its High Voltage eFan business. The Company paid ₣27 million ($29 million) at closing, and up to ₣10 million ($10 million) could be paid in the form of contingent earn-out payments over three years following the closing.

Rhombus Energy Solutions

On July 29, 2022, the Company acquired Rhombus Energy Solutions (“Rhombus”), a provider of charging solutions in the North American market. The acquisition complements the Company’s existing European charging footprint to accelerate organic growth and adds North American regional presence to its charging business. The Company paid $131 million at closing, and up to $30 million could be paid in the form of contingent payments over three years following the closing.

Santroll Automotive Components

On March 31, 2022, the Company acquired Santroll Automotive Components (“Santroll”), a carve-out of Santroll Electric Auto’s eMotor business. The acquisition is expected to strengthen the Company’s vertical integration, scale and portfolio breadth in light vehicle eMotors while allowing for increased speed to market. The total final consideration was $192 million. The consideration includes approximately ¥1.0 billion ($152 million) of base purchase price and ¥0.25 billion ($40 million) of originally estimated earn-out payments. The Company paid approximately ¥1.0 billion ($157 million) of base purchase price in the year ended December 31, 2022 and expects to recapture approximately $5 million of post-closing adjustments through a reduction of the second earn-out payment. As of March 31, 2023, the Company’s estimate of the earn-out payments was approximately ¥0.2 billion ($24 million), or $19 million net of the post-closing adjustments noted above. This liability is recorded in Other current liabilities in the Company’s Condensed Consolidated Balance Sheet.

Refer to Note 3, “Acquisitions,” to the Condensed Consolidated Financial Statements in Item 1 of this report for more information.

Key Trends and Economic Factors

COVID-19 and Supplier Disruptions. The impact of COVID-19, including changes in consumer behavior, pandemic fears and market downturns, and restrictions on business and individual activities, has created significant volatility in the global economy. Recent COVID-19 outbreaks in certain regions, including China where lock-downs due to COVID-19 have been imposed in more than 40 cities, continue to cause intermittent COVID-19-related disruptions in the Company’s supply chain and local manufacturing operations. The Company also continues to face supplier disruptions due to the semiconductor shortage. Further, actions taken by Russia in Ukraine could impact the Company’s suppliers and customers as well as the Company’s operations more generally in Europe.

Commodities and Other Inflationary Impacts. Prices for commodities remain volatile, and recently,since the beginning of 2021, the Company has experienced price increases for base metals (e.g., steel, aluminum and nickel), precious metals (e.g., palladium), and raw materials that are primarily used in batteries for electric vehicles (e.g., lithium and cobalt). In addition, manymost global economies includingwhere the United States,Company operates are experiencing elevated levels of inflation more generally, which is driving an increase in other input costs as well.costs. As a result, the Company has experienced, and is continuing to experience, higher material costs.


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RESULTS OF OPERATIONS

Three Months Ended March 31, 2022 vs. Three Months Ended March 31, 2021

The following table presents a summary of our operating results:

Three Months Ended March 31,
(in millions, except per share data)20222021
Net sales% of net sales% of net sales
Air Management$1,931 49.8 %$2,011 50.2 %
e-Propulsion & Drivetrain1,390 35.9 1,466 36.6 
Fuel Injection472 12.2 475 11.8 
Aftermarket205 5.3 197 4.9 
Inter-segment eliminations(124)(3.2)(140)(3.5)
Total net sales3,874 100.0 4,009 100.0 
Cost of sales3,124 80.6 3,191 79.6 
Gross profit750 19.4 818 20.4 
Selling, general and administrative expenses - R&D, net191 4.9 183 4.6 
Selling, general and administrative expenses - Other197 5.1 194 4.8 
Restructuring expense15 0.4 30 0.7 
Other operating (income) expense, net(5)(0.1)0.2 
Operating income352 9.1 403 10.1 
Equity in affiliates’ earnings, net of tax(8)(0.2)(12)(0.3)
Unrealized loss on equity securities39 1.0 272 6.8 
Interest expense, net15 0.4 18 0.4 
Other postretirement income(9)(0.2)(11)(0.3)
Earnings before income taxes and noncontrolling interest315 8.1 136 3.4 
Provision for income taxes91 2.3 42 1.0 
Net earnings224 5.8 94 2.3 
Net earnings attributable to noncontrolling interest, net of tax24 0.6 29 0.7 
Net earnings attributable to BorgWarner Inc. $200 5.2 %$65 1.6 %
Earnings per share — diluted$0.84 $0.27 

Net sales for the three months ended March 31, 2022 totaled $3,874 million, a decrease of 3% from the three months ended March 31, 2021. The acquisition of AKASOL contributed $44 million in additional sales in the three months ended March 31, 2022. In December 2021, the Company sold its Water Valley, Mississippi manufacturing facility which accounted for $52 million of net sales in the three months ended March 31, 2021 that did not recur in 2022. Foreign currencies resulted in a year-over-year decrease in sales of approximately $113 million primarily due to the weakening of the Euro relative to the U.S. Dollar. The net decrease excluding these items was primarily due to the decline in industry production compared to the prior year, partially offset by increased demand for the Company’s products.

Cost of sales as a percentage of net sales was 80.6% during the three months ended March 31, 2022, compared to 79.6% during the three months ended March 31, 2021. The Company’s material cost as a percentage of sales was 56% and 54% of net sales during the three months ended March 31, 2022 and 2021, respectively. The increase in material cost as a percentage of sales reflects increasing commodity and other material costs. Gross profit and gross margin were $750 million and 19.4%, respectively, during the three months ended March 31, 2022 compared to $818 million and 20.4%, respectively, during the three months ended March 31, 2021. The decrease in gross margin was primarily due to increases in commodity and other costs.

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Selling, general and administrative expenses (“SG&A”) for the three months ended March 31, 2022 were $388 million as compared to $377 million for the three months ended March 31, 2021. SG&A as a percentage of net sales was 10.0% and 9.4% for the three months ended March 31, 2022 and 2021, respectively.

Research and Development (“R&D”) costs, net of customer reimbursements, were $191 million, or 4.9% of net sales, for the three months ended March 31, 2022, compared to $183 million, or 4.6% of net sales, for the three months ended March 31, 2021. The increase in R&D costs, net of customer reimbursements, was primarily due to higher investment to support the continued development of the Company’s electrification portfolio. The Company will continue to invest in R&D programs, which are necessary to support short- and long-term growth. The Company’s current long-term expectation for R&D spending is in the range of 5.0% to 5.5% of net sales.

Restructuring expense was $15 million and $30 million for the three months ended March 31, 2022 and 2021, respectively, primarily related to employee benefit costs. Refer to Note 5 “Restructuring” to the Condensed Consolidated Financial Statements in Item 1 of this report for more information.

In February 2020, the Company announced a restructuring plan to address existing structural costs. During the three month periods ended March 31, 2022 and 2021, the Company recorded $13 million and $24 million of restructuring charges related to this plan, respectively. Cumulatively, the Company has incurred $264 million of restructuring charges related to this plan. This plan is expected to result in a total of $300 million of restructuring costs through 2022. The resulting annual gross savings are expected to be in excess of $100 million and will be utilized to sustain overall operating margin profile and cost competitiveness. Nearly all of the restructuring charges associated with this plan are expected to be cash expenditures.

In 2019, legacy Delphi Technologies announced a restructuring plan to reshape and realign its global technical center footprint and reduce salaried and contract staff. The Company continued actions under this program post-acquisition and has recorded cumulative charges of $64 million since October 1, 2020. The majority of the actions under this program have been completed.

Other operating (income) expense, net was income of $5 million and expense of $8 million for the three months ended March 31, 2022 and 2021, respectively.

For the three months ended March 31, 2022 and 2021, merger, acquisition and divestiture related expenses were $23 million and $13 million, respectively. The increase in 2022 was primarily related to related to professional fees associated with specific acquisition and disposition initiatives.

Additionally, during the three months ended March 31, 2022, the Company recorded a pre-tax gain of $24 million in connection with the sale of its interest in BorgWarner Romeo Power LLC (“Romeo JV”), in which the Company owned a 60% interest. Refer to Note 3, “Acquisitions,” to the Condensed Consolidated Financial Statements for more information.

Other operating (income) expense, net is primarily comprised of items included within the subtitle “Non-comparable items impacting the Company’s earnings per diluted share and net earnings” below.

Equity in affiliates’ earnings, net of tax was $8 million and $12 million for the three months ended March 31, 2022 and 2021, respectively. This line item is driven by the results of the Company’s unconsolidated joint ventures.

Unrealized loss on equity securities was $39 million and $272 million for the three months ended March 31, 2022 and 2021, respectively. This line item reflects the net unrealized gains or losses recognized primarily due to the Company’s investment in Romeo Power, Inc. In the three months ended March 31, 2022, the Company sold all of its remaining investment in Romeo Power, Inc. For further
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details, see Note 3, “Acquisitions,” to the Condensed Consolidated Financial Statements in Item 1 of this report.

Provision for income taxes was $91 million for the three months ended March 31, 2022, resulting in an effective rate of 29%. This is compared to $42 million, or 31%, for the three-month period ended March 31, 2021. The increase in the provision for income taxes was primarily due to increased earnings before income taxes.

In addition, during the three months ended March 31, 2021, the Company recognized a net discrete tax benefit of $20 million primarily related to changes to certain withholding rates applied to unremitted earnings.

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Non-comparable items impacting the Company’s earnings per diluted share

The Company’s earnings per diluted share were $0.84 and $0.27 for the three months ended March 31, 2022 and 2021, respectively. The Company believes the table below is useful in highlighting non-comparable items that impacted its earnings per diluted share. The non-comparable items presented below are calculated after tax using the corresponding effective tax rate discrete to each item and the weighted average number of diluted shares for each of the periods then ended.
Three Months Ended March 31,
Non-comparable items:20222021
Restructuring expense$(0.06)$(0.12)
Merger, acquisition and divestiture expense(0.09)(0.04)
Gain on sale of business0.08 — 
Unrealized loss on equity securities(0.14)(0.87)
Tax adjustments1
— 0.09 
Total impact of non-comparable items per share - diluted$(0.21)$(0.94)
_____________________________
1During the three months ended March 31, 2021, the Company recognized a reduction in tax expense of $20 million primarily related to changes to certain withholding rates applied to unremitted earnings.

Results by Reporting Segment

The Company’s business is comprised of four reporting segments: Air Management, e-Propulsion & Drivetrain, Fuel Injection and Aftermarket. These segments are strategic business groups that are managed separately as each represents a specific grouping of related automotive components and systems.

In the first quarter of 2022, the Company announced that the starter and alternator business previously reported in its e-Propulsion & Drivetrain segment will transition to the Aftermarket segment. This transition is in process, and as of March 31, 2022, management continued to assess the performance of reporting segments using the structure that was in place in 2021. The Company has also announced that the canisters and fuel delivery modules product lines currently reported in its Air Management segment will transition to the Fuel Injection segment later in 2022. When these transitions are completed, and performance is assessed using the new structures, the reporting segment disclosures will be updated accordingly.

Additionally, during the first quarter of 2022, the Company updated the definition of its measure of segment income or loss to exclude the impact of intangible asset amortization expense. The Company believes this change improves comparability of ongoing operations, given the increasing operating margin impact of intangible asset amortization arising from the Company’s merger and acquisition activity. The prior period information disclosed below has been recast to reflect this change. Further, the Company renamed its measure of segment income or loss from Segment Adjusted EBIT to Segment Adjusted Operating Income.

Segment Adjusted Operating Income is comprised of operating income adjusted for restructuring, merger, acquisition and divestiture expense, intangible asset amortization expense, impairment charges and other items not reflective of ongoing operating income or loss.

Segment Adjusted Operating Income is the measure of segment income or loss used by the Company. The Company believes Segment Adjusted Operating Income is most reflective of the operational profitability or loss of our reporting segments.

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The following table presents net sales and Segment Adjusted Operating Income for the Company’s reporting segments:
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
(in millions)Net salesSegment Adjusted Operating Income% marginNet salesSegment Adjusted Operating Income% margin
Air Management$1,931 $257 13.3 %$2,011 $329 16.4 %
e-Propulsion & Drivetrain1,390 119 8.6 %1,466 149 10.2 %
Fuel Injection472 52 11.0 %475 34 7.2 %
Aftermarket205 24 11.7 %197 21 10.7 %
Inter-segment eliminations(124)— (140)— 
Totals$3,874 $452 $4,009 $533 

Three Months Ended March 31, 2022 vs. Three Months Ended March 31, 2021

The Air Management segment’s net sales decreased $80 million, or 4%, and Segment Adjusted Operating Income decreased $72 million from the three months ended March 31, 2021. Foreign currencies resulted in a year-over-year decrease in sales of approximately $70 million primarily due to the weakening of the Euro relative to the U.S. Dollar. The net decrease excluding the impact of foreign currencies was primarily due to the decline in industry production, partially offset by sales from the acquisition of AKASOL. The Segment Adjusted Operating margin was 13.3% for the three months ended March 31, 2022, compared to 16.4% for the three months ended March 31, 2021. The Segment Adjusted Operating margin decrease was primarily due to the impact of lower sales, higher commodity costs and the dilutive impact of the acquisition of AKASOL.

The e-Propulsion & Drivetrain segment’s net sales decreased $76 million, or 5%, and Segment Adjusted Operating Income decreased $30 million from the three months ended March 31, 2021. In 2021, the Company sold its Water Valley, Mississippi manufacturing facility which was included in the e-Propulsion & Drivetrain segment and accounted for $52 million of net sales in the three months ended March 31, 2021 that did not recur in 2022. Foreign currencies resulted in a year-over-year decrease in sales of approximately $20 million primarily due to the weakening of the Euro relative to the U.S. Dollar. The net decrease excluding these items was primarily due to the decline in industry production, partially offset by increased demand for the Company’s products. The e-Propulsion & Drivetrain Segment Adjusted Operating margin was 8.6% during the three months ended March 31, 2022, down from 10.2% during the three months ended March 31, 2021. The Segment Adjusted Operating margin decrease was primarily due to the impact of lower sales, higher commodity costs and increased investments in R&D.

The Fuel Injection segment’s net sales decreased $3 million, or 1%, and Segment Adjusted Operating Income increased $18 million from the three months ended March 31, 2021. Foreign currencies resulted in a year-over-year decrease in sales of approximately $10 million primarily due to the weakening of the Euro relative to the U.S. Dollar. The Fuel Injection Segment Adjusted Operating margin was 11.0% for the three months ended March 31, 2022, compared to 7.2% for the three months ended March 31, 2021. The Segment Adjusted Operating margin increase was primarily due to the non-recurrence in 2022 of an expense related to a troubled supplier agreement in 2021.

The Aftermarket segment’s net sales increased $8 million, or 4%, and Segment Adjusted Operating Income increased $3 million from the three months ended March 31, 2021. Foreign currencies resulted in a year-over-year decrease in sales of approximately $13 million primarily due to the weakening of the Euro and British Pound relative to the U.S. Dollar. The net increase excluding the impact of foreign currencies was primarily due to pricing and increased demand for the Company’s products. The Aftermarket Segment Adjusted Operating margin was 11.7% for the three months ended March 31, 2022, compared to 10.7% for the three months ended March 31, 2021. The Segment Adjusted Operating margin increase was primarily due to increased pricing.
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Outlook

The Company expects global industry production to modestlybe flat to a modest increase year-over-yearyear over year in 2022, as supply of certain components, particularly semiconductor chips, is expected to improve modestly during the year. However, the benefit of these improvements is expected to be partially offset by various global disruptions, including but not limited to, input cost inflation, supply chain shutdowns, a potential more widespread resurgence of COVID-19 and impacts from Russia’s invasion of Ukraine.2023. The Company also expects net new business-related sales growth, due to the increased penetration of BorgWarner products around the world,and increasing electric vehicle revenue, to drive a sales increase in excess of the expected growth in industry production.production outlook. Recoveries from the Company’s customers of material cost inflation arising from non-contractual commercial negotiations with those customers are also expected to increase net sales year over year. As a result, the Company expects increased revenue in 2022,2023, excluding the impact of foreign currencies.
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The Company expects its resultsthe earnings benefit of this revenue growth to be impactedpartially offset by a planned increase in electrification-related Research & Development (“R&D”) expenditures during 2022.2023. This planned R&D increase is to support growth in the Company’s electric vehicle-related products and is primarily related to supporting the launch of recently awarded programs. The Company also expects higher commodity costs, particularly related to steel and petroleum-based resin products, and other supplier cost increases to negatively impact its results of operations. The Company expects to only partially mitigate these items through various contractual pass through arrangements with its customers, commercial negotiations with the Company’s customers and suppliers, cost reductions due to the Company’s restructuring activities and synergies related to the acquisition of Delphi Technologies.

The Company maintains a positive long-term outlook for its global business and is committed to new product development and strategic investments to enhance its product leadership strategy. There are several trends that are driving the Company’s long-term growth that management expects to continue, including adoption of product offerings for electrified vehicles and increasingly stringent global emissions standards that support demand for the Company’s products driving vehicle efficiency.


RESULTS OF OPERATIONS

Three Months Ended March 31, 2023 vs. Three Months Ended March 31, 2022

The following table presents a summary of our operating results:

Three Months Ended March 31,
(in millions, except per share data)20232022
Net sales% of net sales% of net sales
Air Management$1,979 47.3 %$1,768 45.6 %
Drivetrain & Battery Systems955 22.8 895 23.1 
Fuel Systems568 13.6 591 15.3 
ePropulsion487 11.7 440 11.4 
Aftermarket330 7.9 307 7.9 
Inter-segment eliminations(139)(3.3)(127)(3.3)
Total net sales4,180 100.0 3,874 100.0 
Cost of sales3,430 82.1 3,124 80.6 
Gross profit750 17.9 750 19.4 
Selling, general and administrative expenses - R&D, net193 4.6 191 4.9 
Selling, general and administrative expenses - Other191 4.6 197 5.1 
Restructuring expense0.2 15 0.4 
Other operating expense (income), net19 0.5 (5)(0.1)
Operating income340 8.1 352 9.1 
Equity in affiliates’ earnings, net of tax(4)(0.1)(8)(0.2)
Unrealized loss on debt and equity securities15 0.4 39 1.0 
Interest expense, net10 0.2 15 0.4 
Other postretirement income— (9)(0.2)
Earnings before income taxes and noncontrolling interest317 7.6 315 8.1 
Provision for income taxes87 2.1 91 2.3 
Net earnings230 5.5 224 5.8 
Net earnings attributable to noncontrolling interest, net of tax13 0.3 24 0.6 
Net earnings attributable to BorgWarner Inc. $217 5.2 %$200 5.2 %
Earnings per share — diluted$0.93 $0.84 

Net sales
Net sales for the three months ended March 31, 2023 totaled $4,180 million, an increase of $306 million, or 8%, compared to the three months ended March 31, 2022. The change in net sales for the three months ended March 31, 2023 was primarily driven by the following:
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Favorable volume, mix and net new business increased sales approximately $398 million, or 10%. This increase was primarily driven by higher weighted average market production as estimated by the Company, which was up approximately 7% from the three months ended March 31, 2022. The remaining increase primarily reflects sales growth above market production, which the Company believes reflects higher demand for its products. Weighted average market production reflects light and commercial vehicle production as reported by IHS weighed for the Company’s geographic exposure, as estimated by the Company.
Fluctuations in foreign currencies resulted in a year-over-year decrease in sales of approximately $162 million primarily due to the weakening of the Euro, Chinese Renminbi and Korean Won relative to the U.S. Dollar.
Recoveries from the Company’s customers of material cost inflation arising from non-contractual commercial negotiations with those customers and normal contractual customer commodity pass-through arrangements increased net sales by approximately $48 million.
Acquisitions contributed $22 million in additional sales during the three months ended March 31, 2023.

Cost of sales and gross profit
Cost of sales and cost of sales as a percentage of net sales were $3,430 million and 82.1%, respectively, during the three months ended March 31, 2023, compared to $3,124 million and 80.6%, respectively, during the three months ended March 31, 2022. The change in cost of sales for the three months ended March 31, 2023 was primarily driven by the following:

Higher sales volume, mix and net new business increased cost of sales by approximately $329 million.
Fluctuations in foreign currencies resulted in a year-over-year decrease in cost of sales of approximately $129 million primarily due to the weakening of the Euro, Chinese Renminbi and Korean Won relative to the U.S. Dollar.
Cost of sales was also impacted by material cost inflation of approximately $76 million arising from non-contractual commercial negotiations with the Company’s suppliers and normal contractual supplier commodity pass-through arrangements.

Gross profit and gross margin were $750 million and 17.9%, respectively, during the three months ended March 31, 2023 compared to $750 million and 19.4%, respectively, during the three months ended March 31, 2022. The decrease in gross margin was primarily due to the factors discussed above.

Selling, general and administrative expenses (“SG&A”)
SG&A for the three months ended March 31, 2023 was $384 million as compared to $388 million for the three months ended March 31, 2022. SG&A as a percentage of net sales was 9.2% and 10.0% for the three months ended March 31, 2023 and 2022, respectively. The change in SG&A was primarily attributable to:

Research and Development (“R&D”) costs remained relatively flat. R&D costs, net of customer reimbursements, were 4.6% of net sales for the three months ended March 31, 2023, compared to 4.9% of net sales for the three months ended March 31, 2022. The Company will continue to invest in R&D programs, which are necessary to support short- and long-term growth. The Company’s current long-term expectation for R&D spending is in the range of 5.0% to 5.5% of net sales.
Decreased administrative expenses of $7 million, primarily related to IT and professional fees.

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Restructuring expense was $7 million and $15 million for the three months ended March 31, 2023 and 2022, respectively, primarily related to employee benefit costs. Refer to Note 5 “Restructuring” to the Condensed Consolidated Financial Statements in Item 1 of this report for more information.

In February 2020, the Company announced a $300 million restructuring plan to address existing structural costs. During the three months ended March 31, 2023 and 2022, the Company recorded $3 million and $13 million of restructuring expense related to this plan, respectively. Cumulatively, the Company has incurred $290 million of restructuring charges related to this plan. The actions under this plan are substantially complete. The resulting annual gross savings are expected to be in excess of $100 million and are being utilized to sustain overall operating margin profile and cost competitiveness.

Other operating expense (income), net was expense of $19 million and income of $5 million for the three months ended March 31, 2023 and 2022, respectively.

During the three months ended March 31, 2023, the Company recorded merger, acquisition and divestiture expense, net of $22 million primarily related to professional fees associated with the intended separation of its Fuel Systems and Aftermarket segments and other specific acquisition and disposition initiatives. During the three months ended March 31, 2022, the Company recorded merger, acquisition and divestiture expense, net of $23 million primarily related to professional fees associated with specific acquisition and disposition initiatives.

During the three months ended March 31, 2022, the Company recorded a pre-tax gain of $24 million in connection with the sale of its interest in BorgWarner Romeo Power LLC (“Romeo JV”), in which the Company owned a 60% interest. Refer to Note 3, “Acquisitions,” to the Condensed Consolidated Financial Statements for more information.

Other operating expense, net is primarily comprised of items included within the subtitle “Non-comparable items impacting the Company’s earnings per diluted share and net earnings” below.

Equity in affiliates’ earnings, net of tax was $4 million and $8 million for the three months ended March 31, 2023 and 2022, respectively. This line item is driven by the results of the Company’s unconsolidated joint ventures.

Unrealized loss on debt and equity securities was $15 million and $39 million for the three months ended March 31, 2023 and 2022, respectively. This line item reflects the net unrealized gains or losses recognized due to valuing the Company’s investments at fair value. The amount recorded during the three months ended March 31, 2023 is primarily related to an unrealized loss recognized on debt securities. During the three months ended March 31, 2022, the Company recorded a loss and sold all of its remaining investment in Romeo Power, Inc. Refer to Note 3, “Acquisitions,” to the Condensed Consolidated Financial Statements for more information.

Interest expense, net was $10 million and $15 million for the three months ended March 31, 2023 and 2022, respectively. This decrease was primarily due to higher interest rates on cash and cash equivalents balances and interest income on debt securities.

Provision for income taxes was $87 million for the three months ended March 31, 2023, resulting in an effective rate of 27%. This is compared to $91 million, an effective rate of 29%, for the three months ended March 31, 2022. During the three months ended March 31, 2023, a discrete tax benefit of approximately $13 million was recorded related to the resolution of tax audits, and a $10 million discrete tax expense was recorded for the impact of enacted tax law changes.
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Non-comparable items impacting the Company’s earnings per diluted share

The Company’s earnings per diluted share were $0.93 and $0.84 for the three months ended March 31, 2023 and 2022, respectively. The non-comparable items presented below are calculated after tax using the corresponding effective tax rate discrete to each item and the weighted average number of diluted shares for each of the periods then ended. The Company believes the following table is useful in highlighting non-comparable items that impacted its earnings per diluted share:
Three Months Ended March 31,
Non-comparable items:20232022
Merger, acquisition and divestiture expense, net$(0.10)$(0.09)
Restructuring expense(0.02)(0.06)
Unrealized loss on debt and equity securities(0.05)(0.14)
Gain on sale of business— 0.08 
Tax adjustments0.01 — 
Total impact of non-comparable items per share - diluted$(0.16)$(0.21)


Results by Reporting Segment

The Company’s business is aggregated into five reporting segments: Air Management, Drivetrain & Battery Systems, Fuel Systems, ePropulsion and Aftermarket. These segments are strategic business groups that are managed separately as each represents a specific grouping of related automotive components and systems.

In the first quarter of 2023, the Company elected to disaggregate the former e-Propulsion & Drivetrain reporting segment into two separate reporting segments of Drivetrain & Battery Systems and ePropulsion. The Drivetrain & Battery Systems segment’s technologies include battery management systems and control modules, software, friction and mechanical products for automatic transmissions and torque-management products. The ePropulsion segment primarily includes rotating electrical components, power electronics, inverters and electric motors.

In the first quarter of 2022, the Company announced that the Americas starter and alternator business, previously reported in its former e-Propulsion & Drivetrain segment, would transition to the Aftermarket segment. The Company also announced in 2022 that the canisters and fuel delivery modules business, previously reported in its Air Management segment, would transition to the Fuel Systems segment. Both of these transitions were completed during the second quarter of 2022. Additionally, in the fourth quarter of 2022, the Company moved its battery systems business, previously reported in its Air Management segment, to the former e-Propulsion & Drivetrain segment.

The reporting segment disclosures have been updated accordingly, including recasting prior period information for the new reporting structures.

Segment Adjusted Operating Income (Loss) is the measure of segment income or loss used by the Company. Segment Adjusted Operating Income (Loss) is comprised of operating income adjusted for restructuring, merger, acquisition and divestiture expense, intangible asset amortization expense, impairment charges and other items not reflective of ongoing operating income or loss. The Company believes Segment Adjusted Operating Income (Loss) is most reflective of the operational profitability or loss of our reporting segments. Segment Adjusted Operating Margin is the Segment Adjusted Operating Income (Loss) divided by net sales of the reporting segment.

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The following tables presents net sales and Segment Adjusted Operating Income (Loss) for the Company’s reporting segments:

Three Months Ended March 31, 2023 vs. Three Months Ended March 31, 2022
Three Months Ended March 31, 2023Three Months Ended March 31, 2022
(in millions)Net salesSegment Adjusted Operating Income (Loss)% marginNet salesSegment Adjusted Operating Income (Loss)% margin
Air Management$1,979 $285 14.4 %$1,768 $251 14.2 %
Drivetrain & Battery Systems955 110 11.5 %895 113 12.6 %
Fuel Systems568 48 8.5 %591 66 11.2 %
ePropulsion487 (34)(7.0)%440 (17)(3.9)%
Aftermarket330 45 13.6 %307 39 12.7 %
Inter-segment eliminations(139)— (127)— 
Totals$4,180 $454 $3,874 $452 

The Air Management segment’s net sales increased $211 million, or 12%, and Segment Adjusted Operating Income increased $34 million from the three months ended March 31, 2022. Foreign currencies resulted in a year-over-year decrease in sales of approximately $81 million primarily due to the weakening of the Euro, Chinese Renminbi, and Korean Won relative to the U.S. Dollar. The increase excluding the impact of foreign currencies was primarily due to approximately $255 million of volume, mix and net new business driven by increased demand for the Company’s products and higher weighted average market production compared to the prior year and approximately $30 million from non-contractual commercial negotiations with the Company’s customers and normal contractual customer commodity pass-through arrangements. Segment Adjusted Operating Margin was 14.4% for the three months ended March 31, 2023, compared to 14.2% during the three months ended March 31, 2022. The Segment Adjusted Operating Margin increase was primarily due to higher revenue and reduced R&D investments, partially offset by inflationary impacts on costs.

The Drivetrain & Battery Systems segment’s net sales increased $60 million, or 7%, and Segment Adjusted Operating Income decreased $3 million from the three months ended March 31, 2022. Foreign currencies resulted in a year-over-year decrease in sales of approximately $32 million primarily due to the weakening of the Chinese Renminbi and Euro relative to the U.S. Dollar. The increase excluding the impact of foreign currencies was primarily due to approximately $89 million of volume, mix and net new business driven by increased demand for the Company’s battery systems and higher weighted average market production compared to the prior year in North America and Europe, which was partially offset by the impact of lower market production in China. Segment Adjusted Operating Margin was 11.5% for the three months ended March 31, 2023, compared to 12.6% during the three months ended March 31, 2022. The Segment Adjusted Operating Margin decrease was primarily due to product mix and increased investments in R&D for electrification products.

The Fuel Systems segment’s net sales decreased $23 million, or 4%, and Segment Adjusted Operating Income decreased $18 million from the three months ended March 31, 2022. Foreign currencies resulted in a year-over-year decrease in sales of approximately $24 million primarily due to the weakening of the Chinese Renminbi, British Pound, and Euro relative to the U.S. Dollar. Segment Adjusted Operating Margin was 8.5% for the three months ended March 31, 2023, compared to 11.2% during the three months ended March 31, 2022. The Segment Adjusted Operating Margin decrease was primarily due to product mix, higher supplier-related costs and higher net R&D expenditures.

The ePropulsion segment’s net sales increased $47 million, or 11%, and Segment Adjusted Operating Loss increased $17 million from the three months ended March 31, 2022. Foreign currencies resulted in
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a year-over-year decrease in sales of approximately $19 million primarily due to the weakening of the Chinese Renminbi relative to the U.S. Dollar. Acquisitions contributed $20 million in additional sales during the three months ended March 31, 2023. The increase excluding these items was primarily due to approximately $23 million of volume, mix and net new business driven by increased demand for the Company’s products and higher weighted average market production compared to the prior year and approximately $12 million from non-contractual commercial negotiations with the Company’s customers and normal contractual customer commodity pass-through arrangements. Segment Adjusted Operating Margin was (7.0)% for the three months ended March 31, 2023, compared to (3.9)% during the three months ended March 31, 2022. The Segment Adjusted Operating Loss is primarily due to investments in R&D for electrification products. The Segment Adjusted Operating Margin decrease was due to a planned increase in R&D for electrification products.

The Aftermarket segment’s net sales increased $23 million, or 7%, and Segment Adjusted Operating Income increased $6 million from the three months ended March 31, 2022. Foreign currencies resulted in a year-over-year decrease in sales of approximately $6 million primarily due to the weakening of the Euro relative to the U.S. Dollar. The increase excluding the impact of foreign currencies was primarily due to approximately $26 million of volume, mix and net new business driven by increased demand for the Company’s products and approximately $5 million of pricing. Segment Adjusted Operating Margin was 13.6% for the three months ended March 31, 2023, compared to 12.7% during the three months ended March 31, 2022. The Segment Adjusted Operating Margin increase was primarily due to higher revenue and increased pricing.


FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY

The Company maintains various liquidity sources, including cash and cash equivalents and the unused portion of its multi-currency revolving credit agreement. As of March 31, 2022,2023, the Company had liquidity of $3,501$2,950 million, comprised of cash and cash equivalent balances of $1,501$950 million and an undrawn revolving credit facility of $2,000 million. The Company was in full compliance with its covenants under the revolving credit facility and had full access to its undrawn revolving credit facility. Given the Company’s strong liquidity position, management believes that it will have sufficient liquidity and will maintain compliance with all covenants through at least the next 12 months.

As of March 31, 2022,2023, cash balances of $1,173$861 million were held by the Company’s subsidiaries outside the United States. Cash and cash equivalents held by these subsidiaries are used to fund foreign operational activities and future investments, including acquisitions. The majority of cash held outside the United States is available for repatriation. The Company uses its U.S. liquidity primarily for various corporate purposes, including but not limited to debt service, share repurchases, dividend distributions, acquisitions and other corporate expenses.

The Company has a $2.0 billion multi-currency revolving credit facility that includes a feature allowing the Company the ability to increase the facility by $1.0 billion with bank group approval. This facility matures in March 2025. The credit facility agreement contains customary events of default and one key financial covenant, which is a debt-to-EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) ratio. The Company was in compliance with the financial covenant at March 31, 2022.2023. At March 31, 20222023 and December 31, 2021,2022, the Company had no outstanding borrowings under this facility.

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The Company’s commercial paper program allows the Company to issue up to $2.0 billion of short-term, unsecured commercial paper notes under the limits of its multi-currency revolving credit facility. Under this program, the Company may issue notes from time to time and use the proceeds for general corporate purposes. The Company had no outstanding borrowings under this program as of March 31, 20222023 and December 31, 2021.2022.

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The total current combined borrowing capacity under the multi-currency revolving credit facility and commercial paper program cannot exceed $2.0 billion.

In addition to the revolving credit facility, the Company’s universal shelf registration provides the ability to issue various debt and equity instruments subject to market conditions.

On February 9, 20228, 2023 and April 27, 2022,26, 2023 the Company’s Board of Directors declared quarterly cash dividends of $0.17 per share of common stock. The dividends declared in the first quarter were paid on March 15, 2022,2023, and the dividends declared in the second quarter will be paid on June 15, 2022.2023.

From a credit quality perspective, the Company has a credit rating of BBB+ from Fitch Ratings, BBB from Standard & Poor's and Baa1 from Moody's. The current outlook from Moody's andeach of Fitch, Ratings is stable. The current outlook from Standard & Poor'sPoor’s and Moody’s is negative.stable. None of the Company's debt agreements require accelerated repayment in the event of a downgrade in credit ratings.

Cash Flows

Operating Activities
Three Months Ended March 31, 2022Three Months Ended March 31,
(in millions)(in millions)20222021(in millions)20232022
OPERATINGOPERATINGOPERATING
Net earningsNet earnings$224 $94 Net earnings$230 $224 
Adjustments to reconcile net earnings to net cash flows from operations:Adjustments to reconcile net earnings to net cash flows from operations:Adjustments to reconcile net earnings to net cash flows from operations:
Depreciation and tooling amortizationDepreciation and tooling amortization157 175 Depreciation and tooling amortization159 157 
Intangible asset amortizationIntangible asset amortization23 20 Intangible asset amortization24 23 
Restructuring expense, net of cash paidRestructuring expense, net of cash paid12 18 Restructuring expense, net of cash paid12 
Stock-based compensation expenseStock-based compensation expense12 12 Stock-based compensation expense12 12 
Gain on sale of businessGain on sale of business(26)— Gain on sale of business— (26)
Deferred income tax benefitDeferred income tax benefit(8)(64)Deferred income tax benefit(3)(8)
Unrealized loss on equity securities39 272 
Unrealized loss on debt and equity securitiesUnrealized loss on debt and equity securities15 39 
Other non-cash adjustmentsOther non-cash adjustments(10)(16)Other non-cash adjustments(10)
Net earnings adjustments to reconcile to net cash flows from operations423 511 
Adjustments to reconcile net earnings to net cash (used in) provided by operating activitiesAdjustments to reconcile net earnings to net cash (used in) provided by operating activities447 423 
Retirement plan contributionsRetirement plan contributions(5)(7)Retirement plan contributions(6)(5)
Changes in assets and liabilities, excluding effects of acquisitions, divestitures and foreign currency translation adjustments:Changes in assets and liabilities, excluding effects of acquisitions, divestitures and foreign currency translation adjustments:Changes in assets and liabilities, excluding effects of acquisitions, divestitures and foreign currency translation adjustments:
ReceivablesReceivables(282)(290)Receivables(224)(282)
InventoriesInventories(124)(104)Inventories(100)(124)
Accounts payable and accrued expensesAccounts payable and accrued expenses109 172 Accounts payable and accrued expenses(138)109 
Other assets and liabilitiesOther assets and liabilities(5)60 Other assets and liabilities(5)
Net cash provided by operating activities$116 $342 
Net cash (used in) provided by operating activitiesNet cash (used in) provided by operating activities$(12)$116 

Net cash provided byused in operating activities was $116 million and $342$12 million for the three months ended March 31, 2022 and 2021, respectively.2023 compared to net cash provided by operating activities of $116 million for the three months ended March 31, 2022. The decrease for the three months ended March 31, 2022,2023, compared with the three months ended March 31, 20212022 was primarily due to lower net earnings adjusted for non-cash charges and higher increases inincreased working capital.capital investments.

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Investing Activities
Three Months Ended March 31, 2022Three Months Ended March 31,
(in millions)(in millions)20222021(in millions)20232022
INVESTINGINVESTINGINVESTING
Capital expenditures, including tooling outlaysCapital expenditures, including tooling outlays$(177)$(195)Capital expenditures, including tooling outlays$(278)$(177)
Capital expenditures for damage to property, plant and equipment— (2)
Payments for businesses acquired, net of cash acquiredPayments for businesses acquired, net of cash acquired(157)— Payments for businesses acquired, net of cash acquired(19)(157)
Proceeds from settlement of net investment hedges, netProceeds from settlement of net investment hedges, net12 11 Proceeds from settlement of net investment hedges, net13 12 
Proceeds from (payments for) investments in equity securities30 (2)
Proceeds from investments in debt and equity securities, netProceeds from investments in debt and equity securities, net— 30 
Proceeds from the sale of business, netProceeds from the sale of business, net25 — Proceeds from the sale of business, net— 25 
Proceeds from asset disposals and other, netProceeds from asset disposals and other, net13 Proceeds from asset disposals and other, net13 
Net cash used in investing activitiesNet cash used in investing activities$(254)$(185)Net cash used in investing activities$(282)$(254)

Net cash used in investing activities was $282 million during the first three months of 2023 compared to $254 million during the first three months of 2022 compared to $185 million during the first three months of 2021.2022. In the first quarter of 2022,2023, the Company acquired Santroll Automotive Components, which was partially offset by proceeds related to the liquidationelectric vehicle solution, smart grid and smart energy businesses of the Company’s investment in Romeo Power, Inc. and the sale of the Company’s 60% interest in BorgWarner Romeo Power LLC.Hubei Surpass Sun Electric. As a percentage of sales, capital expenditures were 4.6%6.7% and 4.9%4.6% for the three months ended March 31, 2023 and 2022, and 2021, respectively. The increase in capital expenditures is to support the planned growth of electrification products.

Financing Activities
Three Months Ended March 31, 2022Three Months Ended March 31,
(in millions)(in millions)20222021(in millions)20232022
FINANCINGFINANCINGFINANCING
Net increase in notes payable$— $
Additions to debtAdditions to debt— 22 Additions to debt$$— 
Payments for debt issuance costs— (1)
Repayments of debt, including current portionRepayments of debt, including current portion(2)(26)Repayments of debt, including current portion(2)(2)
Payments for purchase of treasury stockPayments for purchase of treasury stock(40)— Payments for purchase of treasury stock— (40)
Payments for stock-based compensation itemsPayments for stock-based compensation items(17)(13)Payments for stock-based compensation items(25)(17)
Purchase of noncontrolling interestPurchase of noncontrolling interest(59)— Purchase of noncontrolling interest— (59)
Dividends paid to BorgWarner stockholdersDividends paid to BorgWarner stockholders(41)(40)Dividends paid to BorgWarner stockholders(39)(41)
Dividends paid to noncontrolling stockholdersDividends paid to noncontrolling stockholders(36)— Dividends paid to noncontrolling stockholders(25)(36)
Net cash used in financing activitiesNet cash used in financing activities$(195)$(51)Net cash used in financing activities$(90)$(195)

Net cash used in financing activities was $90 million during the first three months of 2023 compared to $195 million during the first three months of 2022 compared to $51 million during the first three months of 2021. This increase in net2022. Net cash used in financing activities during the first three months of 20222023 was primarily related to the $57$39 million in dividends paid to settle the AKASOL Squeeze Out and purchase the remaining outstanding shares, $40 million of BorgWarner share repurchases and $36Company’s stockholders, $25 million in dividends paid to noncontrolling stockholders.stockholders of the Company’s consolidated joint ventures and $25 million in stock-based compensation items.


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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 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 management does not expectbelieve that an adverse outcomeoutcomes in any of these commercial and legal claims, actions and complaints that are currently pending willreasonably likely to have a material adverse effect on the Company’s results of operations, financial position or cash flows. An adverse outcome could, nonetheless, be material to the results of operations or cash flows.

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 be presently be liable for the cost of clean-up and other remedial activities at 26 such sites as of March 31, 20222023 and December 31, 2021.2022. 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.

Refer to Note 20, “Contingencies,” to the Condensed Consolidated Financial Statements in Item 1 of this report for further details and information respecting the Company’s environmental liability.

New Accounting Pronouncements

Refer to Note 2, “New Accounting Pronouncements,” to the Condensed Consolidated Financial Statements in Item 1 of this report for a detailed description of new applicable accounting pronouncements.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to the information concerning the Company’s 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, 2021.2022.

Foreign currency exchange rate risk is the risk that the Company will incur economic losses due to adverse changes in foreign currency exchange rates. Currently, the Company’s most significant currency exposures relate to the Brazilian Real, British Pound, Chinese Renminbi, Euro, Polish Zloty, Singapore Dollar, Korean Won, Mexican Peso, Thailand Baht and Turkish Lira. The Company mitigates its foreign currency exchange rate risk by establishing local production facilities and related supply chain participants in the markets it serves, by invoicing customers in the same currency as the source of the products and by funding some of its investments in foreign markets through local currency loans. The Company also monitors its foreign currency exposure in each country and implements strategies to respond to changing economic and political environments. In addition, the Company regularly enters into forward currency contracts, cross-currency swaps and foreign currency denominatedcurrency-denominated debt designated as
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net investment hedges to reduce exposure to translation exchange rate risk. As of March 31, 20222023 and December 31, 2021,2022, the Company recorded a deferred gain of $72$177 million and $10$196 million, respectively, both before taxes, for designated net investment hedges within accumulated other comprehensive income (loss).

The significant foreign currency translation adjustments during the three months ended March 31, 20222023 and 20212022 are shown in the following tables, which provide the percentage change in U.S. dollar against the respective currencies and the approximate impacts of these changes recorded within other comprehensive income (loss) for the respective periods.

(in millions, except for percentages)(in millions, except for percentages)Three Months Ended March 31, 2022Three Months Ended March 31, 2021(in millions, except for percentages)Three Months Ended March 31, 2023
EuroEuro1.3 %$22 
Brazilian realBrazilian real18 %$34 (8)%$(13)Brazilian real4.4 %$10 
Euro(3)%$(30)(4)%$(34)
Chinese renminbiChinese renminbi0.4 %$10 
Korean wonKorean won(2)%$(10)(4)%$(28)Korean won(3.4)%$(12)
British pound(3)%$(10)%$

(in millions, except for percentages)Three Months Ended March 31, 2022
Brazilian real17.6 %$34 
Korean won(2.2)%$(10)
British pound(3.0)%$(10)
Euro(2.7)%$(30)


Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the 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.

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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.

Purported Derivative Lawsuit

On December 15, 2020, a putative derivative lawsuit captioned Nyiradi, et al. v. Michas, et al., Case 1:20-cv-01700, was filed in the United States District Court for the District of Delaware against certain current and former directors and former officers of BorgWarner. The lawsuit, which was purportedly brought on the Company’s behalf, named BorgWarner as a nominal defendant. Plaintiffs alleged, among other things, violations of the federal securities laws and breaches of fiduciary duty relating to the Company’s past accounting for incurred but not yet asserted asbestos liabilities and its public disclosures. As a nominal defendant, the Company had no direct exposure in connection with the lawsuit. On April 14, 2021, BorgWarner and the plaintiffs agreed in principle to dismiss the case without prejudice, without any payment by BorgWarner, and the dismissal occurred on April 22, 2021. By letter dated June 9, 2021, a different stockholder delivered a litigation demand to the Board of Directors under Delaware law that included similar allegations relating to certain current and former directors and officers. The letter demanded that the Board conduct an investigation and commence a civil action against appropriate directors and officers. The parties have agreed to a memorandum of understanding detailing mutually agreed upon corporate governance reforms that the Company would implement. The parties are finalizing other documentation relating to the parties’ agreement, which contemplates that the Company will make a payment for fees and expenses in an amount that is not material to the Company, and the resolution will be subject to court approval.

Refer to Note 20, “Contingencies,” to the Condensed Consolidated Financial Statements of this Form 10-Q for a discussion of environmental and other litigation which is incorporated herein by reference.


Item 1A. Risk Factors

During the three months ended March 31, 2022,2023, 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, 2021.2022.

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

In January 2020, the Company’s Board of Directors authorized the purchase of up to $1 billion of the Company’s common stock, which replaced the previous share repurchase program. This share repurchase authorization does not expire. As of March 31, 2022,2023, the Company has repurchased $256repurchased $456 million of commoncommon stock under this repurchase program. Shares purchased under this authorization may 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.

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

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The following table provides information about the Company’s purchases of its equity securities that are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) during the quarter ended March 31, 2022:2023:
Issuer Purchases of Equity SecuritiesIssuer Purchases of Equity SecuritiesIssuer Purchases of Equity Securities
PeriodPeriodTotal number of shares purchasedAverage price per shareTotal number of shares purchased as part of publicly announced plans or programsApproximate dollar value of shares that may yet be purchased under plans or programs (in millions)PeriodTotal number of shares purchasedAverage price per shareTotal number of shares purchased as part of publicly announced plans or programsApproximate dollar value of shares that may yet be purchased under plans or programs (in millions)
January 1, 2022 - January 31, 2022
January 1, 2023 - January 31, 2023January 1, 2023 - January 31, 2023
Common Stock Repurchase ProgramCommon Stock Repurchase Program— $— — $784 Common Stock Repurchase Program— $— — $544 
Employee transactionsEmployee transactions704 $45.74 — Employee transactions4,168 $43.37 — 
February 1, 2022 - February 28, 2022
February 1, 2023 - February 28, 2023February 1, 2023 - February 28, 2023
Common Stock Repurchase ProgramCommon Stock Repurchase Program— $— — $784 Common Stock Repurchase Program— $— — $544 
Employee transactionsEmployee transactions411,608 $41.15 — Employee transactions509,124 $48.97 — 
March 1, 2022 - March 31, 2022
March 1, 2023 - March 31, 2023March 1, 2023 - March 31, 2023
Common Stock Repurchase ProgramCommon Stock Repurchase Program1,086,534 $36.81 1,086,534 $744 Common Stock Repurchase Program— $— — $544 
Employee transactionsEmployee transactions1,623 $38.90 — Employee transactions333 $49.11 — 
4645


Item 6. Exhibits
Exhibit 3.1
Exhibit 3.2
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 101.INSInline XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.*
Exhibit 101.SCHInline XBRL Taxonomy Extension Schema Document.*
Exhibit 101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.*
Exhibit 101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.*
Exhibit 101.LABInline XBRL Taxonomy Extension Label Linkbase Document.*
Exhibit 101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.*
Exhibit 104.1Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).*

*Filed herewith.

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SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly 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/ Daniel R. EtueCraig D. Aaron
(Signature)
  
 Daniel R. EtueCraig D. Aaron
  
 Vice President and Controller
 (Principal Accounting Officer)
 
Date: May 4, 20222023
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