UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
QUARTERLY REPORT
(Mark One)
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| ☑ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 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 class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Common Stock, par value $0.01 per share | | BWA | | New York Stock Exchange |
| 1.00% Senior Notes due 2031 | | BWA31 | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ 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 filer | ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller 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 October 21, 2022,27, 2023, the registrant had 234,153,930235,055,429 shares of voting common stock outstanding.
BORGWARNER INC.
FORM 10-Q
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 20222023
INDEX
CAUTIONARY STATEMENTS FOR FORWARD-LOOKING STATEMENTS
Statements in this Quarterly Report on Form 10-Q (“Form(this “Form 10-Q” or “report”) (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, and an inability to achieve expected levels of successrecoverability in additional commercial negotiations with customers concerning recovery of these costs; competitive challenges from existing and new competitors including OEM customers; the challenges associated with rapidly changing technologies, particularly as relatesthey relate 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; the ability to identify appropriate combustion portfolio businesses for dispositionpossibility that our recently-completed tax-free spin-off of our former Fuel Systems and consummate planned dispositions on acceptable terms;Aftermarket segments into a separate publicly traded company 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 areand is highly cyclical and subject to disruptions; our reliance on major OEM customers; the extent, duration, and impact of the current and any future strikes involving some of our OEM customers and any actions such OEM customers take in response; 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 any change in our expectations or any change in events, conditions, circumstances, or assumptions underlying the statements.
This section and the discussions contained in Item 1A, “Risk Factors,” and in Item 7, subheading “Critical Accounting Policies 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.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| | (in millions) | (in millions) | September 30,
2022 | | December 31,
2021 | (in millions) | September 30,
2023 | | December 31,
2022 |
| ASSETS | ASSETS | | | | ASSETS | | | |
| Cash, cash equivalents and restricted cash | Cash, cash equivalents and restricted cash | $ | 1,241 | | | $ | 1,844 | | Cash, cash equivalents and restricted cash | $ | 949 | | | $ | 1,083 | |
| Receivables, net | Receivables, net | 3,363 | | | 2,898 | | Receivables, net | 3,351 | | | 2,471 | |
| Inventories, net | Inventories, net | 1,658 | | | 1,534 | | Inventories, net | 1,328 | | | 1,217 | |
| Prepayments and other current assets | Prepayments and other current assets | 285 | | | 321 | | Prepayments and other current assets | 272 | | | 230 | |
| | Current assets of discontinued operations | | Current assets of discontinued operations | — | | | 1,616 | |
| Total current assets | Total current assets | 6,547 | | | 6,597 | | Total current assets | 5,900 | | | 6,617 | |
| | Property, plant and equipment, net | Property, plant and equipment, net | 4,006 | | | 4,395 | | Property, plant and equipment, net | 3,569 | | | 3,426 | |
| Investments and long-term receivables | Investments and long-term receivables | 422 | | | 530 | | Investments and long-term receivables | 624 | | | 819 | |
| Goodwill | Goodwill | 3,271 | | | 3,279 | | Goodwill | 2,936 | | | 2,978 | |
| Other intangible assets, net | Other intangible assets, net | 1,049 | | | 1,091 | | Other intangible assets, net | 557 | | | 619 | |
| Other non-current assets | Other non-current assets | 782 | | | 683 | | Other non-current assets | 518 | | | 489 | |
| Non-current assets of discontinued operations | | Non-current assets of discontinued operations | — | | | 2,046 | |
| Total assets | Total assets | $ | 16,077 | | | $ | 16,575 | | Total assets | $ | 14,104 | | | $ | 16,994 | |
| | LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | | LIABILITIES AND EQUITY | |
| Notes payable and other short-term debt | Notes payable and other short-term debt | $ | 56 | | | $ | 66 | | Notes payable and other short-term debt | $ | 63 | | | $ | 60 | |
| Accounts payable | Accounts payable | 2,400 | | | 2,276 | | Accounts payable | 2,396 | | | 2,146 | |
| Other current liabilities | Other current liabilities | 1,360 | | | 1,456 | | Other current liabilities | 1,114 | | | 1,084 | |
| | Current liabilities of discontinued operations | | Current liabilities of discontinued operations | — | | | 946 | |
| Total current liabilities | Total current liabilities | 3,816 | | | 3,798 | | Total current liabilities | 3,573 | | | 4,236 | |
| | Long-term debt | Long-term debt | 4,080 | | | 4,261 | | Long-term debt | 3,665 | | | 4,140 | |
| Retirement-related liabilities | Retirement-related liabilities | 252 | | | 290 | | Retirement-related liabilities | 129 | | | 129 | |
| Other non-current liabilities | Other non-current liabilities | 892 | | | 964 | | Other non-current liabilities | 730 | | | 686 | |
| Non-current liabilities of discontinued operations | | Non-current liabilities of discontinued operations | — | | | 295 | |
| Total liabilities | Total liabilities | 9,040 | | | 9,313 | | Total liabilities | 8,097 | | | 9,486 | |
| | Commitments and contingencies | Commitments and contingencies | | Commitments and contingencies | |
| | Common stock | Common stock | 3 | | | 3 | | Common stock | 3 | | | 3 | |
| Capital in excess of par value | Capital in excess of par value | 2,650 | | | 2,637 | | Capital in excess of par value | 2,680 | | | 2,675 | |
| Retained earnings | Retained earnings | 7,239 | | | 6,671 | | Retained earnings | 6,010 | | | 7,454 | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | (1,078) | | | (551) | | Accumulated other comprehensive loss | (915) | | | (876) | |
| Common stock held in treasury, at cost | Common stock held in treasury, at cost | (2,039) | | | (1,812) | | Common stock held in treasury, at cost | (2,010) | | | (2,032) | |
| Total BorgWarner Inc. stockholders’ equity | Total BorgWarner Inc. stockholders’ equity | 6,775 | | | 6,948 | | Total BorgWarner Inc. stockholders’ equity | 5,768 | | | 7,224 | |
| Noncontrolling interest | Noncontrolling interest | 262 | | | 314 | | Noncontrolling interest | 239 | | | 284 | |
| Total equity | Total equity | 7,037 | | | 7,262 | | Total equity | 6,007 | | | 7,508 | |
| Total liabilities and equity | Total liabilities and equity | $ | 16,077 | | | $ | 16,575 | | Total liabilities and equity | $ | 14,104 | | | $ | 16,994 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions, except per share amounts) | (in millions, except per share amounts) | 2022 | | 2021 | | 2022 | | 2021 | (in millions, except per share amounts) | 2023 | | 2022 | | 2023 | | 2022 |
| Net sales | Net sales | $ | 4,060 | | | $ | 3,416 | | | $ | 11,693 | | | $ | 11,183 | | Net sales | $ | 3,622 | | | $ | 3,226 | | | $ | 10,676 | | | $ | 9,318 | |
| Cost of sales | Cost of sales | 3,254 | | | 2,766 | | | 9,425 | | | 8,953 | | Cost of sales | 2,970 | | | 2,619 | | | 8,767 | | | 7,588 | |
| Gross profit | Gross profit | 806 | | | 650 | | | 2,268 | | | 2,230 | | Gross profit | 652 | | | 607 | | | 1,909 | | | 1,730 | |
| | Selling, general and administrative expenses | Selling, general and administrative expenses | 397 | | | 343 | | | 1,179 | | | 1,084 | | Selling, general and administrative expenses | 330 | | | 325 | | | 963 | | | 951 | |
| Restructuring expense | Restructuring expense | 8 | | | 51 | | | 50 | | | 143 | | Restructuring expense | 56 | | | 5 | | | 68 | | | 42 | |
| Other operating expense, net | 12 | | | 3 | | | 26 | | | 30 | | |
| Other operating (income) expense, net | | Other operating (income) expense, net | (6) | | | 12 | | | (1) | | | (7) | |
| Operating income | Operating income | 389 | | | 253 | | | 1,013 | | | 973 | | Operating income | 272 | | | 265 | | | 879 | | | 744 | |
| | Equity in affiliates’ earnings, net of tax | Equity in affiliates’ earnings, net of tax | (10) | | | (12) | | | (29) | | | (40) | | Equity in affiliates’ earnings, net of tax | (10) | | | (5) | | | (23) | | | (21) | |
| Unrealized (gain) loss on equity securities | (1) | | | 61 | | | 27 | | | 337 | | |
| Interest expense, net | 12 | | | 18 | | | 42 | | | 75 | | |
| Other postretirement income | (8) | | | (10) | | | (26) | | | (33) | | |
| Earnings before income taxes and noncontrolling interest | 396 | | | 196 | | | 999 | | | 634 | | |
| Realized and unrealized loss (gain) on debt and equity securities | | Realized and unrealized loss (gain) on debt and equity securities | 60 | | | (1) | | | 129 | | | 27 | |
| Interest (income) expense, net | | Interest (income) expense, net | (19) | | | 12 | | | 3 | | | 41 | |
| Other postretirement expense (income) | | Other postretirement expense (income) | 3 | | | (1) | | | 8 | | | (2) | |
| Earnings from continuing operations before income taxes and noncontrolling interest | | Earnings from continuing operations before income taxes and noncontrolling interest | 238 | | | 260 | | | 762 | | | 699 | |
| | Provision for income taxes | Provision for income taxes | 104 | | | 79 | | | 252 | | | 149 | | Provision for income taxes | 133 | | | 68 | | | 230 | | | 177 | |
| Net earnings from continuing operations | | Net earnings from continuing operations | 105 | | | 192 | | | 532 | | | 522 | |
| Net (loss) earnings from discontinued operations | | Net (loss) earnings from discontinued operations | (37) | | | 100 | | | (12) | | | 225 | |
| Net earnings | Net earnings | 292 | | | 117 | | | 747 | | | 485 | | Net earnings | 68 | | | 292 | | | 520 | | | 747 | |
| Net earnings attributable to noncontrolling interest, net of tax | 19 | | | 21 | | | 58 | | | 77 | | |
| Net earnings from continuing operations attributable to noncontrolling interest, net of tax | | Net earnings from continuing operations attributable to noncontrolling interest, net of tax | 18 | | | 19 | | | 49 | | | 58 | |
| Net earnings from discontinued operations attributable to noncontrolling interest, net of tax | | Net earnings from discontinued operations attributable to noncontrolling interest, net of tax | — | | | — | | | — | | | — | |
| Net earnings attributable to BorgWarner Inc. | Net earnings attributable to BorgWarner Inc. | $ | 273 | | | $ | 96 | | | $ | 689 | | | $ | 408 | | Net earnings attributable to BorgWarner Inc. | $ | 50 | | | $ | 273 | | | $ | 471 | | | $ | 689 | |
| | Amounts attributable to BorgWarner Inc.: | | Amounts attributable to BorgWarner Inc.: | |
| Net earnings from continuing operations | | Net earnings from continuing operations | $ | 87 | | | $ | 173 | | | $ | 483 | | | $ | 464 | |
| Net (loss) earnings from discontinued operations | | Net (loss) earnings from discontinued operations | (37) | | | 100 | | | (12) | | | 225 | |
| Net earnings attributable to BorgWarner Inc. | | Net earnings attributable to BorgWarner Inc. | $ | 50 | | | $ | 273 | | | $ | 471 | | | $ | 689 | |
| | Earnings per share from continuing operations — basic | | Earnings per share from continuing operations — basic | $ | 0.37 | | | $ | 0.74 | | | 2.07 | | | $ | 1.96 | |
| Earnings per share from discontinued operations — basic | | Earnings per share from discontinued operations — basic | (0.16) | | | 0.43 | | | (0.05) | | | 0.95 | |
| Earnings per share attributable to BorgWarner Inc. — basic | Earnings per share attributable to BorgWarner Inc. — basic | $ | 1.17 | | | $ | 0.40 | | | $ | 2.92 | | | $ | 1.71 | | Earnings per share attributable to BorgWarner Inc. — basic | $ | 0.21 | | | $ | 1.17 | | | $ | 2.02 | | | $ | 2.91 | |
| | Earnings per share from continuing operations — diluted | | Earnings per share from continuing operations — diluted | $ | 0.37 | | | $ | 0.73 | | | $ | 2.06 | | | $ | 1.95 | |
| Earnings per share from discontinued operations — diluted | | Earnings per share from discontinued operations — diluted | (0.16) | | | 0.42 | | | (0.05) | | | 0.95 | |
| Earnings per share attributable to BorgWarner Inc. — diluted | Earnings per share attributable to BorgWarner Inc. — diluted | $ | 1.16 | | | $ | 0.40 | | | $ | 2.90 | | | $ | 1.70 | | Earnings per share attributable to BorgWarner Inc. — diluted | $ | 0.21 | | | $ | 1.15 | | | $ | 2.01 | | | $ | 2.90 | |
| | Weighted average shares outstanding: | Weighted average shares outstanding: | | | | Weighted average shares outstanding: | |
| Basic | Basic | 234.3 | | | 238.2 | | | 236.5 | | | 238.0 | | Basic | 233.4 | | | 234.3 | | | 233.2 | | | 236.5 | |
| Diluted | Diluted | 235.6 | | | 239.8 | | | 237.5 | | | 239.3 | | Diluted | 235.3 | | | 235.6 | | | 234.6 | | | 237.5 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | 2022 | | 2021 | | 2022 | | 2021 |
| Net earnings attributable to BorgWarner Inc. | $ | 273 | | | $ | 96 | | | $ | 689 | | | $ | 408 | |
| | | | | | | |
| Other comprehensive (loss) income | | | | | | | |
| Foreign currency translation adjustments* | (274) | | | (81) | | | (554) | | | (111) | |
| Hedge instruments* | 8 | | | (1) | | | 13 | | | (3) | |
| Defined benefit postretirement plans* | 4 | | | 9 | | | 14 | | | 19 | |
| | | | | | | |
| Total other comprehensive loss attributable to BorgWarner Inc. | (262) | | | (73) | | | (527) | | | (95) | |
| | | | | | | |
| Comprehensive income attributable to BorgWarner Inc.* | 11 | | | 23 | | | 162 | | | 313 | |
| | | | | | | |
| Net earnings attributable to noncontrolling interest, net of tax | 19 | | | 21 | | | 58 | | | 77 | |
| Other comprehensive loss attributable to noncontrolling interest* | (24) | | | (6) | | | (42) | | | (11) | |
| Comprehensive income | $ | 6 | | | $ | 38 | | | $ | 178 | | | $ | 379 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | 2023 | | 2022 | | 2023 | | 2022 |
| Net earnings attributable to BorgWarner Inc. | $ | 50 | | | $ | 273 | | | $ | 471 | | | $ | 689 | |
| | | | | | | |
| Other comprehensive loss | | | | | | | |
| Foreign currency translation adjustments* | (16) | | | (274) | | | (72) | | | (554) | |
| Hedge instruments* | (12) | | | 8 | | | 26 | | | 13 | |
| Defined benefit postretirement plans* | 11 | | | 4 | | | 7 | | | 14 | |
| | | | | | | |
| Total other comprehensive loss attributable to BorgWarner Inc. | (17) | | | (262) | | | (39) | | | (527) | |
| | | | | | | |
| Comprehensive income attributable to BorgWarner Inc.* | 33 | | | 11 | | | 432 | | | 162 | |
| | | | | | | |
| Net income attributable to noncontrolling interest, net of tax | 18 | | | 19 | | | 49 | | | 58 | |
| Other comprehensive loss attributable to noncontrolling interest* | (4) | | | (24) | | | (18) | | | (42) | |
| Comprehensive income | $ | 47 | | | $ | 6 | | | $ | 463 | | | $ | 178 | |
* Net of income taxes.
See accompanying Notes to Condensed Consolidated Financial Statements.
BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | (in millions) | 2022 | | 2021 | (in millions) | 2023 | | 2022 |
| OPERATING | | | | |
| Net cash provided by operating activities (see Note 23) | $ | 679 | | | $ | 764 | | |
| INVESTING | | | |
| OPERATING ACTIVITIES OF CONTINUING OPERATIONS | | OPERATING ACTIVITIES OF CONTINUING OPERATIONS | | | |
| Net cash provided by operating activities of continuing operations (see Note 23) | | Net cash provided by operating activities of continuing operations (see Note 23) | $ | 510 | | | $ | 552 | |
| INVESTING ACTIVITIES OF CONTINUING OPERATIONS | | INVESTING ACTIVITIES OF CONTINUING OPERATIONS | | |
| Capital expenditures, including tooling outlays | Capital expenditures, including tooling outlays | (511) | | | (494) | | Capital expenditures, including tooling outlays | (624) | | | (427) | |
| Capital expenditures for damage to property, plant and equipment | — | | | (2) | | |
| Insurance proceeds received for damage to property, plant and equipment | — | | | 5 | | |
| Payments for businesses acquired, net of cash acquired | Payments for businesses acquired, net of cash acquired | (288) | | | (759) | | Payments for businesses acquired, net of cash acquired | (31) | | | (288) | |
| Proceeds from settlement of net investment hedges, net | Proceeds from settlement of net investment hedges, net | 40 | | | 21 | | Proceeds from settlement of net investment hedges, net | 25 | | | 40 | |
| Proceeds from (payments for) investments in equity securities | 27 | | | (15) | | |
| Proceeds from investments in debt and equity securities, net | | Proceeds from investments in debt and equity securities, net | 63 | | | 27 | |
| Proceeds from the sale of business, net | Proceeds from the sale of business, net | 25 | | | — | | Proceeds from the sale of business, net | — | | | 25 | |
| Proceeds from asset disposals and other, net | Proceeds from asset disposals and other, net | 21 | | | 6 | | Proceeds from asset disposals and other, net | 29 | | | 16 | |
| Net cash used in investing activities | (686) | | | (1,238) | | |
| FINANCING | | | |
| Net decrease in notes payable | — | | | (8) | | |
| Net cash used in investing activities from continuing operations | | Net cash used in investing activities from continuing operations | (538) | | | (607) | |
| FINANCING ACTIVITIES OF CONTINUING OPERATIONS | | FINANCING ACTIVITIES OF CONTINUING OPERATIONS | | |
| Net increase in notes payable | | Net increase in notes payable | 3 | | | — | |
| Additions to debt | Additions to debt | 2 | | | 1,273 | | Additions to debt | 4 | | | 2 | |
| Payments for debt issuance costs | Payments for debt issuance costs | — | | | (10) | | Payments for debt issuance costs | (3) | | | — | |
| Repayments of debt, including current portion | Repayments of debt, including current portion | (9) | | | (698) | | Repayments of debt, including current portion | (444) | | | (9) | |
| Payments for purchase of treasury stock | Payments for purchase of treasury stock | (240) | | | — | | Payments for purchase of treasury stock | — | | | (240) | |
| Payments for stock-based compensation items | Payments for stock-based compensation items | (18) | | | (14) | | Payments for stock-based compensation items | (25) | | | (18) | |
| Payments for contingent consideration | | Payments for contingent consideration | (23) | | | — | |
| Purchase of noncontrolling interest | Purchase of noncontrolling interest | (59) | | | (33) | | Purchase of noncontrolling interest | (15) | | | (56) | |
| Net distribution from PHINIA | | Net distribution from PHINIA | 401 | | | — | |
| Dividends paid to BorgWarner stockholders | Dividends paid to BorgWarner stockholders | (121) | | | (122) | | Dividends paid to BorgWarner stockholders | (105) | | | (121) | |
| Dividends paid to noncontrolling stockholders | Dividends paid to noncontrolling stockholders | (48) | | | (38) | | Dividends paid to noncontrolling stockholders | (71) | | | (48) | |
| Net cash (used in) provided by financing activities | (493) | | | 350 | | |
| Net cash used in financing activities from continuing operations | | Net cash used in financing activities from continuing operations | (278) | | | (490) | |
| CASH FLOWS FROM DISCONTINUED OPERATIONS | | CASH FLOWS FROM DISCONTINUED OPERATIONS | |
| Operating activities of discontinued operations | | Operating activities of discontinued operations | (66) | | | 127 | |
| Investing activities of discontinued operations | | Investing activities of discontinued operations | (86) | | | (79) | |
| Financing activities of discontinued operations | | Financing activities of discontinued operations | 84 | | | (3) | |
| Net cash (used in) provided by discontinued operations | | Net cash (used in) provided by discontinued operations | (68) | | | 45 | |
| Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | (103) | | | (16) | | Effect of exchange rate changes on cash | (15) | | | (103) | |
| Net decrease in cash, cash equivalents and restricted cash | Net decrease in cash, cash equivalents and restricted cash | (603) | | | (140) | | Net decrease in cash, cash equivalents and restricted cash | (389) | | | (603) | |
| Cash, cash equivalents and restricted cash at beginning of year | Cash, cash equivalents and restricted cash at beginning of year | 1,844 | | | 1,650 | | Cash, cash equivalents and restricted cash at beginning of year | 1,338 | | | 1,844 | |
| Cash, cash equivalents and restricted cash at end of period | Cash, cash equivalents and restricted cash at end of period | $ | 1,241 | | | $ | 1,510 | | Cash, cash equivalents and restricted cash at end of period | $ | 949 | | | $ | 1,241 | |
| Less: Cash, cash equivalents and restricted cash of discontinued operations at end of period | | Less: Cash, cash equivalents and restricted cash of discontinued operations at end of period | $ | — | | | $ | 172 | |
| Cash, cash equivalents and restricted cash of continuing operations at end of period | | Cash, cash equivalents and restricted cash of continuing operations at end of period | $ | 949 | | | $ | 1,069 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
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 and nine months ended September 30, 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 July 3, 2023, BorgWarner completed the previously announced spin-off (“Spin-Off”) of its Fuel Systems and Other Supply DisruptionsAftermarket segments in a transaction intended to qualify as tax free to the Company’s stockholders for U.S. federal income tax purposes, which was accomplished by the distribution of 100% of the outstanding common stock of PHINIA, Inc. (“PHINIA”) to holders of record of common stock of the Company on a pro-rata basis. Each holder of record of common stock of the Company received one share of PHINIA common stock for every five shares of common stock of the Company held on June 23, 2023, the record date for the distribution (“Distribution Date”). In lieu of fractional shares of PHINIA, shareholders of the Company received cash. PHINIA is an independent public company trading under the symbol “PHIN” on the New York Stock Exchange.
The impacthistorical results of COVID-19, including changesoperations and the financial position of PHINIA for periods prior to the Spin-Off are presented as discontinued operations in consumer behavior, pandemic fears and market downturns, and restrictions on business and individual activities, has created significant volatility inthese Condensed Consolidated Financial Statements. Refer to Note 24, “Discontinued Operations,” to the global economy. Recent COVID-19 outbreaks in certain regions continue to cause intermittent COVID-19-related disruptions in the Company’s supply chain and local manufacturing operations. For a significant portion of the second quarter of 2022, China imposed lock-downs in many cities due to an increase in COVID-19 cases in the region. The Company also continues to face supplier disruptions due to a global semiconductor shortage in the automotive industry.Condensed Consolidated Financial Statements for more information.
TheIn connection with the Spin-Off, the Company continuesentered into several agreements with PHINIA on or prior to expect global industry production to modestly increase year over year in 2022. However, various global disruptions, including, but not limited to, input cost inflation, supply chain disruptions and further impacts from Russia’s invasion of Ukraine could impactthe Distribution Date that, among other things, provide a framework for the Company’s 2022 expectation.relationship with PHINIA after the Spin-Off, including a separation and distribution agreement, an employee matters agreement, a tax matters agreement, an intellectual property cross-license agreement and a transition services agreement through which the Company and PHINIA will continue to provide certain services to each other following the Spin-Off.
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. 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 itsin the Condensed Consolidated Financial Statements.
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 of 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.
Due 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.
Eldor Corporation’s Electric Hybrid Systems Business
On June 19, 2023, the Company announced that it had entered into a share purchase agreement to acquire the Electric Hybrid Systems business segment of Eldor Corporation (“Eldor”), which is headquartered in Italy. The purchase price due at closing is €75 million ($79 million), with up to €175 million ($185 million) in contingent payments that could be paid over the two years following closing. The Company expects the acquisition to complement its existing ePropulsion product portfolio by enhancing the Company’s engineering capabilities in power electronics. The transaction is subject to satisfaction of customary closing conditions and is expected to close in the fourth quarter of 2023.
Hubei Surpass Sun Electric Charging Business
On September 20, 2022,March 1, 2023, the Company announced that it had entered into an Equity Transfer Agreement under which BorgWarner will acquirecompleted its acquisition of 100% of the electric vehicle solution, smart grid and smart energy businesses (“SSE”) of Hubei Surpass Sun Electric. The transaction hasElectric, pursuant to an enterprise value up to ¥410 million ($60 million), of which approximately ¥267 million ($39 million) will be delivered at or soon after closing and up to ¥143 million ($21 million) could be paid in the form of contingent payments over approximately two years following the closing.Equity Transfer Agreement. The acquisition complements the Company’s existing European and North American charging footprint by adding a presence in China. The transactiontotal consideration was ¥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 ¥217 million ($31 million) of base purchase price in the nine months ended September 30, 2023. Of the remaining ¥51 million ($8 million) of base purchase price, ¥31 million ($5 million) is subject to satisfaction of customary closing conditionspayable by April 30, 2024 and is recorded in Other current liabilities in the Company’s Condensed Consolidated Balance Sheet as of September 30, 2023. The remaining ¥20 million ($3 million) of base purchase price is payable before April 30, 2025 and is recorded in Other non-current liabilities in the Company’s Condensed Consolidated Balance Sheet as of September 30, 2023. Pursuant to the agreement, the Company’s obligation to remit up to ¥103 million ($15 million) of earn-out payments
is contingent upon the achievement of certain revenue and pre-tax profit margin targets in 2023 and 2024 as well as the retention of key employees during the same time period. As of September 30, 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, and all 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. The Company subsequently finalized its valuation of the assets and liabilities of the SSE acquisition during the third quarter of 2023, and the estimated fair values of assets acquired and liabilities assumed amounted to total assets of $50 million, including goodwill and intangibles of $5 million, and total liabilities of $8 million. These final amounts were not materially different than the estimated values recorded on March 1, 2023.
Any excess of the purchase price over the estimated fair value of net assets was recognized as goodwill. Goodwill of $2 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 deductible for tax purposes in China.
In connection with the acquisition, the Company recorded $3 million for intangible assets, primarily for customer relationships and developed technology. Identifiable intangible assets were valued using the income approach
The following table summarizes the other intangible assets acquired:
| | | | | | | | | | | |
| (in millions) | Estimated Life | | Estimated Fair Value |
| Developed technology | 5 years | | $ | 2 | |
| Customer relationships | 6 years | | 1 | |
| Total other intangible assets | | | $ | 3 | |
The impact of the SSE acquisition on net sales and net earnings was immaterial for the three and nine months ended September 30, 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 help to 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 September 30, 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 estimates, available information, and supportable assumptions that management considered reasonable. The Company subsequently finalized its valuation of the assets and liabilities of the Drivetek acquisition during the third
quarter of 2023, and the estimated fair values of assets acquired and liabilities assumed amounted to total assets of $49 million, including goodwill and intangibles of $40 million, and liabilities of $10 million. These final amounts were not materially different than the estimated values recorded on December 1, 2022.
Any excess of the purchase price over the estimated fair value of net assets was recognized as goodwill. Goodwill of $22 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 closebe deductible for tax purposes in Switzerland.
The following table summarizes the first quarterother intangible assets acquired:
| | | | | | | | | | | |
| (in millions) | Estimated Life | | Estimated Fair Value |
| Developed technology | 8 years | | $ | 11 | |
| Customer relationships | 12 years | | 7 | |
| Total other intangible assets | | | $ | 18 | |
Identifiable intangible assets were valued using the market approach.
The impact of the Drivetek acquisition on net sales and net earnings was immaterial for the three and nine months ended September 30, 2023.
Rhombus Energy Solutions
On July 29, 2022, the Company completed its acquisition of 100% of Rhombus Energy Solutions (“Rhombus”), a provider of charging solutions in the North American market, pursuant to the terms of an Agreement 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.
The total consideration wasCompany paid $131 million all of which was paid at the time of closing. Pursuant to the Agreement, the Company is obligated to remit up to $30 million of earn-out payments, payable in 2025, contingent upon achievement of certain sales dollars, sales volume, and gross margin targets. The Company’s current estimates indicate that the minimum thresholds for these earn-out targets will not be achieved,achieved; thus, no amount for the earn-out payments has been included in the purchase consideration or in the Company’s Condensed Consolidated Balance Sheet. Additionally, pursuant to the Agreement, the Company is obligated to remit up to $25 million over the next three years following closing in key employee retention relatedretention-related payments, which include certain performance targets. The amounts will be accounted for as post-combination expense.
The purchase price was allocated on a provisional basis asCompany finalized its valuation of July 29, 2022. Assets acquiredthe assets 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 Rhombus acquisition including goodwill, tangible and intangible assets and deferred taxes, are not yet finalized, andduring the provisional purchase price allocations are subject to change as the Company completes its analysissecond quarter 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 July 29, 2022, the acquisition date:
| | | | | | | | | |
(in millions) | Initial Allocation | | | | |
ASSETS | | | | | |
Current assets | $ | 7 | | | | | |
| | | | | |
| | | | | |
| | | | | |
Goodwill | 104 | | | | | |
Other intangible assets, net | 27 | | | | | |
Other non-current assets | 4 | | | | | |
Total assets acquired | 142 | | | | | |
LIABILITIES | | | | | |
| | | | | |
Current liabilities | 3 | | | | | |
Other non-current liabilities | 8 | | | | | |
Total liabilities assumed | 11 | | | | | |
Net assets acquired | $ | 131 | | | | | |
2023. Any excess of the purchase price over the estimated fair value of net assets was recognized as goodwill. Goodwill of $104 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.
The following table summarizes the acquisition, the Company preliminarily recorded $27 million forother intangible assets primarily for developed technology. As described above, the provisional fair value ofacquired:
| | | | | | | | | | | |
| (in millions) | Estimated Life | | Estimated Fair Value |
| Developed technology | 13 years | | $ | 22 | |
| Customer relationships | 8 years | | 5 | |
| Total other intangible assets | | | $ | 27 | |
Identifiable intangible assets waswere valued using the income approach. 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.
The impact of the Rhombus acquisition on net sales and net earnings was immaterial for the three and nine months ended September 30, 2022. Due to its insignificant size relative to the Company, supplemental pro forma financial information of the combined entity for the current and prior reporting periods is not provided.
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 $207$192 million, which includes final working capital and net debt adjustments of $5 million. The consideration includesincluding approximately ¥1.1¥1.0 billion ($167152 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 nine monthsyear ended September 30, 2022. The remaining $10December 31, 2022 and no longer expects to recapture a previously anticipated $5 million of base purchase price ispost-closing adjustments, which has been recorded in Other current liabilities in the Company’s Condensed Consolidated Balance Sheet as of September 30, 2022.operating expense, net. Pursuant to the ETA, the obligation of the Company to remit up to ¥0.3 billion (approximately $47 million) of earn-out payments iswas contingent upon achievement of certain sales volume targets and certain estimated future volume targets associated with newly awarded business. As ofDuring the nine months ended September 30, 2022,2023, the Company’s estimate ofCompany paid approximately ¥0.2 billion ($24 million) to settle the remaining earn-out payments was approximately $31 million, which is recorded in Other current liabilities in the Company’s Condensed Consolidated Balance Sheet.liability and related adjustments.
The purchase price was allocated on a preliminary basis asCompany finalized its valuation of March 31, 2022. Assets acquiredthe assets 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 atSantroll acquisition during the datefirst quarter 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, 2022, the acquisition date:
| | | | | | | | | | | | | | | | | |
| (in millions) | Initial Allocation | | Measurement Period Adjustments | | Revised Allocation |
| ASSETS | | | | | |
| | | | | |
| Current assets | $ | 8 | | | $ | (3) | | | $ | 5 | |
| | | | | |
| | | | | |
| Property, plant and equipment, net | 9 | | | 4 | | | 13 | |
| | | | | |
| Goodwill | 132 | | | (5) | | | 127 | |
| Other intangible assets, net | 87 | | | — | | | 87 | |
| Other non-current assets | — | | | 1 | | | 1 | |
| Total assets acquired | 236 | | | (3) | | | 233 | |
| LIABILITIES | | | | | |
| | | | | |
| Current liabilities | 2 | | | 2 | | | 4 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other non-current liabilities | 22 | | | — | | | 22 | |
| Total liabilities assumed | 24 | | | 2 | | | 26 | |
| | | | | |
| Net assets acquired | $ | 212 | | | $ | (5) | | | $ | 207 | |
2023. Any excess of the purchase price over the estimated fair value of net assets was recognized as goodwill. Goodwill of $127$112 million was recorded within the Company’s e-Propulsion & DrivetrainePropulsion 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 be deductible for tax purposes in China.
The following table summarizes the other intangible assets acquired:
| | | | | | | | | | | |
| (in millions) | Estimated Life | | Estimated Fair Value |
| Customer relationships | 12 years | | $ | 62 | |
| Manufacturing processes (know-how) | 10 years | | 25 | |
| Total other intangible assets | | | $ | 87 | |
Goodwill and identifiableIdentifiable intangible assets were valued using the income 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 Santroll acquisition on net sales and net earnings was immaterial for the three and nine months ended September 30, 2022. Due to its insignificant size relative to the Company, supplemental pro forma financial information of the combined entity for the current and prior reporting periods is not provided.
AKASOL AG
On June 4, 2021, the Company completed its voluntary public takeover offer for shares of AKASOL AG (“AKASOL”), resulting in ownership of 89% of AKASOL’s outstanding shares. The Company paid approximately €648 million ($788 million) to settle the offer from current cash balances, which included proceeds received from its public offering of 1.00% 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, the Company also consolidated approximately €64 million ($77 million) of gross debt of AKASOL. Subsequent to the completion of the voluntary public takeover offer, the Company purchased additional shares of AKASOL for €28 million ($33 million) increasing its ownership to 93% as of December 31, 2021.
On August 2, 2021, the Company initiated a merger squeeze-out process under German law for the purpose of acquiring 100% of AKASOL. On December 17, 2021, the shareholders of AKASOL voted to mandatorily transfer to ABBA BidCo. AG, a wholly owned indirect subsidiary of the Company, each issued and outstanding share of AKASOL held by shareholders who did not tender their shares in the Company’s previously completed exchange offer for AKASOL shares (the “Squeeze Out”). In exchange for the AKASOL shares transferred in the Squeeze Out, the Company 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 liabilities in the Company’s Condensed Consolidated Balance Sheet as it was deemed mandatorily redeemable. No shareholder objections were filed during the statutory contestation period, and on February 10, 2022, the Company completed the registration of the Squeeze Out resulting in 100% ownership. The Company settled the Squeeze Out with AKASOL minority shareholders in the first quarter of 2022.
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. The Company finalized its valuation of the assets and liabilities of the AKASOL acquisition during the second quarter of 2022.2023.
The following table summarizes the final fair values of assets acquired and liabilities assumed as of the acquisition date and subsequent measurement period adjustments:
| | | | | | | | | | | | | | | | | |
| (in millions) | Initial Allocation | | Measurement Period Adjustments | | Final Allocation |
| ASSETS | | | | | |
| Cash and cash equivalents (including restricted cash of $16 million) | $ | 29 | | | $ | — | | | $ | 29 | |
| Receivables, net | 16 | | | — | | | 16 | |
| Inventories, net | 42 | | | (2) | | | 40 | |
| Prepayments and other current assets | 5 | | | — | | | 5 | |
| Property, plant and equipment, net | 106 | | | (3) | | | 103 | |
| | | | | |
| Goodwill | 707 | | | (3) | | | 704 | |
| Other intangible assets, net | 130 | | | — | | | 130 | |
| Other non-current assets | — | | | 7 | | | 7 | |
| Total assets acquired | 1,035 | | | (1) | | | 1,034 | |
| LIABILITIES | | | | | |
| Notes payable and other short-term debt | 8 | | | — | | | 8 | |
| Accounts payable | 22 | | | — | | | 22 | |
| Other current liabilities | 13 | | | 6 | | | 19 | |
| Long-term debt | 69 | | | — | | | 69 | |
| | | | | |
| | | | | |
| Other non-current liabilities | 39 | | | (7) | | | 32 | |
| Total liabilities assumed | 151 | | | (1) | | | 150 | |
| Noncontrolling interest | 96 | | | — | | | 96 | |
| Net assets and noncontrolling interest acquired | $ | 788 | | | $ | — | | | $ | 788 | |
Any excess of the purchase price over the estimated fair value of net assets was recognized as goodwill. Goodwill of $704 million, including the impact of measurement period adjustments, was recorded within the Company’s Air Management segment. The goodwill consists of the Company’s expected future economic benefits that will arise from acquiring this business, which is established in making next-generation products for electric vehicles and the potential development and deployment of future technologies, across a global customer base, in this market and across adjacent industries. The goodwill is not deductible for tax purposes.
The following table summarizes the other intangible assets acquired:
| | | | | | | | | | | |
(in millions) | Estimated Life | | Estimated Fair Value |
Amortized intangible assets: | | | |
Developed technology | 5 years | | $ | 70 | |
Customer relationships | 11 years | | 25 | |
Total amortized intangible assets | | | 95 | |
Unamortized trade name | Indefinite | | 35 | |
Total other intangible assets | | | $ | 130 | |
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.
Due to its insignificant size relative to the Company, supplemental pro forma financial information of the combined entity for the current and prior reporting periods is not provided.
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 (gain) loss on equity securities in the Condensed Consolidated Statements of Operations. During the three and nine months ended September 30, 2021, the Company recorded a loss of $61 million and $337 million, respectively, 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 was reflected in Investments and long-term receivables in the Company’s Condensed Consolidated Balance Sheet. During the nine months ended September 30, 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 17, 2022, the Company no longer held 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 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, the fair value of $30 million reduced by a 5% discount pursuant to the joint venture agreement. The Company recorded a gain of $24 million in Other operating 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 $18$16 million and $17$14 million at September 30, 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 Balance Sheets and were $18 million and less than $1$11 million at September 30, 20222023 and $21 million and $1$14 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 September 30, 20222023 and December 31, 2021,2022, the Company recorded customer incentive payments of $32$27 million and $36$34 million, respectively, in Prepayments and other current assets, and $102$75 million and $137$99 million, respectively, in Other non-current assets in the Condensed Consolidated Balance Sheets.
The following tables represent a disaggregation of revenue from contracts with customers by reportingreportable segment and region. The balances for the three and nine months ended September 30, 20212022 have been recast for inter-segment transitions of certain businessesa change in reportable segments that were completedwas made during the three months ended June 30, 2022.first quarter of 2023. Refer to Note 22, “Reporting“Reportable Segments And Related Information,” to the Condensed Consolidated Financial Statements for more information.
| | | Three Months Ended September 30, 2022 | | Three Months Ended September 30, 2023 |
| (in millions) | (in millions) | Air Management | | e-Propulsion & Drivetrain | | Fuel Systems | | Aftermarket | | Total | (in millions) | Air Management | | Drivetrain & Battery Systems | | ePropulsion | | Total |
| North America | North America | $ | 541 | | | $ | 474 | | | $ | 120 | | | $ | 179 | | | $ | 1,314 | | North America | $ | 542 | | | $ | 405 | | | $ | 118 | | | $ | 1,065 | |
| Europe | Europe | 770 | | | 226 | | | 219 | | | 101 | | | 1,316 | | Europe | 819 | | | 329 | | | 95 | | | 1,243 | |
| Asia | Asia | 519 | | | 627 | | | 172 | | | 17 | | | 1,335 | | Asia | 511 | | | 408 | | | 343 | | | 1,262 | |
| Other | Other | 50 | | | — | | | 17 | | | 28 | | | 95 | | Other | 50 | | | 2 | | | — | | | 52 | |
| Total | Total | $ | 1,880 | | | $ | 1,327 | | | $ | 528 | | | $ | 325 | | | $ | 4,060 | | Total | $ | 1,922 | | | $ | 1,144 | | | $ | 556 | | | $ | 3,622 | |
| | | Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2022 |
| (in millions) | (in millions) | Air Management | | e-Propulsion & Drivetrain | | Fuel Systems | | Aftermarket | | Total | (in millions) | Air Management | | Drivetrain & Battery Systems | | ePropulsion | | Total |
| North America | North America | $ | 403 | | | $ | 388 | | | $ | 70 | | | $ | 164 | | | $ | 1,025 | | North America | $ | 526 | | | $ | 376 | | | $ | 109 | | | $ | 1,011 | |
| Europe | Europe | 631 | | | 183 | | | 217 | | | 114 | | | 1,145 | | Europe | 729 | | | 226 | | | 49 | | | 1,004 | |
| Asia | Asia | 474 | | | 524 | | | 153 | | | 16 | | | 1,167 | | Asia | 522 | | | 352 | | | 297 | | | 1,171 | |
| Other | Other | 43 | | | — | | | 16 | | | 20 | | | 79 | | Other | 50 | | | — | | | (10) | | | 40 | |
| Total | Total | $ | 1,551 | | | $ | 1,095 | | | $ | 456 | | | $ | 314 | | | $ | 3,416 | | Total | $ | 1,827 | | | $ | 954 | | | $ | 445 | | | $ | 3,226 | |
| | | Nine Months Ended September 30, 2022 | | Nine Months Ended September 30, 2023 |
| (in millions) | (in millions) | Air Management | | e-Propulsion & Drivetrain | | Fuel Systems | | Aftermarket | | Total | (in millions) | Air Management | | Drivetrain & Battery Systems | | ePropulsion | | Total |
| North America | North America | $ | 1,515 | | | $ | 1,368 | | | $ | 343 | | | $ | 531 | | | $ | 3,757 | | North America | $ | 1,622 | | | $ | 1,190 | | | $ | 388 | | | $ | 3,200 | |
| Europe | Europe | 2,293 | | | 717 | | | 691 | | | 302 | | | 4,003 | | Europe | 2,577 | | | 980 | | | 227 | | | 3,784 | |
| Asia | Asia | 1,486 | | | 1,691 | | | 444 | | | 47 | | | 3,668 | | Asia | 1,531 | | | 1,041 | | | 953 | | | 3,525 | |
| Other | Other | 140 | | | — | | | 53 | | | 72 | | | 265 | | Other | 158 | | | 5 | | | 4 | | | 167 | |
| Total | Total | $ | 5,434 | | | $ | 3,776 | | | $ | 1,531 | | | $ | 952 | | | $ | 11,693 | | Total | $ | 5,888 | | | $ | 3,216 | | | $ | 1,572 | | | $ | 10,676 | |
| | | Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2022 |
| (in millions) | (in millions) | Air Management | | e-Propulsion & Drivetrain | | Fuel Systems | | Aftermarket | | Total | (in millions) | Air Management | | Drivetrain & Battery Systems | | ePropulsion | | Total |
| North America | North America | $ | 1,272 | | | $ | 1,208 | | | $ | 201 | | | $ | 483 | | | $ | 3,164 | | North America | $ | 1,497 | | | $ | 1,020 | | | $ | 375 | | | $ | 2,892 | |
| Europe | Europe | 2,202 | | | 710 | | | 794 | | | 324 | | | 4,030 | | Europe | 2,156 | | | 724 | | | 148 | | | 3,028 | |
| Asia | Asia | 1,559 | | | 1,710 | | | 455 | | | 46 | | | 3,770 | | Asia | 1,490 | | | 1,001 | | | 762 | | | 3,253 | |
| Other | Other | 112 | | | — | | | 48 | | | 59 | | | 219 | | Other | 140 | | | — | | | 5 | | | 145 | |
| Total | Total | $ | 5,145 | | | $ | 3,628 | | | $ | 1,498 | | | $ | 912 | | | $ | 11,183 | | Total | $ | 5,283 | | | $ | 2,745 | | | $ | 1,290 | | | $ | 9,318 | |
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 and nine months ended September 30, 2022 have been recast for a change in reportable segments that was made during the first quarter of 2023. Refer to Note 22, “Reportable Segments And Related Information,” to the Condensed Consolidated Financial Statements for more information.
| | | Three Months Ended September 30, 2022 | | Three Months Ended September 30, 2023 |
| (in millions) | (in millions) | Air Management | | e-Propulsion & Drivetrain | | Fuel Systems | | Corporate | | Total | (in millions) | Air Management | | Drivetrain & Battery Systems | | ePropulsion | | Corporate | | Total |
| Employee termination benefits | Employee termination benefits | $ | 5 | | | $ | — | | | $ | — | | | $ | — | | | $ | 5 | | Employee termination benefits | $ | 53 | | | $ | 1 | | | $ | — | | | $ | — | | | $ | 54 | |
| Other | Other | — | | | — | | | 3 | | | — | | | 3 | | Other | 1 | | | 1 | | | — | | | — | | | 2 | |
| Total restructuring expense | Total restructuring expense | $ | 5 | | | $ | — | | | $ | 3 | | | $ | — | | | $ | 8 | | Total restructuring expense | $ | 54 | | | $ | 2 | | | $ | — | | | $ | — | | | $ | 56 | |
| | | Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2022 |
| (in millions) | (in millions) | Air Management | | e-Propulsion & Drivetrain | | Fuel Systems | | Corporate | | Total | (in millions) | Air Management | | Drivetrain & Battery Systems | | ePropulsion | | Corporate | | Total |
| Employee termination benefits | Employee termination benefits | $ | 7 | | | $ | 2 | | | $ | 29 | | | $ | — | | | $ | 38 | | Employee termination benefits | $ | 5 | | | $ | — | | | $ | — | | | $ | — | | | $ | 5 | |
| Other | Other | 4 | | | 9 | | | — | | | — | | | 13 | | Other | — | | | — | | | — | | | — | | | — | |
| Total restructuring expense | Total restructuring expense | $ | 11 | | | $ | 11 | | | $ | 29 | | | $ | — | | | $ | 51 | | Total restructuring expense | $ | 5 | | | $ | — | | | $ | — | | | $ | — | | | $ | 5 | |
| | | Nine Months Ended September 30, 2022 | | Nine Months Ended September 30, 2023 |
| (in millions) | (in millions) | Air Management | | e-Propulsion & Drivetrain | | Fuel Systems | | Corporate | | Total | (in millions) | Air Management | | Drivetrain & Battery Systems | | ePropulsion | | Corporate | | Total |
| Employee termination benefits | Employee termination benefits | $ | 19 | | | $ | 14 | | | $ | 3 | | | $ | (1) | | | $ | 35 | | Employee termination benefits | $ | 62 | | | $ | 1 | | | $ | — | | | $ | — | | | $ | 63 | |
| Other | Other | — | | | 10 | | | 5 | | | — | | | 15 | | Other | 4 | | | 1 | | | — | | | — | | | 5 | |
| Total restructuring expense | Total restructuring expense | $ | 19 | | | $ | 24 | | | $ | 8 | | | $ | (1) | | | $ | 50 | | Total restructuring expense | $ | 66 | | | $ | 2 | | | $ | — | | | $ | — | | | $ | 68 | |
| | | Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2022 |
| (in millions) | (in millions) | Air Management | | e-Propulsion & Drivetrain | | Fuel Systems | | Corporate | | Total | (in millions) | Air Management | | Drivetrain & Battery Systems | | ePropulsion | | Corporate | | Total |
| Employee termination benefits | Employee termination benefits | $ | 30 | | | $ | 9 | | | $ | 56 | | | $ | — | | | $ | 95 | | Employee termination benefits | $ | 19 | | | $ | 14 | | | $ | — | | | $ | (1) | | | $ | 32 | |
| Other | Other | 10 | | | 35 | | | — | | | 3 | | | 48 | | Other | — | | | 9 | | | 1 | | | — | | | 10 | |
| Total restructuring expense | Total restructuring expense | $ | 40 | | | $ | 44 | | | $ | 56 | | | $ | 3 | | | $ | 143 | | Total restructuring expense | $ | 19 | | | $ | 23 | | | $ | 1 | | | $ | (1) | | | $ | 42 | |
The following tables display a rollforwardroll forward 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 Benefits | | Other | | Total |
| Balance at January 1, 2023 | | Balance at January 1, 2023 | $ | 39 | | | $ | 9 | | | $ | 48 | |
| Restructuring expense, net | | Restructuring expense, net | 63 | | | 5 | | | 68 | |
| Cash payments | | Cash payments | (32) | | | (9) | | | (41) | |
| Foreign currency translation adjustment and other | | Foreign currency translation adjustment and other | (1) | | | 2 | | | 1 | |
| Balance at September 30, 2023 | | Balance at September 30, 2023 | 69 | | | 7 | | | 76 | |
| Less: Non-current restructuring liability | | Less: Non-current restructuring liability | 7 | | | — | | | 7 | |
| Current restructuring liability at September 30, 2023 | | Current restructuring liability at September 30, 2023 | $ | 62 | | | $ | 7 | | | $ | 69 | |
| | (in millions) | (in millions) | Employee Termination Benefits | | Other | | Total | (in millions) | Employee Termination Benefits | | Other | | Total |
| Balance at January 1, 2022 | Balance at January 1, 2022 | $ | 126 | | | $ | 13 | | | $ | 139 | | Balance at January 1, 2022 | $ | 66 | | | $ | 13 | | | $ | 79 | |
| Restructuring expense, net | Restructuring expense, net | 35 | | | 15 | | | 50 | | Restructuring expense, net | 32 | | | 10 | | | 42 | |
| Cash payments | Cash payments | (75) | | | (21) | | | (96) | | Cash payments | (39) | | | (17) | | | (56) | |
| Foreign currency translation adjustment and other | Foreign currency translation adjustment and other | (17) | | | 2 | | | (15) | | Foreign currency translation adjustment and other | (12) | | | 2 | | | (10) | |
| | Balance at September 30, 2022 | Balance at September 30, 2022 | 69 | | | 9 | | | 78 | | Balance at September 30, 2022 | 47 | | | 8 | | | 55 | |
| Less: Non-current restructuring liability | Less: Non-current restructuring liability | 18 | | | 1 | | | 19 | | Less: Non-current restructuring liability | 13 | | | 1 | | | 14 | |
| Current restructuring liability at September 30, 2022 | Current restructuring liability at September 30, 2022 | $ | 51 | | | $ | 8 | | | $ | 59 | | Current restructuring liability at September 30, 2022 | $ | 34 | | | $ | 7 | | | $ | 41 | |
| | (in millions) | Employee Termination Benefits | | Other | | Total | |
| Balance at January 1, 2021 | $ | 160 | | | $ | 13 | | | $ | 173 | | |
| Restructuring expense, net | 95 | | | 48 | | | 143 | | |
| Cash payments | (107) | | | (52) | | | (159) | | |
| Foreign currency translation adjustment and other | 2 | | | — | | | 2 | | |
| Balance at September 30, 2021 | 150 | | | 9 | | | 159 | | |
| Less: Non-current restructuring liability | 47 | | | 2 | | | 49 | | |
| Current restructuring liability at September 30, 2021 | $ | 103 | | | $ | 7 | | | $ | 110 | | |
In 2023, the Company announced a $130 million to $150 million restructuring plan to address structural costs in its Foundational products businesses. Foundational products include all products utilized on internal combustion engines plus those same products and components that are also included in hybrid powertrains. During the three and nine months ended September 30, 2022, 2023, the Company recorded $18$56 million and $68 million, respectively, of restructuring costs for individually approved restructuring actions that primarily related to specific reductions in headcount.this plan.
2020 Structural Costs Plan In February 2020, the Company announced a $300 million restructuring plan to address existing structural costs. During the three and nine months ended September 30, 2022, the Company recorded $5 million and $28 million of restructuring charges related to this plan, respectively. During the three and nine months ended September 30, 2021, the Company recorded $20 million and $81 million of restructuring charges related to this plan, respectively. Cumulatively, the Company has incurred $279 million of restructuring charges related to this plan. As of September 30, 2022 the plan is substantially complete, with any remaining restructuring costs expected to be incurred by the end of 2022.
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 plan post-acquisition and has recorded cumulative charges of $66 million since October 1, 2020, including approximately $4 million and $62 million in restructuring charges during the nine months ended September 30, 2022, and 2021, respectively. The actions under this plan are substantially complete.
The following provides details of restructuring expense incurred by the Company’s reportingreportable segments during the three and nine months ended September 30, 20222023, and 2021, 2022,related to the plans and actions discussed above:
Air Management
2023 Structural Costs Plan
•During the three and nine months ended September 30, 2023, the segment recorded $54 million and $66 million, respectively, of restructuring costs under this plan, primarily related to employee termination benefits associated with the announced closure of a facility in Europe affecting approximately 200 employees.
2020 Structural Costs Plan
•During the three and nine months ended September 30, 2022, the segment recorded $5$5 million and $18$19 million,, respectively, of restructuring costs under this plan. This primarily related to $11$11 million during the nine months ended September 30, 2022, for a
voluntary termination program pursuant to which approximately 47 employees accepted termination packages in 2022.
Drivetrain & Battery Systems
2023 Structural Costs Plan
•During the three and nine months ended September 30, 2021,2023, the segment recorded $2 million of restructuring costs of $10 million and $36 million, respectively,under this plan, primarily related to severance costs, professional feesemployee termination benefits and a voluntary termination program to reduce existing structural costs.equipment moves.
2019 Legacy Delphi Technologies2020 Structural Costs Plan
•During the nine months ended September 30, 2021, the segment recorded $4 million of restructuring costs, primarily related to severance costs.
e-Propulsion & Drivetrain
•During the nine months ended September 30, 2022, the segment recorded $14$9 million of restructuring costs primarily related to contractual settlements and professional fees. Separate from the 2020 Structural Costs Plan, during the nine months ended September 30, 2022, the segment recorded $14 million of restructuring costs, primarily related to severance costs associated with the announced closure of a technical center in Europe affecting approximately 80 employees.
2020 Structural Costs Plan
•During the nine months ended September 30, 2022, the segment recorded $10 million of restructuring costs primarily related to contractual settlements and professional fees.
•During the three and nine months ended September 30, 2021, the segment recorded $11 million and $44 million, respectively, associated with this plan. These amounts included $7 million and $17 million, respectively, of restructuring costs, primarily related to severance costs, equipment relocation and professional fees to reduce existing structural costs and $4 million and $27 million, respectively, of restructuring costs, primarily related to contractual settlements and professional fees and other costs associated with the announced closure of a facility in Europe.
Fuel Systems
•During the three and nine months ended September 30, 2022, the segment recorded $3 million of restructuring costs, primarily related to equipment relocation and professional fees.
2019 Legacy Delphi Technologies Plan
•During the nine months ended September 30, 2022, the segment recorded $5 million of restructuring costs related to this plan, primarily related to employee severance and equipment moves.
•During the three and nine months ended September 30, 2021, the segment recorded $29 million and $56 million, respectively, of restructuring costs related to this plan. These costs were primarily for the statutory minimum benefits and incremental one-time termination benefits negotiated with local labor authorities.
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 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 September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | 2022 | | 2021 | | 2022 | | 2021 | |
(in millions) | | (in millions) | 2023 | | 2022 | | 2023 | | 2022 |
| Gross R&D expenditures | Gross R&D expenditures | $ | 236 | | | $ | 231 | | | $ | 702 | | | $ | 675 | | Gross R&D expenditures | $ | 215 | | | $ | 190 | | | $ | 625 | | | $ | 566 | |
| Customer reimbursements | Customer reimbursements | (37) | | | (47) | | | (105) | | | (142) | | Customer reimbursements | (23) | | | (12) | | | (84) | | | (32) | |
| Net R&D expenditures | Net R&D expenditures | $ | 199 | | | $ | 184 | | | $ | 597 | | | $ | 533 | | Net R&D expenditures | $ | 192 | | | $ | 178 | | | $ | 541 | | | $ | 534 | |
NOTE 7 OTHER OPERATING (INCOME) EXPENSE, NET
Items included in Other operating expense, net consist of:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | 2022 | | 2021 | | 2022 | | 2021 | |
| Merger, acquisition and divestiture expense, net | $ | 8 | | | $ | 8 | | | $ | 40 | | | $ | 36 | | |
(in millions) | | (in millions) | 2023 | | 2022 | | 2023 | | 2022 |
| Merger and acquisition expense, net | | Merger and acquisition expense, net | $ | 2 | | | $ | 5 | | | $ | 18 | | | $ | 13 | |
| | Service and lease agreement termination | | Service and lease agreement termination | — | | | — | | | 9 | | | — | |
| Asset impairments | | Asset impairments | 2 | | | — | | | 2 | | | — | |
| Loss (gain) on sale of business | Loss (gain) on sale of business | 9 | | | — | | | (15) | | | 7 | | Loss (gain) on sale of business | — | | | 9 | | | (5) | | | (15) | |
| | Gain on sale of assets | | Gain on sale of assets | (7) | | | — | | | (13) | | | — | |
| Other (income) expense, net | Other (income) expense, net | (5) | | | (5) | | | 1 | | | (13) | | Other (income) expense, net | (3) | | | (2) | | | (12) | | | (5) | |
| Other operating expense, net | $ | 12 | | | $ | 3 | | | $ | 26 | | | $ | 30 | | |
| Other operating (income) expense, net | | Other operating (income) expense, net | $ | (6) | | | $ | 12 | | | $ | (1) | | | $ | (7) | |
Merger acquisition and divestitureacquisition expense, net: During the three and nine months ended September 30, 2023, the Company recorded merger and acquisition expense, net of $2 million and $18 million, respectively, primarily related to professional fees for specific acquisition initiatives. During the three and nine months ended September 30, 2022, the Company recorded merger acquisition and divestitureacquisition expense, net of $8$5 million and $40$13 million, respectively, primarily related to professional fees associated with specific acquisition and disposition initiatives. During the three and nine months ended September 30, 2021, the Company recorded merger, acquisition and divestiture expense of $8 million and $36 million, respectively. 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.
Loss (gain) on sale of business: During the three months ended September 30, 2022, the Company revisedupdated its estimate of the expected earn-out related to a previous divestiture resulting in a $9 million loss in the period. During the nine months ended September 30, 2022, the Company recorded a pre-tax gain of $24 million
gain related to in connection with the sale of its interest in BorgWarner Romeo Power LLC. Refer to Note 3, “Acquisitions,”LLC, in which the Company owned a 60% interest.
Gain on sale of assets: During thethree months ended September 30, 2023, the Company recorded a $7 million gain related to the Condensed Consolidated Financial Statements for more information.
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 September 30, 2023 and 2022 was 56% and 2021 was 26% and 40%, respectively. During the three-month periodthree months ended September 30, 2023, a discrete tax benefit of approximately $31 million was recorded in relation to various changes in filling positions for prior years, a discrete tax benefit of approximately $12 million was recorded in relation to the Spin-Off, and a discrete tax expense of approximately $87 million was recorded in relation to changes in judgement related to the realization of deferred tax assets, primarily due to the impact of the Spin-Off on the allocation of the Company’s profits across jurisdictions for tax purposes as well as various tax structuring actions and strategies. During the three months ended September 30, 2022, a discrete tax benefit of approximately $1 million was recorded relating to other tax adjustments. During the three-month period ended September 30, 2021, the Company’s effective tax rate was unfavorably impacted by $59 million of restructuring expenses and merger, acquisition and divestiture expenses, some of which were non-deductible for tax purposes. As such, the Company recognized a de minimis tax benefit associated with these expenses in the three months ended September 30, 2021.
The Company’s effective tax rate for the nine months ended September 30, 2023 and 2022 was 30% and 2021 was 25% and 24%, respectively. During the nine-month periodnine months ended September 30, 2023, a discrete tax benefit of approximately $14 million was recorded related to the resolution of tax audits, a discrete tax benefit of
approximately $41 million was recorded in relation to the Spin-Off, a discrete tax benefit of approximately $39 million was recorded in relation to various changes in filling positions for prior years, a discrete tax expense of approximately $9 million was recorded for the impact of enacted tax law changes, and a discrete tax expense of approximately $85 million was recorded in relation to changes in judgement related to the recovery of deferred tax assets, primarily due to the impact of the Spin-Off on the allocation of the Company’s profits across jurisdictions for tax purposes as well as various tax structuring actions and strategies. During the nine months ended September 30, 2022, a discrete tax benefit of $9$8 million was recorded relating to other tax adjustments. During the nine-month period ended September 30, 2021, unrecognized tax benefits and accrued interest were decreased for the lapse of the statute of limitations in a non-US jurisdiction for a tax holiday matter which, net of unrecognized foreign tax credits, resulted in a $55 million tax benefit. Additionally, an increase in the United Kingdom (“UK”) tax rate from 19% to 25% effective April 1, 2023, was enacted in June 2021, resulting in a discrete tax benefit of $20 million as a result of the revaluation of net deferred tax asset balances. Further, the Company’s effective tax rate included a net discrete tax benefit of $33 million primarily related to changes to certain withholding rates applied to unremitted earnings. The effective tax rate was unfavorably impacted by $179 million of restructuring expenses and merger, acquisition and divestiture expenses, some of which were non-deductible for tax purposes. The Company recognized $22 million of tax benefit associated with these expenses in the nine months ended September 30, 2021.
The annual effective tax rates differ from the U.S. statutory rate primarily due to foreign rates whichthat 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).
The Company estimates that it is reasonably possible there could be a decrease of approximately $97 million in unrecognized tax benefits and interest in the next 12 months related to the conclusion of tax audits and the lapse of statutes of limitations subsequent to the reporting period in certain taxing jurisdictions.
NOTE 9 INVENTORIES, NET
A summary of Inventories, net is presented below:
| | | September 30, | | December 31, | | September 30, | | December 31, |
| (in millions) | (in millions) | 2022 | | 2021 | (in millions) | 2023 | | 2022 |
| Raw material and supplies | Raw material and supplies | $ | 1,159 | | | $ | 1,057 | | Raw material and supplies | $ | 1,005 | | | $ | 919 | |
| Work in progress | Work in progress | 176 | | | 175 | | Work in progress | 154 | | | 136 | |
| Finished goods | Finished goods | 353 | | | 327 | | Finished goods | 202 | | | 187 | |
| FIFO inventories | FIFO inventories | 1,688 | | | 1,559 | | FIFO inventories | 1,361 | | | 1,242 | |
| LIFO reserve | LIFO reserve | (30) | | | (25) | | LIFO reserve | (33) | | | (25) | |
| Inventories, net | Inventories, net | $ | 1,658 | | | $ | 1,534 | | Inventories, net | $ | 1,328 | | | $ | 1,217 | |
NOTE 10 OTHER CURRENT AND NON-CURRENT ASSETS
Additional detail related to assets is presented below:
| | | September 30, | | December 31, | | September 30, | | December 31, |
| (in millions) | 2022 | | 2021 | |
(in millions) | | (in millions) | 2023 | | 2022 |
| Prepayments and other current assets: | Prepayments and other current assets: | | | | Prepayments and other current assets: | | | |
| Prepaid tooling | Prepaid tooling | $ | 82 | | | $ | 81 | | Prepaid tooling | $ | 99 | | | $ | 77 | |
| Prepaid taxes | Prepaid taxes | 40 | | | 64 | | Prepaid taxes | 40 | | | 33 | |
| Derivative instruments | Derivative instruments | 32 | | | 13 | | Derivative instruments | 34 | | | 12 | |
| Customer incentive payments (Note 4) | Customer incentive payments (Note 4) | 32 | | | 36 | | Customer incentive payments (Note 4) | 27 | | | 34 | |
| Contract assets (Note 4) | Contract assets (Note 4) | 18 | | | 17 | | Contract assets (Note 4) | 16 | | | 14 | |
| Prepaid insurance | 12 | | | 9 | | |
| Prepaid engineering | 12 | | | 27 | | |
| Other | Other | 57 | | | 74 | | Other | 56 | | | 60 | |
| Total prepayments and other current assets | Total prepayments and other current assets | $ | 285 | | | $ | 321 | | Total prepayments and other current assets | $ | 272 | | | $ | 230 | |
| | Investments and long-term receivables: | Investments and long-term receivables: | | Investments and long-term receivables: | |
| Investment in debt securities | | Investment in debt securities | $ | 262 | | | $ | 455 | |
| Investment in equity affiliates | Investment in equity affiliates | $ | 266 | | | $ | 298 | | Investment in equity affiliates | 232 | | | 235 | |
| Equity securities | | Equity securities | 73 | | | 73 | |
| Long-term receivables | Long-term receivables | 81 | | | 102 | | Long-term receivables | 57 | | | 56 | |
| Equity securities (Note 3) | 75 | | | 130 | | |
| Total investments and long-term receivables | Total investments and long-term receivables | $ | 422 | | | $ | 530 | | Total investments and long-term receivables | $ | 624 | | | $ | 819 | |
| | Other non-current assets: | Other non-current assets: | | Other non-current assets: | |
| Deferred income taxes | Deferred income taxes | $ | 204 | | | $ | 254 | | Deferred income taxes | $ | 193 | | | $ | 179 | |
| Operating leases | Operating leases | 184 | | | 185 | | Operating leases | 128 | | | 106 | |
| Derivative instruments | Derivative instruments | 172 | | | 8 | | Derivative instruments | 83 | | | 68 | |
| Customer incentive payments (Note 4) | Customer incentive payments (Note 4) | 102 | | | 137 | | Customer incentive payments (Note 4) | 75 | | | 99 | |
| Other | Other | 120 | | | 99 | | Other | 39 | | | 37 | |
| Total other non-current assets | Total other non-current assets | $ | 782 | | | $ | 683 | | Total other non-current assets | $ | 518 | | | $ | 489 | |
NOTE 11 GOODWILL AND OTHER INTANGIBLES
During the fourth quarter of each year, the Company assesses its goodwill and indefinite-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 nine months of 2022ended September 30, 2023 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) | (in millions) | Air Management | | e-Propulsion & Drivetrain | | Aftermarket | | Fuel Systems | | Total | (in millions) | Air Management | | Drivetrain & Battery Systems | | ePropulsion | | Total |
| Gross goodwill balance, December 31, 2021 | $ | 2,124 | | | $ | 1,232 | | | $ | 380 | | | $ | 45 | | | $ | 3,781 | | |
| Accumulated impairment losses, December 31, 2021 | (502) | | | — | | | — | | | — | | | (502) | | |
| Net goodwill balance, December 31, 2021* | $ | 1,622 | | | $ | 1,232 | | | $ | 380 | | | $ | 45 | | | $ | 3,279 | | |
| Gross goodwill balance, December 31, 2022 | | Gross goodwill balance, December 31, 2022 | $ | 1,566 | | | $ | 1,434 | | | $ | 480 | | | $ | 3,480 | |
| Accumulated impairment losses, December 31, 2022 | | Accumulated impairment losses, December 31, 2022 | (502) | | | — | | | — | | | (502) | |
| Net goodwill balance, December 31, 2022* | | Net goodwill balance, December 31, 2022* | $ | 1,064 | | | $ | 1,434 | | | $ | 480 | | | $ | 2,978 | |
| Goodwill during the period: | Goodwill during the period: | | Goodwill during the period: | |
| Acquisitions | Acquisitions | 104 | | | 127 | | | — | | | — | | | 231 | | Acquisitions | 2 | | | — | | | — | | | 2 | |
| | Other, primarily translation adjustment | Other, primarily translation adjustment | (145) | | | (82) | | | (12) | | | — | | | (239) | | Other, primarily translation adjustment | (6) | | | (10) | | | (28) | | | (44) | |
| Ending balance, September 30, 2022 | $ | 1,581 | | | $ | 1,277 | | | $ | 368 | | | $ | 45 | | | $ | 3,271 | | |
| Ending balance, September 30, 2023 | | Ending balance, September 30, 2023 | $ | 1,060 | | | $ | 1,424 | | | $ | 452 | | | $ | 2,936 | |
| | | | | | | | | | | | | | |
| * | The December 31, 20212022 balances have been recast for inter-segment transitionsa change in reportable segments that was made during the first quarter of certain businesses that were completed during 2022.2023. Refer to Note 22, “Reporting“Reportable Segments And Related Information” for more information. |
The Company’s other intangible assets, primarily from acquisitions, consist of the following:
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 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 technology | Patented and unpatented technology | 5 - 15 | | $ | 470 | | | $ | 125 | | | $ | 345 | | | $ | 443 | | | $ | 105 | | | $ | 338 | | Patented and unpatented technology | 5 - 15 | | $ | 349 | | | $ | 134 | | | $ | 215 | | | $ | 349 | | | $ | 111 | | | $ | 238 | |
| Customer relationships | Customer relationships | 7 - 15 | | 844 | | | 317 | | | 527 | | | 877 | | | 310 | | | 567 | | Customer relationships | 6 - 15 | | 620 | | | 287 | | | 333 | | | 639 | | | 267 | | | 372 | |
| Miscellaneous | Miscellaneous | 2 - 13 | | 9 | | | 6 | | | 3 | | | 14 | | | 7 | | | 7 | | Miscellaneous | 2 - 5 | | 9 | | | 6 | | | 3 | | | 9 | | | 6 | | | 3 | |
| Total amortized intangible assets | Total amortized intangible assets | | 1,323 | | | 448 | | | 875 | | | 1,334 | | | 422 | | | 912 | | Total amortized intangible assets | | 978 | | | 427 | | | 551 | | | 997 | | | 384 | | | 613 | |
| Unamortized trade names | Unamortized trade names | | 174 | | | — | | | 174 | | | 179 | | | — | | | 179 | | Unamortized trade names | | 6 | | | — | | | 6 | | | 6 | | | — | | | 6 | |
| Total other intangible assets | Total other intangible assets | | $ | 1,497 | | | $ | 448 | | | $ | 1,049 | | | $ | 1,513 | | | $ | 422 | | | $ | 1,091 | | Total other intangible assets | | $ | 984 | | | $ | 427 | | | $ | 557 | | | $ | 1,003 | | | $ | 384 | | | $ | 619 | |
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) | 2022 | | 2021 | (in millions) | 2023 | | 2022 |
| Beginning balance, January 1 | Beginning balance, January 1 | $ | 236 | | | $ | 253 | | Beginning balance, January 1 | $ | 185 | | | $ | 168 | |
| | Provisions for current period sales | Provisions for current period sales | 71 | | | 69 | | Provisions for current period sales | 68 | | | 40 | |
| Adjustments of prior estimates | Adjustments of prior estimates | (4) | | | 17 | | Adjustments of prior estimates | — | | | (6) | |
| | Payments | Payments | (70) | | | (90) | | Payments | (53) | | | (34) | |
| Other, primarily translation adjustment | Other, primarily translation adjustment | (24) | | | (2) | | Other, primarily translation adjustment | (6) | | | (20) | |
| Ending balance, September 30 | Ending balance, September 30 | $ | 209 | | | $ | 247 | | Ending balance, September 30 | $ | 194 | | | $ | 148 | |
The product warranty liability is classified in the Condensed Consolidated Balance Sheets as follows:
| | | September 30, | | December 31, | | September 30, | | December 31, |
| (in millions) | (in millions) | 2022 | | 2021 | (in millions) | 2023 | | 2022 |
| Other current liabilities | Other current liabilities | $ | 108 | | | $ | 128 | | Other current liabilities | $ | 99 | | | $ | 110 | |
| Other non-current liabilities | Other non-current liabilities | 101 | | | 108 | | Other non-current liabilities | 95 | | | 75 | |
| Total product warranty liability | Total product warranty liability | $ | 209 | | | $ | 236 | | Total product warranty liability | $ | 194 | | | $ | 185 | |
NOTE 13 NOTES PAYABLE AND DEBT
As of September 30, 20222023 and December 31, 2021,2022, the Company had debt outstanding as follows:
| | | September 30, | | December 31, | | September 30, | | December 31, |
(in millions) | (in millions) | 2022 | | 2021 | (in millions) | 2023 | | 2022 |
| Short-term borrowings | Short-term borrowings | $ | 53 | | | $ | 62 | | Short-term borrowings | $ | 60 | | | $ | 58 | |
| | Long-term debt | Long-term debt | | Long-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) | 499 | | | 498 | | 3.375% Senior notes due 03/15/25 ($500 million par value) | 384 | | | 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)* | 872 | | | 889 | | 5.000% Senior notes due 10/01/25 ($800 million par value)* | 481 | | | 840 | |
| 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) | 1,089 | | | 1,092 | | 2.650% Senior notes due 07/01/27 ($1,100 million par value) | 1,093 | | | 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) | 963 | | | 1,117 | | 1.000% Senior Notes due 05/19/31 (€1,000 million par value) | 1,041 | | | 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) | 495 | | | 494 | | 4.375% Senior notes due 03/15/45 ($500 million par value) | 495 | | | 495 | |
| Term loan facilities, finance leases and other | Term loan facilities, finance leases and other | 45 | | | 56 | | Term loan facilities, finance leases and other | 54 | | | 45 | |
| Total long-term debt | Total long-term debt | 4,083 | | | 4,265 | | Total long-term debt | 3,668 | | | 4,142 | |
| Less: current portion | Less: current portion | 3 | | | 4 | | Less: current portion | 3 | | | 2 | |
| Long-term debt, net of current portion | Long-term debt, net of current portion | $ | 4,080 | | | $ | 4,261 | | Long-term debt, net of current portion | $ | 3,665 | | | $ | 4,140 | |
_____________________________
*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.
In September 2023, the Company purchased and extinguished $438 million of senior notes due in 2025, comprised of $115 million and $323 million face value of its 3.375% and 5.000% Senior Notes, respectively. Total cash consideration paid was $430 million. The Company recorded a gain of approximately $28 million during the three months ended September 30, 2023, consisting of an $8 million gain related to a cash settlement below the face value of the 2025 notes and $20 million related to the write-off of the unamortized premium and discount that was recorded at the time of note issuance. The gain was recorded to Interest (income) expense, net, in the Statements of Operations.
The Company may utilize uncommitted lines of credit for short-term working capital requirements. As of September 30, 20222023 and December 31, 2021,2022, the Company had $53$60 million and $62$58 million, respectively, in borrowings under these facilities, which are classified in Notes payable and other short-term debt onin the Condensed Consolidated Balance Sheets. The short-term borrowings primarily relate to a European money market loan with an interest rate of Euribor plus 1.75% that is callable upon immediate notice by either party.
The following table provides details on Interest expense, net included in the Condensed Consolidated Statements of Operations:
| | | Three Months Ended September 30, | Nine Months Ended September 30, | | Three Months Ended September 30, | Nine Months Ended September 30, |
| (in millions) | (in millions) | 2022 | | 2021 | | 2022 | | 2021 | (in millions) | 2023 | | 2022 | | 2023 | | 2022 |
| Interest expense | Interest expense | $ | 18 | | | $ | 21 | | | $ | 58 | | | $ | 84 | | Interest expense | $ | 21 | | | $ | 16 | | | $ | 57 | | | $ | 53 | |
| Gain on debt extinguishment | | Gain on debt extinguishment | (28) | | | — | | | (28) | | | — | |
| Interest income | Interest income | (6) | | | (3) | | | (16) | | | (9) | | Interest income | (12) | | | (4) | | | (26) | | | (12) | |
| Interest expense, net | Interest expense, net | $ | 12 | | | $ | 18 | | | $ | 42 | | | $ | 75 | | Interest expense, net | $ | (19) | | | $ | 12 | | | $ | 3 | | | $ | 41 | |
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 was renewed in September 2023 and now matures in March 2025.September 2028. 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 September 30, 2022. 2023.
At September 30, 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 September 30, 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.
As of September 30, 20222023 and December 31, 2021,2022, the estimated fair values of the Company’s senior unsecured notes totaled $3,425$3,099 million and $4,421$3,530 million, respectively. The estimated fair values were $613$515 million lower than their carrying value at September 30, 20222023 and $212$567 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 $40$35 million and $35$31 million at September 30, 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.
NOTE 14 OTHER CURRENT AND NON-CURRENT LIABILITIES
Additional detail related to liabilities is presented in the table below:
| | | | | | | | | | | |
| September 30, | | December 31, |
(in millions) | 2022 | | 2021 |
| Other current liabilities: | | | |
| Payroll and employee related | $ | 310 | | | $ | 330 | |
| Customer related | 221 | | | 220 | |
| Product warranties (Note 12) | 108 | | | 128 | |
| Income taxes payable | 103 | | | 105 | |
| Indirect taxes | 77 | | | 106 | |
| Accrued freight | 57 | | | 46 | |
| Employee termination benefits (Note 5) | 51 | | | 85 | |
| Operating leases | 39 | | | 43 | |
| Deferred engineering reimbursements | 32 | | | 44 | |
| Earn-out liability (Note 3) | 31 | | | — | |
| Dividends payable | 31 | | | 18 | |
| Interest | 29 | | | 23 | |
| Supplier related | 23 | | | 18 | |
| Other non-income taxes | 23 | | | 22 | |
| Contract liabilities (Note 4) | 18 | | | 21 | |
| Insurance | 18 | | | 19 | |
| Retirement related | 14 | | | 16 | |
| Mandatorily redeemable noncontrolling interest liability (Note 3) | — | | | 58 | |
| Other | 175 | | | 154 | |
| Total other current liabilities | $ | 1,360 | | | $ | 1,456 | |
| | | |
| Other non-current liabilities: | | | |
| Deferred income taxes | $ | 257 | | | $ | 206 | |
| Other income tax liabilities | 249 | | | 274 | |
| Operating leases | 152 | | | 152 | |
| Product warranties (Note 12) | 101 | | | 108 | |
| Deferred income | 59 | | | 68 | |
| Employee termination benefits (Note 5) | 18 | | | 41 | |
| Other | 56 | | | 115 | |
| Total other non-current liabilities | $ | 892 | | | $ | 964 | |
| | | | | | | | | | | |
| September 30, | | December 31, |
(in millions) | 2023 | | 2022 |
| Other current liabilities: | | | |
| Payroll and employee related | $ | 268 | | | $ | 314 | |
| Customer related | 161 | | | 108 | |
| Indirect taxes | 119 | | | 115 | |
| Income taxes payable | 72 | | | 107 | |
| Product warranties (Note 12) | 99 | | | 110 | |
| Employee termination benefits (Note 5) | 62 | | | 20 | |
| Operating leases | 41 | | | 22 | |
| Accrued freight | 38 | | | 30 | |
| Interest | 22 | | | 22 | |
| Supplier related | 17 | | | 15 | |
| Insurance | 17 | | | 18 | |
| Deferred engineering reimbursements | 14 | | | 23 | |
| Other non-income taxes | 14 | | | 12 | |
| Dividends payable | 11 | | | 21 | |
| Contract liabilities (Note 4) | 11 | | | 14 | |
| Retirement related | 11 | | | 11 | |
| Earn-out liability (Note 3) | 2 | | | 16 | |
| Other | 135 | | | 106 | |
| Total other current liabilities | $ | 1,114 | | | $ | 1,084 | |
| | | |
| Other non-current liabilities: | | | |
| Other income tax liabilities | $ | 222 | | | $ | 242 | |
| Deferred income taxes | 179 | | | 143 | |
| Product warranties (Note 12) | 95 | | | 75 | |
| Operating leases | 91 | | | 85 | |
| Deferred income | 69 | | | 59 | |
| Earn-out liability (Note 3) | 12 | | | 10 | |
| Employee termination benefits (Note 5) | 7 | | | 17 | |
| Other | 55 | | | 55 | |
| Total other non-current liabilities | $ | 730 | | | $ | 686 | |
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;
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).
The following tables classify assets and liabilities measured at fair value on a recurring basis as of September 30, 20222023 and December 31, 2021:2022:
| | | | | | Basis of fair value measurements | | | | | | | Basis of fair value measurements | | | |
| (in millions) | (in millions) | Balance at September 30, 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 | (in millions) | Balance at September 30, 2023 | | 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: | Assets: | | | | | | | | | | | | Assets: | | | | | | | | | | | |
| Receivables | $ | 11 | | | $ | — | | | $ | 2 | | | $ | 9 | | | C | | $ | — | | |
| Long-term receivables | $ | 15 | | | $ | — | | | $ | 15 | | | $ | — | | | C | | $ | — | | |
| | Investment in debt securities | | Investment in debt securities | $ | 262 | | | $ | — | | | $ | 262 | | | $ | — | | | A | | $ | — | |
| Investment in equity securities | Investment in equity securities | $ | 29 | | | $ | — | | | $ | — | | | $ | — | | | — | | $ | 29 | | Investment in equity securities | $ | 28 | | | $ | — | | | $ | — | | | $ | — | | | — | | $ | 28 | |
| Foreign currency contracts | Foreign currency contracts | $ | 36 | | | $ | — | | | $ | 36 | | | $ | — | | | A | | $ | — | | Foreign currency contracts | $ | 39 | | | $ | — | | | $ | 39 | | | $ | — | | | A | | $ | — | |
| Net investment hedge contracts | Net investment hedge contracts | $ | 167 | | | $ | — | | | $ | 167 | | | $ | — | | | A | | $ | — | | Net investment hedge contracts | $ | 78 | | | $ | — | | | $ | 78 | | | $ | — | | | A | | $ | — | |
| Liabilities: | Liabilities: | | | | | | | | | | | Liabilities: | | | | | | | | | | |
| Current earn-out liability | $ | 31 | | | $ | — | | | $ | — | | | $ | 31 | | | C | | $ | — | | |
| Current earn-out liabilities | | Current earn-out liabilities | $ | 2 | | | $ | — | | | $ | — | | | $ | 2 | | | C | | $ | — | |
| Non-current earn-out liabilities | | Non-current earn-out liabilities | $ | 12 | | | $ | — | | | $ | — | | | $ | 12 | | | C | | $ | — | |
| Foreign currency contracts | Foreign currency contracts | $ | 10 | | | $ | — | | | $ | 10 | | | $ | — | | | A | | $ | — | | Foreign currency contracts | $ | 2 | | | $ | — | | | $ | 2 | | | $ | — | | | A | | $ | — | |
|
| | | | | | Basis of fair value measurements | | | | | | | Basis of fair value measurements | | | |
| (in millions) | (in millions) | Balance at
December 31, 2021 | | Quoted prices in active markets for identical items
(Level 1) | | Significant other observable inputs
(Level 2) | | Significant unobservable inputs
(Level 3) | | Valuation
technique | | Assets measured at NAV1 | (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: | Assets: | | | | | | | | | | | | Assets: | | | | | | | | | | | |
| Current earn-out receivable | | Current earn-out receivable | $ | 9 | | | $ | — | | | $ | — | | | $ | 9 | | | C | | $ | — | |
| Investment in debt securities | | Investment in debt securities | $ | 455 | | | $ | — | | | $ | 455 | | | $ | — | | | A | | $ | — | |
| Investment in equity securities | Investment in equity securities | $ | 87 | | | $ | 70 | | | $ | — | | | $ | — | | | A | | $ | 17 | | Investment in equity securities | $ | 29 | | | $ | — | | | $ | — | | | $ | — | | | — | | $ | 29 | |
| Long-term receivables | $ | 35 | | | $ | — | | | $ | 17 | | | $ | 18 | | | C | | $ | — | | |
| Foreign currency contracts | Foreign currency contracts | $ | 13 | | | $ | — | | | $ | 13 | | | $ | — | | | A | | $ | — | | Foreign currency contracts | $ | 12 | | | $ | — | | | $ | 12 | | | $ | — | | | A | | $ | — | |
| Net investment hedge contracts | Net investment hedge contracts | $ | 8 | | | $ | — | | | $ | 8 | | | $ | — | | | A | | Net investment hedge contracts | $ | 68 | | | $ | — | | | $ | 68 | | | $ | — | | | A | | $ | — | |
| Liabilities: | Liabilities: | | | | | | | | | | | Liabilities: | | | | | | | | | | |
| Current earn-out liability | | Current earn-out liability | $ | 21 | | | $ | — | | | $ | — | | | $ | 21 | | | C | | $ | — | |
| Non-current earn-out liability | | Non-current earn-out liability | $ | 10 | | | $ | — | | | $ | — | | | $ | 10 | | | C | | $ | — | |
| Foreign currency contracts | Foreign currency contracts | $ | 8 | | | $ | — | | | $ | 8 | | | $ | — | | | A | | $ | — | | Foreign currency contracts | $ | 9 | | | $ | — | | | $ | 9 | | | $ | — | | | A | | $ | — | |
| Net investment hedge contracts | Net investment hedge contracts | $ | 54 | | | $ | — | | | $ | 54 | | | $ | — | | | A | | $ | — | | Net investment hedge contracts | $ | 1 | | | $ | — | | | $ | 1 | | | $ | — | | | A | | $ | — | |
_____________________________
1 Certain assets that are measured at fair value using the NAVnet asset value (“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 September 30, 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 September 30, 20222023 and December 31, 2021,2022, the Company had no material commodity derivative contracts.
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 September 30, 20222023 and December 31, 2021,2022, the Company had no outstanding interest rate swaps or options.
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 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 September 30, 20222023 and December 31, 2021,2022, the following foreign currency derivative contracts were outstanding and mature through the ending duration noted below:
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| Foreign currency derivatives (in millions)* |
| Functional Currency | | Traded Currency | | Notional in traded currency
September 30, 2022 | | Notional in traded currency
December 31, 2021 | | Ending Duration |
| Brazilian Real | | US Dollar | | 16 | | | 23 | | | Dec - 23 |
| British Pound | | Euro | | 10 | | | 42 | | | Oct - 22 |
| Chinese Renminbi | | British Pound | | 26 | | | 26 | | | Dec - 23 |
| Chinese Renminbi | | Euro | | 34 | | | 26 | | | Dec - 23 |
| Chinese Renminbi | | US Dollar | | 198 | | | 185 | | | Dec - 23 |
| | | | | | | | |
| Euro | | British Pound | | 44 | | | 6 | | | Dec - 23 |
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| Euro | | Polish Zloty | | 297 | | | 394 | | | Dec - 23 |
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| Euro | | US Dollar | | 88 | | | 86 | | | Dec - 23 |
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| US Dollar | | British Pound | | 13 | | | 13 | | | Dec - 23 |
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| US Dollar | | Euro | | 40 | | | 28 | | | Dec - 22 |
| US Dollar | | Korean Won | | 106,091 | | | 49,919 | | | Nov - 23 |
| US Dollar | | Mexican Peso | | 2,364 | | | 2,619 | | | Dec - 23 |
| US Dollar | | Singapore Dollar | | 5 | | | 27 | | | Dec - 22 |
| US Dollar | | Thailand Baht | | 1,790 | | | 1,720 | | | May - 23 |
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| *Table above excludes non-significant traded currency pairings with total notional amounts less than $10 million U.S. dollar equivalent as of September 30, 2022 and December 31, 2021. |
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| Foreign currency derivatives (in millions)* |
| Functional Currency | | Traded Currency | | Notional in traded currency
September 30, 2023 | | Notional in traded currency
December 31, 2022 | | Ending Duration |
| | | | | | | | |
| British Pound | | Euro | | 47 | | | 10 | | | Dec - 24 |
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| Chinese Renminbi | | US Dollar | | 225 | | | 276 | | | Dec - 24 |
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| Euro | | Hungarian Forint | | 7,033 | | | — | | | Dec - 24 |
| Euro | | Korean Won | | 20,225 | | | 9,138 | | | Mar - 24 |
| Euro | | Polish Zloty | | 456 | | | 440 | | | Dec - 24 |
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| Euro | | US Dollar | | 136 | | | 120 | | | Dec - 24 |
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| US Dollar | | Chinese Renminbi | | 582 | | | 1,402 | | | Dec - 23 |
| US Dollar | | Euro | | 42 | | | 45 | | | Oct - 23 |
| US Dollar | | Korean Won | | 67,200 | | | 51,786 | | | Nov - 24 |
| US Dollar | | Mexican Peso | | 2,295 | | | 2,474 | | | Dec - 24 |
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| US Dollar | | Thailand Baht | | 1,550 | | | — | | | Jun - 24 |
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| *Table above excludes non-significant traded currency pairings with total notional amounts less than $10 million U.S. dollar equivalent as of September 30, 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). In May 2022, the Company terminated its $100 million cross-currency swap contract originally maturing in February 2023 and executed a $100 million cross-currency swap contract to mature in February 2029, resulting in cash proceeds of $16 million that are expected to remain in accumulated other comprehensive loss until the net investment is sold, completely liquidated or substantially liquidated. At September 30, 20222023 and December 31, 2021,2022, the following cross-currency swap contracts were outstanding:
| | | Cross-currency swaps | | Cross-currency swaps |
| (in millions) | (in millions) | September 30, 2022 | | December 31, 2021 | | Ending duration | (in millions) | September 30, 2023 | | December 31, 2022 | | Ending duration |
| US dollar to Euro: | US dollar to Euro: | | | | | | US dollar to Euro: | | | | | |
| Fixed receiving notional | Fixed receiving notional | $ | 1,100 | | | $ | 1,100 | | | Jul - 27 | Fixed receiving notional | $ | 1,100 | | | $ | 1,100 | | | Jul - 27 |
| Fixed paying notional | Fixed paying notional | € | 976 | | | € | 976 | | | Jul - 27 | Fixed paying notional | € | 976 | | | € | 976 | | | Jul - 27 |
| US dollar to Euro: | US dollar to Euro: | | US dollar to Euro: | |
| Fixed receiving notional | Fixed receiving notional | $ | 500 | | | $ | 500 | | | Mar - 25 | Fixed receiving notional | $ | 500 | | | $ | 500 | | | Mar - 25 |
| Fixed paying notional | Fixed paying notional | € | 450 | | | € | 450 | | | Mar - 25 | Fixed paying notional | € | 450 | | | € | 450 | | | Mar - 25 |
| US dollar to Japanese yen: | US dollar to Japanese yen: | | US dollar to Japanese yen: | |
| Fixed receiving notional | Fixed receiving notional | $ | — | | | $ | 100 | | | Feb - 23 | Fixed receiving notional | $ | 100 | | | $ | 100 | | | Feb - 29 |
| Fixed paying notional | Fixed paying notional | ¥ | — | | | ¥ | 10,978 | | | Feb - 23 | Fixed paying notional | ¥ | 12,724 | | | ¥ | 12,724 | | | Feb - 29 |
| Fixed receiving notional | $ | 100 | | | $ | — | | | Feb - 29 | |
| Fixed paying notional | ¥ | 12,724 | | | ¥ | — | | | Feb - 29 | |
At September 30, 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) | | Assets | | Liabilities | (in millions) | | Assets | | Liabilities |
| Derivatives designated as hedging instruments Under 815: | Derivatives designated as hedging instruments Under 815: | | Location | | September 30, 2022 | | December 31, 2021 | | Location | | September 30, 2022 | | December 31, 2021 | Derivatives designated as hedging instruments Under 815: | | Location | | September 30, 2023 | | December 31, 2022 | | Location | | September 30, 2023 | | December 31, 2022 |
| Foreign currency | Foreign currency | | Prepayments and other current assets | | $ | 17 | | | $ | 7 | | | Other current liabilities | | $ | 6 | | | $ | 8 | | Foreign currency | | Prepayments and other current assets | | $ | 31 | | | $ | 9 | | | Other current liabilities | | $ | 1 | | | $ | 8 | |
| Foreign currency | Foreign currency | | Other non-current assets | | $ | 2 | | | $ | — | | | Other non-current liabilities | | $ | 1 | | | $ | — | | Foreign currency | | Other non-current assets | | $ | 5 | | | $ | — | | | Other non-current liabilities | | $ | — | | | $ | 1 | |
| Net investment hedges | Net investment hedges | | Other non-current assets | | $ | 167 | | | $ | 8 | | | Other non-current liabilities | | $ | — | | | $ | 54 | | Net investment hedges | | Other non-current assets | | $ | 78 | | | $ | 68 | | | Other non-current liabilities | | $ | — | | | $ | 1 | |
| | Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | Derivatives not designated as hedging instruments: | |
| Foreign currency | Foreign currency | | Prepayments and other current assets | | $ | 15 | | | $ | 6 | | | Other current liabilities | | $ | 3 | | | $ | — | | Foreign currency | | Prepayments and other current assets | | $ | 3 | | | $ | 3 | | | Other current liabilities | | $ | 1 | | | $ | — | |
| Foreign currency | | Other non-current assets | | $ | 2 | | | $ | — | | | Other non-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 income (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 September 30, 20222023 market rates.
| | (in millions) | (in millions) | | Deferred gain (loss) in AOCI at | | Gain (loss) expected to be reclassified to income in one year or less | (in millions) | | Deferred gain (loss) in AOCI at | | Gain (loss) expected to be reclassified to income in one year or less |
| Contract Type | Contract Type | | September 30, 2022 | | December 31, 2021 | | Contract Type | | September 30, 2023 | | December 31, 2022 | |
| Net investment hedges: | Net investment hedges: | | | | | | | Net investment hedges: | | | | | | |
| Foreign currency | Foreign currency | | $ | (4) | | | $ | (10) | | | $ | — | | Foreign currency | | $ | — | | | $ | (4) | | | $ | — | |
| Cross-currency swaps | Cross-currency swaps | | 167 | | | (46) | | | — | | Cross-currency swaps | | 78 | | | 67 | | | — | |
| Foreign currency-denominated debt | Foreign currency-denominated debt | | 222 | | | 66 | | | — | | Foreign currency-denominated debt | | 146 | | | 133 | | | — | |
| Total | Total | | $ | 385 | | | $ | 10 | | | $ | — | | Total | | $ | 224 | | | $ | 196 | | | $ | — | |
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 September 30, 2022 | | Three Months Ended September 30, 2023 |
| (in millions) | (in millions) | | Net sales | | Cost of sales | | Selling, general and administrative expenses | | Other comprehensive income (loss) | (in millions) | | Net sales | | Cost of sales | | Selling, general and administrative expenses | | Other comprehensive income (loss) |
| Total amounts of earnings and other comprehensive income (loss) line items in which the effects of cash flow hedges are recorded | Total amounts of earnings and other comprehensive income (loss) line items in which the effects of cash flow hedges are recorded | | $ | 4,060 | | | $ | 3,254 | | | $ | 397 | | | $ | (262) | | Total amounts of earnings and other comprehensive income (loss) line items in which the effects of cash flow hedges are recorded | | $ | 3,622 | | | $ | 2,970 | | | $ | 330 | | | $ | (17) | |
| 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 income | Gain (loss) recognized in other comprehensive income | | $ | 8 | | Gain (loss) recognized in other comprehensive income | | $ | (11) | |
| | | | Nine Months Ended September 30, 2022 | | Nine Months Ended September 30, 2023 |
| (in millions) | (in millions) | | Net sales | | Cost of sales | | Selling, general and administrative expenses | | Other comprehensive income (loss) | (in millions) | | Net sales | | Cost of sales | | Selling, general and administrative expenses | | Other comprehensive income (loss) |
| Total amounts of earnings and other comprehensive income (loss) line items in which the effects of cash flow hedges are recorded | Total amounts of earnings and other comprehensive income (loss) line items in which the effects of cash flow hedges are recorded | | 11,693 | | | 9,425 | | | 1,179 | | | $ | (527) | | Total amounts of earnings and other comprehensive income (loss) line items in which the effects of cash flow hedges are recorded | | $ | 10,676 | | | $ | 8,767 | | | $ | 963 | | | $ | (39) | |
| 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 income | Gain (loss) recognized in other comprehensive income | | $ | 12 | | Gain (loss) recognized in other comprehensive income | | $ | 27 | |
| Gain (loss) reclassified from AOCI to income | | $ | — | | | $ | (1) | | | $ | — | | | |
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| | Three Months Ended September 30, 2022 |
| (in millions) | | Net sales | | Cost of sales | | Selling, general and administrative expenses | | Other comprehensive income (loss) |
| Total amounts of earnings and other comprehensive income (loss) line items in which the effects of cash flow hedges are recorded | | $ | 3,226 | | | $ | 2,619 | | | $ | 325 | | | $ | (262) | |
| Gain (loss) on cash flow hedging relationships: | | | | | | | | |
| Foreign currency: | | | | | | | | |
| Gain (loss) recognized in other comprehensive income | | | | | | | | $ | 8 | |
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| | Nine Months Ended September 30, 2022 |
| (in millions) | | Net sales | | Cost of sales | | Selling, general and administrative expenses | | Other comprehensive income (loss) |
| Total amounts of earnings and other comprehensive income (loss) line items in which the effects of cash flow hedges are recorded | | $ | 9,318 | | | $ | 7,588 | | | $ | 951 | | | $ | (527) | |
| Gain (loss) on cash flow hedging relationships: | | | | | | | | |
| Foreign currency: | | | | | | | | |
| Gain (loss) recognized in other comprehensive income | | | | | | | | $ | 12 | |
| Gain (loss) reclassified from AOCI to income | | $ | — | | | $ | (1) | | | $ | — | | | |
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| | Three Months Ended September 30, 2021 |
| (in millions) | | Net sales | | Cost of sales | | Selling, general and administrative expenses | | Other comprehensive income (loss) |
| Total amounts of earnings and other comprehensive income (loss) line items in which the effects of cash flow hedges are recorded | | $ | 3,416 | | | $ | 2,766 | | | $ | 343 | | | $ | (73) | |
| Gain (loss) on cash flow hedging relationships: | | | | | | | | |
| Foreign currency: | | | | | | | | |
| Gain (loss) recognized in other comprehensive income | | | | | | | | $ | (2) | |
| Gain (loss) reclassified from AOCI to income | | $ | — | | | $ | (1) | | | $ | — | | | |
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| | Nine Months Ended September 30, 2021 |
| (in millions) | | Net sales | | Cost of sales | | Selling, general and administrative expenses | | Other comprehensive income (loss) |
| Total amounts of earnings and other comprehensive income (loss) line items in which the effects of cash flow hedges are recorded | | $ | 11,183 | | | $ | 8,953 | | | $ | 1,084 | | | $ | (95) | |
| Gain (loss) on cash flow hedging relationships: | | | | | | | | |
| Foreign currency: | | | | | | | | |
| Gain (loss) recognized in other comprehensive income | | | | | | | | $ | (5) | |
| Gain (loss) reclassified from AOCI to income | | $ | — | | | $ | (2) | | | $ | — | | | |
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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 September 30, | | Nine Months Ended September 30, | (in millions) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Net investment hedges | Net investment hedges | | 2022 | | 2021 | | 2022 | | 2021 | Net investment hedges | | 2023 | | 2022 | | 2023 | | 2022 |
| Foreign currency | Foreign currency | | $ | 3 | | | $ | — | | | $ | 6 | | | $ | (6) | | Foreign currency | | $ | — | | | $ | 3 | | | $ | — | | | $ | 6 | |
| Cross-currency swaps | Cross-currency swaps | | $ | 94 | | | $ | 43 | | | $ | 229 | | | $ | 90 | | Cross-currency swaps | | $ | 40 | | | $ | 94 | | | $ | 11 | | | $ | 229 | |
| Foreign currency-denominated debt | Foreign currency-denominated debt | | $ | 67 | | | $ | 27 | | | $ | 156 | | | $ | 64 | | Foreign currency-denominated debt | | $ | 34 | | | $ | 67 | | | $ | 13 | | | $ | 156 | |
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 September 30, | | Nine Months Ended September 30, | (in millions) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Net investment hedges | Net investment hedges | | 2022 | | 2021 | | 2022 | | 2021 | Net investment hedges | | 2023 | | 2022 | | 2023 | | 2022 |
| | Cross-currency swaps | Cross-currency swaps | | $ | 7 | | | $ | 6 | | | $ | 20 | | | $ | 16 | | Cross-currency swaps | | $ | 6 | | | $ | 7 | | | $ | 19 | | | $ | 20 | |
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.
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 (losses) recorded in income:
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| (in millions) | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Contract Type | | Location | | | 2022 | | 2021 | | 2022 | | 2021 |
| Foreign Currency | | Selling, general and administrative expenses | | | $ | 16 | | | $ | 6 | | | $ | 22 | | | $ | 11 | |
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| (in millions) | | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Contract Type | | Location | | 2023 | | 2022 | | 2023 | | 2022 |
| Foreign Currency | | Selling, general and administrative expenses | | $ | 16 | | | $ | 13 | | | $ | 8 | | | $ | 22 | |
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$15 million to $30$20 million, of which $18$14 million has been contributed through the first nine months of the year.ended September 30, 2023. 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 and expense recorded in the Condensed Consolidated Statements of Operations are as follows:
| | | | | Pension benefits | | Other postemployment benefits | | | Pension benefits | | Other postemployment benefits |
| (in millions) | (in millions) | | 2022 | | 2021 | | (in millions) | | 2023 | | 2022 | |
| Three Months Ended September 30, | Three Months Ended September 30, | | US | | Non-US | | US | | Non-US | | 2022 | | 2021 | Three Months Ended September 30, | | US | | Non-US | | US | | Non-US | | 2023 | | 2022 |
| Service cost | Service cost | | $ | — | | | $ | 5 | | | $ | — | | | $ | 6 | | | $ | — | | | $ | — | | Service cost | | $ | — | | | $ | 4 | | | $ | — | | | $ | 4 | | | $ | — | | | $ | — | |
| Interest cost | Interest cost | | 1 | | | 9 | | | 1 | | | 8 | | | 1 | | | — | | Interest cost | | 2 | | | 26 | | | 1 | | | 3 | | | — | | | 1 | |
| Expected return on plan assets | Expected return on plan assets | | (3) | | | (18) | | | (2) | | | (20) | | | — | | | — | | Expected return on plan assets | | (1) | | | (25) | | | (3) | | | (5) | | | — | | | — | |
| Amortization of unrecognized prior service credit | Amortization of unrecognized prior service credit | | (1) | | | — | | | (1) | | | — | | | (1) | | | (1) | | Amortization of unrecognized prior service credit | | — | | | — | | | (1) | | | — | | | (1) | | | (1) | |
| Amortization of unrecognized loss | Amortization of unrecognized loss | | 2 | | | 2 | | | 2 | | | 3 | | | — | | | — | | Amortization of unrecognized loss | | 1 | | | 1 | | | 2 | | | 2 | | | — | | | — | |
| Net periodic benefit income | | $ | (1) | | | $ | (2) | | | $ | — | | | $ | (3) | | | $ | — | | | $ | (1) | | |
| Net periodic benefit expense (income) | | Net periodic benefit expense (income) | | $ | 2 | | | $ | 6 | | | $ | (1) | | | $ | 4 | | | $ | (1) | | | $ | — | |
| | | Pension benefits | | Other postemployment benefits | | Pension benefits | | Other postemployment benefits |
| (in millions) | (in millions) | | 2022 | | 2021 | | (in millions) | | 2023 | | 2022 | |
| Nine Months Ended September 30, | Nine Months Ended September 30, | | US | | Non-US | | US | | Non-US | | 2022 | | 2021 | Nine Months Ended September 30, | | US | | Non-US | | US | | Non-US | | 2023 | | 2022 |
| Service cost | Service cost | | $ | — | | | $ | 15 | | | $ | — | | | $ | 19 | | | $ | — | | | $ | — | | Service cost | | $ | — | | | $ | 11 | | | $ | — | | | $ | 14 | | | $ | — | | | $ | — | |
| Interest cost | Interest cost | | 3 | | | 28 | | | 2 | | | 23 | | | 1 | | | — | | Interest cost | | 5 | | | 37 | | | 3 | | | 10 | | | 1 | | | 1 | |
| Expected return on plan assets | Expected return on plan assets | | (6) | | | (58) | | | (7) | | | (62) | | | — | | | — | | Expected return on plan assets | | (4) | | | (33) | | | (6) | | | (16) | | | — | | | — | |
| Amortization of unrecognized prior service credit | Amortization of unrecognized prior service credit | | (1) | | | — | | | (1) | | | — | | | (2) | | | (2) | | Amortization of unrecognized prior service credit | | — | | | — | | | (1) | | | — | | | (2) | | | (2) | |
| Amortization of unrecognized loss | Amortization of unrecognized loss | | 3 | | | 6 | | | 3 | | | 10 | | | — | | | 1 | | Amortization of unrecognized loss | | 2 | | | 2 | | | 3 | | | 6 | | | — | | | — | |
| Net periodic benefit income | | $ | (1) | | | $ | (9) | | | $ | (3) | | | $ | (10) | | | $ | (1) | | | $ | (1) | | |
| Net periodic benefit expense (income) | | Net periodic benefit expense (income) | | $ | 3 | | | $ | 17 | | | $ | (1) | | | $ | 14 | | | $ | (1) | | | $ | (1) | |
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.
NOTE 18 STOCKHOLDERS' EQUITY
The changes of the Stockholders’ Equity items during the three and nine months ended September 30, 20222023 and 2021,2022, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| BorgWarner Inc. stockholders' equity | | |
| (in millions) | Issued common stock | | Capital in excess of par value | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Noncontrolling interests |
| Balance, June 30, 2022 | $ | 3 | | | $ | 2,633 | | | $ | (1,936) | | | $ | 7,005 | | | $ | (816) | | | $ | 282 | |
| Dividends declared ($0.17 per share*) | — | | | — | | | — | | | (39) | | | — | | | (15) | |
| | | | | | | | | | | |
| Net issuance for executive stock plan | — | | | 6 | | | (1) | | | — | | | — | | | — | |
| Net issuance of restricted stock | — | | | 11 | | | (2) | | | — | | | — | | | — | |
| Purchase of treasury stock | — | | | — | | | (100) | | | — | | | — | | | — | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Net earnings | — | | | — | | | — | | | 273 | | | — | | | 19 | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | (262) | | | (24) | |
| Balance, September 30, 2022 | $ | 3 | | | $ | 2,650 | | | $ | (2,039) | | | $ | 7,239 | | | $ | (1,078) | | | $ | 262 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| BorgWarner Inc. stockholders' equity | | |
| (in millions) | Issued common stock | | Capital in excess of par value | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Noncontrolling interests |
| Balance, June 30, 2021 | $ | 3 | | | $ | 2,602 | | | $ | (1,810) | | | $ | 6,527 | | | $ | (673) | | | $ | 373 | |
| Dividends declared ($0.17 per share*) | — | | | — | | | — | | | (41) | | | — | | | (14) | |
| | | | | | | | | | | |
| Net issuance for executive stock plan | — | | | 6 | | | — | | | — | | | — | | | — | |
| Net issuance of restricted stock | — | | | 9 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Net earnings | — | | | — | | | — | | | 96 | | | — | | | 21 | |
| Other comprehensive income | — | | | — | | | — | | | — | | | (73) | | | (6) | |
| Balance, September 30, 2021 | $ | 3 | | | $ | 2,617 | | | $ | (1,810) | | | $ | 6,582 | | | $ | (746) | | | $ | 374 | |
| | | BorgWarner Inc. stockholders' equity | | | BorgWarner Inc. stockholders' equity |
| (in millions) | (in millions) | Issued common stock | | Capital in excess of par value | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Noncontrolling interests | (in millions) | Issued common stock | | Capital in excess of par value | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Noncontrolling interests | | Total |
| Balance, December 31, 2021 | $ | 3 | | | $ | 2,637 | | | $ | (1,812) | | | $ | 6,671 | | | $ | (551) | | | $ | 314 | | |
| Dividends declared ($0.51 per share*) | — | | | — | | | — | | | (121) | | | — | | | (64) | | |
| Balance, June 30, 2023 | | Balance, June 30, 2023 | $ | 3 | | | $ | 2,657 | | | $ | (2,007) | | | $ | 7,796 | | | $ | (898) | | | $ | 230 | | | $ | 7,781 | |
| Dividends declared ($0.11 per share*) | | Dividends declared ($0.11 per share*) | — | | | — | | | — | | | (26) | | | — | | | (5) | | | (31) | |
| | Net issuance for executive stock plan | Net issuance for executive stock plan | — | | | 6 | | | 4 | | | — | | | — | | | — | | Net issuance for executive stock plan | — | | | 10 | | | — | | | — | | | — | | | — | | | 10 | |
| Net issuance of restricted stock | Net issuance of restricted stock | — | | | 6 | | | 9 | | | — | | | — | | | — | | Net issuance of restricted stock | — | | | 13 | | | (3) | | | — | | | — | | | — | | | 10 | |
| Purchase of treasury stock | — | | | — | | | (240) | | | — | | | — | | | — | | |
| Purchase/sale of noncontrolling interest | — | | | 1 | | | — | | | — | | | — | | | (4) | | |
| | | Net earnings | Net earnings | — | | | — | | | — | | | 689 | | | — | | | 58 | | Net earnings | — | | | — | | | — | | | 50 | | | — | | | 18 | | | 68 | |
| Other comprehensive loss | Other comprehensive loss | — | | | — | | | — | | | — | | | (527) | | | (42) | | Other comprehensive loss | — | | | — | | | — | | | — | | | (1) | | | (4) | | | (5) | |
| Balance, September 30, 2022 | $ | 3 | | | $ | 2,650 | | | $ | (2,039) | | | $ | 7,239 | | | $ | (1,078) | | | $ | 262 | | |
| Spin-Off of PHINIA | | Spin-Off of PHINIA | — | | | — | | | — | | | (1,810) | | | (16) | | | — | | | (1,826) | |
| Balance, September 30, 2023 | | Balance, September 30, 2023 | $ | 3 | | | $ | 2,680 | | | $ | (2,010) | | | $ | 6,010 | | | $ | (915) | | | $ | 239 | | | $ | 6,007 | |
| | | BorgWarner Inc. stockholders' equity | | | BorgWarner Inc. stockholders' equity |
| (in millions) | (in millions) | Issued common stock | | Capital in excess of par value | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Noncontrolling interests | (in millions) | Issued common stock | | Capital in excess of par value | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Noncontrolling interests | | Total |
| Balance, December 31, 2020 | $ | 3 | | | $ | 2,614 | | | $ | (1,834) | | | $ | 6,296 | | | $ | (651) | | | $ | 296 | | |
| Dividends declared ($0.51 per share*) | — | | | — | | | — | | | (122) | | | — | | | (51) | | |
| Balance, June 30, 2022 | | Balance, June 30, 2022 | $ | 3 | | | $ | 2,633 | | | $ | (1,936) | | | $ | 7,005 | | | $ | (816) | | | $ | 282 | | | $ | 7,171 | |
| Dividends declared ($0.17 per share*) | | Dividends declared ($0.17 per share*) | — | | | — | | | — | | | (39) | | | — | | | (15) | | | (54) | |
| | Net issuance for executive stock plan | Net issuance for executive stock plan | — | | | 7 | | | 3 | | | — | | | — | | | — | | Net issuance for executive stock plan | — | | | 6 | | | (1) | | | — | | | — | | | — | | | 5 | |
| Net issuance of restricted stock | Net issuance of restricted stock | — | | | (4) | | | 21 | | | — | | | — | | | — | | Net issuance of restricted stock | — | | | 11 | | | (2) | | | — | | | — | | | — | | | 9 | |
| Purchase of noncontrolling interest | — | | | — | | | — | | | — | | | — | | | (33) | | |
| | Acquisition of AKASOL | — | | | — | | | — | | | — | | | — | | | 96 | | |
| Purchase of treasury stock | | Purchase of treasury stock | — | | | — | | | (100) | | | — | | | — | | | — | | | (100) | |
| | Net earnings | Net earnings | — | | | — | | | — | | | 408 | | | — | | | 77 | | Net earnings | — | | | — | | | — | | | 273 | | | — | | | 19 | | | 292 | |
| Other comprehensive loss | Other comprehensive loss | — | | | — | | | — | | | — | | | (95) | | | (11) | | Other comprehensive loss | — | | | — | | | — | | | — | | | (262) | | | (24) | | | (286) | |
| Balance, September 30, 2021 | $ | 3 | | | $ | 2,617 | | | $ | (1,810) | | | $ | 6,582 | | | $ | (746) | | | $ | 374 | | |
| Balance, September 30, 2022 | | Balance, September 30, 2022 | $ | 3 | | | $ | 2,650 | | | $ | (2,039) | | | $ | 7,239 | | | $ | (1,078) | | | $ | 262 | | | $ | 7,037 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| BorgWarner Inc. stockholders' equity |
| (in millions) | Issued common stock | | Capital in excess of par value | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Noncontrolling interests | | Total |
| Balance, December 31, 2022 | $ | 3 | | | $ | 2,675 | | | $ | (2,032) | | | $ | 7,454 | | | $ | (876) | | | $ | 284 | | | $ | 7,508 | |
| Dividends declared ($0.45 per share*) | — | | | — | | | — | | | (105) | | | — | | | (63) | | | (168) | |
| | | | | | | | | | | | | |
| Net issuance for executive stock plan | — | | | 10 | | | 5 | | | — | | | — | | | — | | | 15 | |
| Net issuance of restricted stock | — | | | (3) | | | 17 | | | — | | | — | | | — | | | 14 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Purchase of noncontrolling interest | — | | | (2) | | | — | | | — | | | — | | | (13) | | | (15) | |
| Net earnings | — | | | — | | | — | | | 471 | | | — | | | 49 | | | 520 | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | (23) | | | (18) | | | (41) | |
| Spin-Off of PHINIA | — | | | — | | | — | | | (1,810) | | | (16) | | | — | | | (1,826) | |
| Balance, September 30, 2023 | $ | 3 | | | $ | 2,680 | | | $ | (2,010) | | | $ | 6,010 | | | $ | (915) | | | $ | 239 | | | $ | 6,007 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| BorgWarner Inc. stockholders' equity |
| (in millions) | Issued common stock | | Capital in excess of par value | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Noncontrolling interests | | Total |
| Balance, December 31, 2021 | $ | 3 | | | $ | 2,637 | | | $ | (1,812) | | | $ | 6,671 | | | $ | (551) | | | $ | 314 | | | $ | 7,262 | |
| Dividends declared ($0.51 per share*) | — | | | — | | | — | | | (121) | | | — | | | (64) | | | (185) | |
| | | | | | | | | | | | | |
| Net issuance for executive stock plan | — | | | 6 | | | 4 | | | — | | | — | | | — | | | 10 | |
| Net issuance of restricted stock | — | | | 6 | | | 9 | | | — | | | — | | | — | | | 15 | |
| Purchase/sale of noncontrolling interest | — | | | 1 | | | — | | | — | | | — | | | (4) | | | (3) | |
| Purchase of treasury stock | — | | | — | | | (240) | | | — | | | — | | | — | | | (240) | |
| | | | | | | | | | | | | |
| Net earnings | — | | | — | | | — | | | 689 | | | — | | | 58 | | | 747 | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | (527) | | | (42) | | | (569) | |
| Balance, September 30, 2022 | $ | 3 | | | $ | 2,650 | | | $ | (2,039) | | | $ | 7,239 | | | $ | (1,078) | | | $ | 262 | | | $ | 7,037 | |
* Per share dividends amount declared relate to BorgWarner common stock.
NOTE 19 ACCUMULATED OTHER COMPREHENSIVE LOSS
The following tables summarize the activity within accumulated other comprehensive loss during the three and nine months ended September 30, 20222023 and 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Foreign currency translation adjustments | | Hedge instruments | | Defined benefit retirement plans | | | | Total |
| Beginning balance, June 30, 2023 | $ | (806) | | | $ | 42 | | | $ | (134) | | | | | $ | (898) | |
| Comprehensive income (loss) before reclassifications | 17 | | | (11) | | | 5 | | | | | 11 | |
| Income taxes associated with comprehensive (loss) income before reclassifications | (13) | | | — | | | 1 | | | | | (12) | |
| Reclassification from accumulated other comprehensive loss | — | | | — | | | 1 | | | | | 1 | |
| Income taxes reclassified into net earnings | — | | | — | | | (1) | | | | | (1) | |
| Spin-Off of PHINIA | (20) | | | (1) | | | 5 | | | | | (16) | |
| Ending balance, September 30, 2023 | $ | (822) | | | $ | 30 | | | $ | (123) | | | | | $ | (915) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Foreign currency translation adjustments | | Hedge instruments | | Defined benefit retirement plans | | | | Total |
| Beginning balance, June 30, 2022 | $ | (703) | | | $ | 5 | | | $ | (118) | | | | | $ | (816) | |
| Comprehensive (loss) income before reclassifications | (240) | | | 8 | | | 3 | | | | | (229) | |
| Income taxes associated with comprehensive (loss) income before reclassifications | (34) | | | — | | | — | | | | | (34) | |
| Reclassification from accumulated other comprehensive loss | — | | | — | | | 2 | | | | | 2 | |
| Income taxes reclassified into net earnings | — | | | — | | | (1) | | | | | (1) | |
| Ending balance, September 30, 2022 | $ | (977) | | | $ | 13 | | | $ | (114) | | | | | $ | (1,078) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Foreign currency translation adjustments | | Hedge instruments | | Defined benefit retirement plans | | | | Total |
| Beginning balance, December 31, 2022 | $ | (750) | | | $ | 4 | | | $ | (130) | | | | | $ | (876) | |
| Comprehensive (loss) income before reclassifications | (51) | | | 27 | | | 1 | | | | | (23) | |
| Income taxes associated with comprehensive (loss) income before reclassifications | (1) | | | — | | | — | | | | | (1) | |
| Reclassification from accumulated other comprehensive loss | — | | | — | | | 2 | | | | | 2 | |
| Income taxes reclassified into net earnings | — | | | — | | | (1) | | | | | (1) | |
| Spin-Off of PHINIA | (20) | | | (1) | | | 5 | | | | | (16) | |
| Ending balance, September 30, 2023 | $ | (822) | | | $ | 30 | | | $ | (123) | | | | | $ | (915) | |
| | (in millions) | (in millions) | Foreign currency translation adjustments | | Hedge instruments | | Defined benefit retirement plans | | | Total | (in millions) | Foreign currency translation adjustments | | Hedge instruments | | Defined benefit retirement plans | | | Total |
| Beginning balance, June 30, 2021 | $ | (351) | | | $ | (2) | | | $ | (320) | | | | $ | (673) | | |
| Beginning balance, December 31, 2021 | | Beginning balance, December 31, 2021 | $ | (423) | | | $ | — | | | $ | (128) | | | | $ | (551) | |
| Comprehensive (loss) income before reclassifications | Comprehensive (loss) income before reclassifications | (55) | | | (2) | | | 8 | | | | (49) | | Comprehensive (loss) income before reclassifications | (474) | | | 12 | | | 9 | | | | (453) | |
| Income taxes associated with comprehensive (loss) income before reclassifications | Income taxes associated with comprehensive (loss) income before reclassifications | (26) | | | — | | | (1) | | | | (27) | | Income taxes associated with comprehensive (loss) income before reclassifications | (80) | | | — | | | 1 | | | | (79) | |
| Reclassification from accumulated other comprehensive loss | Reclassification from accumulated other comprehensive loss | — | | | 1 | | | 2 | | | | 3 | | Reclassification from accumulated other comprehensive loss | — | | | 1 | | | 6 | | | | 7 | |
| Income taxes reclassified into net earnings | Income taxes reclassified into net earnings | — | | | — | | | — | | | | — | | Income taxes reclassified into net earnings | — | | | — | | | (2) | | | | (2) | |
| Ending balance, September 30, 2021 | $ | (432) | | | $ | (3) | | | $ | (311) | | | | $ | (746) | | |
| Ending balance, September 30, 2022 | | Ending balance, September 30, 2022 | $ | (977) | | | $ | 13 | | | $ | (114) | | | | $ | (1,078) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Foreign currency translation adjustments | | Hedge instruments | | Defined benefit retirement plans | | | | Total |
| Beginning balance, December 31, 2021 | $ | (423) | | | $ | — | | | $ | (128) | | | | | $ | (551) | |
| Comprehensive (loss) income before reclassifications | (474) | | | 12 | | | 9 | | | | | (453) | |
| Income taxes associated with comprehensive (loss) income before reclassifications | (80) | | | — | | | 1 | | | | | (79) | |
| Reclassification from accumulated other comprehensive loss | — | | | 1 | | | 6 | | | | | 7 | |
| Income taxes reclassified into net earnings | — | | | — | | | (2) | | | | | (2) | |
| Ending balance, September 30, 2022 | $ | (977) | | | $ | 13 | | | $ | (114) | | | | | $ | (1,078) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Foreign currency translation adjustments | | Hedge instruments | | Defined benefit retirement plans | | | | Total |
| Beginning balance, December 31, 2020 | $ | (321) | | | $ | — | | | $ | (330) | | | | | $ | (651) | |
| Comprehensive (loss) income before reclassifications | (68) | | | (5) | | | 11 | | | | | (62) | |
| Income taxes associated with comprehensive (loss) income before reclassifications | (43) | | | — | | | — | | | | | (43) | |
| Reclassification from accumulated other comprehensive loss | — | | | 2 | | | 10 | | | | | 12 | |
| Income taxes reclassified into net earnings | — | | | — | | | (2) | | | | | (2) | |
| Ending balance, September 30, 2021 | $ | (432) | | | $ | (3) | | | $ | (311) | | | | | $ | (746) | |
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, governmental investigations and related proceedings, 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 2617 and 22 such sites as of September 30, 20222023 and December 31, 2021.2022, respectively. 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.
The Company had an accrual for environmental liabilities of $8 million and $7$6 million as of both September 30, 20222023 and December 31, 2021, respectively,2022, included in Other current and Other non-current liabilities in the Condensed Consolidated Balance Sheets. ThisAs of September 30, 2023, this accrual, which relates to eightsix 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 1811 sites, for which there was no accrual as of September 30, 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 0.90.8 million and 0.60.9 million performance share units excluded from the computation of the diluted earnings for both the three months ended September 30, 20222023 and 2021,2022, respectively. There were 0.90.7 million and 0.80.9 million performance share units excluded from the computation of the diluted earnings for the nine months ended September 30, 20222023 and 2021,2022, respectively. These units were excluded because the related performance criteria had not been met as of the balance sheet dates.
The following table reconciles the numerators and denominators used to calculate basic and diluted earnings per share of common stock:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions, except per share amounts) | (in millions, except per share amounts) | 2022 | | 2021 | | 2022 | | 2021 | (in millions, except per share amounts) | 2023 | | 2022 | | 2023 | | 2022 |
| Basic earnings per share: | Basic earnings per share: | | | | | | | | Basic earnings per share: | | | | | | | |
| Net earnings attributable to BorgWarner Inc. | $ | 273 | | | $ | 96 | | | $ | 689 | | | $ | 408 | | |
| Net earnings from continuing operations | | Net earnings from continuing operations | $ | 87 | | | $ | 173 | | | $ | 483 | | | $ | 464 | |
| Weighted average shares of common stock outstanding | Weighted average shares of common stock outstanding | 234.3 | | | 238.2 | | | 236.5 | | | 238.0 | | Weighted average shares of common stock outstanding | 233.4 | | | 234.3 | | | 233.2 | | | 236.5 | |
| Basic earnings per share of common stock | Basic earnings per share of common stock | $ | 1.17 | | | $ | 0.40 | | | $ | 2.92 | | | $ | 1.71 | | Basic earnings per share of common stock | $ | 0.37 | | | $ | 0.74 | | | $ | 2.07 | | | $ | 1.96 | |
| | Diluted earnings per share: | Diluted earnings per share: | | | | | Diluted earnings per share: | | | | |
| Net earnings attributable to BorgWarner Inc. | $ | 273 | | | $ | 96 | | | $ | 689 | | | $ | 408 | | |
| Net earnings from continuing operations | | Net earnings from continuing operations | $ | 87 | | | $ | 173 | | | $ | 483 | | | $ | 464 | |
| Weighted average shares of common stock outstanding | Weighted average shares of common stock outstanding | 234.3 | | | 238.2 | | | 236.5 | | | 238.0 | | Weighted average shares of common stock outstanding | 233.4 | | | 234.3 | | | 233.2 | | | 236.5 | |
| Effect of stock-based compensation | Effect of stock-based compensation | 1.3 | | | 1.6 | | | 1.0 | | | 1.3 | | Effect of stock-based compensation | 1.9 | | | 1.3 | | | 1.4 | | | 1.0 | |
| Weighted average shares of common stock outstanding including dilutive shares | Weighted average shares of common stock outstanding including dilutive shares | 235.6 | | | 239.8 | | | 237.5 | | | 239.3 | | Weighted average shares of common stock outstanding including dilutive shares | 235.3 | | | 235.6 | | | 234.6 | | | 237.5 | |
| Diluted earnings per share of common stock | Diluted earnings per share of common stock | $ | 1.16 | | | $ | 0.40 | | | $ | 2.90 | | | $ | 1.70 | | Diluted earnings per share of common stock | $ | 0.37 | | | $ | 0.73 | | | $ | 2.06 | | | $ | 1.95 | |
|
NOTE 22 REPORTINGREPORTABLE SEGMENTS AND RELATED INFORMATION
The Company’s business is aggregated into four reportingthree reportable segments: Air Management, e-PropulsionDrivetrain & Drivetrain, FuelBattery Systems, (formerly known as Fuel Injection) and Aftermarket.ePropulsion. These segments are strategic business groups that are managed separately as each represents a specific grouping of related automotive components and systems. In previous quarters, the Company presented two additional segments, Fuel Systems and Aftermarket, for a total of five reportable segments. As a result of the Spin-Off, Fuel Systems and Aftermarket are no longer reportable segments.
In the first quarter of 2023, the Company elected to disaggregate the former e-Propulsion & Drivetrain reportable segment into two separate reportable 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, electronic control units, 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 reportingreportable segment disclosures have been updated accordingly, which includedincluding recasting prior period information for the new reporting structure.
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 mergerstructures 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 EBITdiscontinued operations related to Segment Adjusted Operating Income.the Spin-Off.
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 reportingreportable segments.
The following tables show segment information and Segment Adjusted Operating Income (Loss) for the Company’s reportingreportable segments:
Net Sales by ReportingReportable Segment | | | Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 | | Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 |
| (in millions) | (in millions) | Customers | | Inter-segment | | Net | | Customers | | Inter-segment | | Net | (in millions) | Customers | | Inter-segment | | Net | | Customers | | Inter-segment | | Net |
| Air Management | Air Management | $ | 1,880 | | | $ | 28 | | | $ | 1,908 | | | $ | 5,434 | | | $ | 76 | | | $ | 5,510 | | Air Management | $ | 1,922 | | | $ | 23 | | | $ | 1,945 | | | $ | 5,888 | | | $ | 63 | | | $ | 5,951 | |
| e-Propulsion & Drivetrain | 1,327 | | | 44 | | | 1,371 | | | 3,776 | | | 141 | | | 3,917 | | |
| Fuel Systems | 528 | | | 72 | | | 600 | | | 1,531 | | | 176 | | | 1,707 | | |
| Aftermarket | 325 | | | 2 | | | 327 | | | 952 | | | 8 | | | 960 | | |
| Drivetrain & Battery Systems | | Drivetrain & Battery Systems | 1,144 | | | 1 | | | 1,145 | | | 3,216 | | | 2 | | | 3,218 | |
| ePropulsion | | ePropulsion | 556 | | | 15 | | | 571 | | | 1,572 | | | 52 | | | 1,624 | |
| Inter-segment eliminations | Inter-segment eliminations | — | | | (146) | | | (146) | | | — | | | (401) | | | (401) | | Inter-segment eliminations | — | | | (39) | | | (39) | | | — | | | (117) | | | (117) | |
| Net sales | Net sales | $ | 4,060 | | | $ | — | | | $ | 4,060 | | | $ | 11,693 | | | $ | — | | | $ | 11,693 | | Net sales | $ | 3,622 | | | $ | — | | | $ | 3,622 | | | $ | 10,676 | | | $ | — | | | $ | 10,676 | |
| | | Three Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 | | Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 |
| (in millions) | (in millions) | Customers | | Inter-segment | | Net | | Customers | | Inter-segment | | Net | (in millions) | Customers | | Inter-segment | | Net | | Customers | | Inter-segment | | Net |
| Air Management | Air Management | $ | 1,551 | | | $ | 25 | | | $ | 1,576 | | | $ | 5,145 | | | $ | 78 | | | $ | 5,223 | | Air Management | $ | 1,827 | | | $ | 16 | | | $ | 1,843 | | | $ | 5,283 | | | $ | 45 | | | $ | 5,328 | |
| e-Propulsion & Drivetrain | 1,095 | | | 39 | | | 1,134 | | | 3,628 | | | 128 | | | 3,756 | | |
| Fuel Systems | 456 | | | 59 | | | 515 | | | 1,498 | | | 190 | | | 1,688 | | |
| Aftermarket | 314 | | | 2 | | | 316 | | | 912 | | | 8 | | | 920 | | |
| Drivetrain & Battery Systems | | Drivetrain & Battery Systems | 954 | | | — | | | 954 | | | 2,745 | | | — | | | 2,745 | |
| ePropulsion | | ePropulsion | 445 | | | 44 | | | 489 | | | 1,290 | | | 71 | | | 1,361 | |
| Inter-segment eliminations | Inter-segment eliminations | — | | | (125) | | | (125) | | | — | | | (404) | | | (404) | | Inter-segment eliminations | — | | | (60) | | | (60) | | | — | | | (116) | | | (116) | |
| Net sales | Net sales | $ | 3,416 | | | $ | — | | | $ | 3,416 | | | $ | 11,183 | | | $ | — | | | $ | 11,183 | | Net sales | $ | 3,226 | | | $ | — | | | $ | 3,226 | | | $ | 9,318 | | | $ | — | | | $ | 9,318 | |
Total Assets of Continuing Operations by Reportable Segment | | | | | | | | | | | |
| (in millions) | September 30, 2023 | | December 31, 2022 |
| Air Management | $ | 5,559 | | | $ | 5,329 | |
| Drivetrain & Battery Systems | 3,954 | | | 3,963 | |
| ePropulsion | 2,847 | | | 2,349 | |
| Total | 12,360 | | | 11,641 | |
| Corporate | 1,744 | | | 1,691 | |
| Consolidated | $ | 14,104 | | | $ | 13,332 | |
Total Assets by Reporting Segment | | | | | | | | | | | |
| (in millions) | September 30, 2022 | | December 31, 2021 |
| Air Management | $ | 6,216 | | | $ | 6,229 | |
| e-Propulsion & Drivetrain | 5,225 | | | 5,163 | |
| Fuel Systems | 2,059 | | | 2,282 | |
| Aftermarket | 1,276 | | | 1,179 | |
| Total | 14,776 | | | 14,853 | |
| Corporate | 1,301 | | | 1,722 | |
| Consolidated | $ | 16,077 | | | $ | 16,575 | |
Segment Adjusted Operating Income (Loss)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | 2022 | | 2021 | | 2022 | | 2021 |
| Air Management | $ | 277 | | | $ | 214 | | | $ | 755 | | | $ | 791 | |
| e-Propulsion & Drivetrain | 86 | | | 83 | | | 270 | | | 349 | |
| Fuel Systems | 83 | | | 50 | | | 193 | | | 159 | |
| Aftermarket | 49 | | | 43 | | | 139 | | | 123 | |
| Segment Adjusted Operating Income | 495 | | | 390 | | | 1,357 | | | 1,422 | |
| Corporate, including stock-based compensation | 57 | | | 54 | | | 182 | | | 201 | |
| Intangible asset amortization expense | 24 | | | 25 | | | 74 | | | 65 | |
| Restructuring expense (Note 5) | 8 | | | 51 | | | 50 | | | 143 | |
| | | | | | | |
| Merger, acquisition and divestiture expense, net | 8 | | | 8 | | | 40 | | | 36 | |
| Other non-comparable items | — | | | (1) | | | 13 | | | (3) | |
| Loss (gain) on sale of business | 9 | | | — | | | (15) | | | 7 | |
| Equity in affiliates’ earnings, net of tax | (10) | | | (12) | | | (29) | | | (40) | |
| Unrealized (gain) loss on equity securities | (1) | | | 61 | | | 27 | | | 337 | |
| Interest expense, net | 12 | | | 18 | | | 42 | | | 75 | |
| Other postretirement income | (8) | | | (10) | | | (26) | | | (33) | |
| Earnings before income taxes and noncontrolling interest | 396 | | | 196 | | | 999 | | | 634 | |
| Provision for income taxes | 104 | | | 79 | | | 252 | | | 149 | |
| Net earnings | 292 | | | 117 | | | $ | 747 | | | $ | 485 | |
| Net earnings attributable to noncontrolling interest, net of tax | 19 | | | 21 | | | 58 | | | 77 | |
| Net earnings attributable to BorgWarner Inc. | $ | 273 | | | $ | 96 | | | $ | 689 | | | $ | 408 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | 2023 | | 2022 | | 2023 | | 2022 |
| Air Management | $ | 294 | | | $ | 291 | | | $ | 884 | | | $ | 793 | |
| Drivetrain & Battery Systems | 147 | | | 103 | | | 400 | | | 330 | |
| ePropulsion | (20) | | | (33) | | | (74) | | | (89) | |
| Segment Adjusted Operating Income | 421 | | | 361 | | | 1,210 | | | 1,034 | |
| Corporate, including stock-based compensation | 72 | | | 61 | | | 194 | | | 198 | |
| Restructuring expense (Note 5) | 56 | | | 5 | | | 68 | | | 42 | |
| Intangible asset amortization expense | 17 | | | 16 | | | 51 | | | 52 | |
| Merger and acquisition expense, net | 3 | | | 5 | | | 22 | | | 13 | |
| Service and lease agreement termination | — | | | — | | | 9 | | | — | |
| Loss (gain) on sale of business | — | | | 9 | | | (5) | | | (15) | |
| Gain on sale of assets | (7) | | | — | | | (13) | | | — | |
| | | | | | | |
| Other non-comparable items | 8 | | | — | | | 5 | | | — | |
| Equity in affiliates’ earnings, net of tax | (10) | | | (5) | | | (23) | | | (21) | |
| Realized and unrealized loss (gain) on debt and equity securities | 60 | | | (1) | | | 129 | | | 27 | |
| Interest (income) expense, net | (19) | | | 12 | | | 3 | | | 41 | |
| Other postretirement expense (income) | 3 | | | (1) | | | 8 | | | (2) | |
| Earnings from continuing operations before income taxes and noncontrolling interest | 238 | | | 260 | | | 762 | | | 699 | |
| Provision for income taxes | 133 | | | 68 | | | 230 | | | 177 | |
| Net earnings from continuing operations | $ | 105 | | | $ | 192 | | | $ | 532 | | | $ | 522 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
NOTE 23 OPERATING CASH FLOWS AND OTHER SUPPLEMENTAL FINANCIAL INFORMATION
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | (in millions) | 2022 | | 2021 | (in millions) | 2023 | | 2022 |
| OPERATING | | | | |
| OPERATING ACTIVITIES OF CONTINUING OPERATIONS | | OPERATING ACTIVITIES OF CONTINUING OPERATIONS | | | |
| Net earnings | Net earnings | $ | 747 | | | $ | 485 | | Net earnings | $ | 520 | | | $ | 747 | |
| Adjustments to reconcile net earnings to net cash flows from operations: | | | |
| Net (loss) earnings from discontinued operations | | Net (loss) earnings from discontinued operations | (12) | | | 225 | |
| Net earnings from continuing operations | | Net earnings from continuing operations | 532 | | | 522 | |
| Adjustments to reconcile net earnings from continuing operations to net cash provided by operating activities from continuing operations: | | Adjustments to reconcile net earnings from continuing operations to net cash provided by operating activities from continuing operations: | | |
| Depreciation and tooling amortization | Depreciation and tooling amortization | 469 | | | 520 | | Depreciation and tooling amortization | 376 | | | 360 | |
| Intangible asset amortization | Intangible asset amortization | 74 | | | 65 | | Intangible asset amortization | 51 | | | 52 | |
| Restructuring expense, net of cash paid | Restructuring expense, net of cash paid | 41 | | | 118 | | Restructuring expense, net of cash paid | 61 | | | 39 | |
| Stock-based compensation expense | Stock-based compensation expense | 43 | | | 42 | | Stock-based compensation expense | 50 | | | 36 | |
| (Gain) loss on sales of businesses | (17) | | | 7 | | |
| Deferred income tax benefit | (21) | | | (101) | | |
| Unrealized loss on equity securities | 27 | | | 337 | | |
| Loss on debt extinguishment | — | | | 20 | | |
| Gain on insurance recovery received for property damages | — | | | (5) | | |
| Gain on debt extinguishment | | Gain on debt extinguishment | (28) | | | — | |
| Gain on sale of business | | Gain on sale of business | (5) | | | (17) | |
| Deferred income tax expense (benefit) | | Deferred income tax expense (benefit) | 19 | | | (14) | |
| Realized and unrealized loss on debt and equity securities | | Realized and unrealized loss on debt and equity securities | 129 | | | 27 | |
| Other non-cash adjustments | Other non-cash adjustments | (9) | | | (18) | | Other non-cash adjustments | (80) | | | (1) | |
| Net earnings adjustments to reconcile to net cash flows from operations | 1,354 | | | 1,470 | | |
| Adjustments to reconcile net earnings from continuing operations to net cash provided by operating activities from continuing operations | | Adjustments to reconcile net earnings from continuing operations to net cash provided by operating activities from continuing operations | 1,105 | | | 1,004 | |
| Retirement plan contributions | Retirement plan contributions | (18) | | | (15) | | Retirement plan contributions | (13) | | | (18) | |
| 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: | | |
| Receivables | Receivables | (726) | | | (45) | | Receivables | (767) | | | (544) | |
| Inventories | Inventories | (258) | | | (382) | | Inventories | (126) | | | (187) | |
| Prepayments and other current assets | Prepayments and other current assets | 16 | | | (7) | | Prepayments and other current assets | (16) | | | 11 | |
| Accounts payable and accrued expenses | Accounts payable and accrued expenses | 288 | | | (231) | | Accounts payable and accrued expenses | 301 | | | 274 | |
| Prepaid taxes and income taxes payable | Prepaid taxes and income taxes payable | 35 | | | 21 | | Prepaid taxes and income taxes payable | (44) | | | 14 | |
| Other assets and liabilities | Other assets and liabilities | (12) | | | (47) | | Other assets and liabilities | 70 | | | (2) | |
| Net cash provided by operating activities | $ | 679 | | | $ | 764 | | |
| Net cash provided by operating activities from continuing operations | | Net cash provided by operating activities from continuing operations | $ | 510 | | | $ | 552 | |
| | SUPPLEMENTAL CASH FLOW INFORMATION | SUPPLEMENTAL CASH FLOW INFORMATION | | SUPPLEMENTAL CASH FLOW INFORMATION | |
| Cash paid during the period for: | Cash paid during the period for: | | Cash paid during the period for: | |
| Interest, net | $ | 100 | | | $ | 93 | | |
| Interest | | Interest | $ | 105 | | | $ | 95 | |
| Income taxes, net of refunds | Income taxes, net of refunds | $ | 251 | | | $ | 271 | | Income taxes, net of refunds | $ | 284 | | | $ | 204 | |
| | | Balance as of: | | Balance as of: |
| Non-cash investing transactions: | Non-cash investing transactions: | September 30,
2022 | | December 31,
2021 | Non-cash investing transactions: | September 30,
2023 | | December 31,
2022 |
| Period end accounts payable related to property, plant and equipment purchases | Period end accounts payable related to property, plant and equipment purchases | $ | 120 | | | $ | 142 | | Period end accounts payable related to property, plant and equipment purchases | $ | 124 | | | $ | 165 | |
NOTE 24 DISCONTINUED OPERATIONS
The historical results of operations and the financial position of PHINIA for periods prior to the Spin-Off are presented as discontinued operations in these Condensed Consolidated Financial Statements.
The following table summarizes the assets and liabilities from discontinued operations of PHINIA.
| | | | | | | |
(in millions) | | | December 31, 2022 |
| ASSETS | | | |
| Cash, cash equivalents and restricted cash | | | $ | 255 | |
| | | |
| Receivables, net | | | 852 | |
| Inventories, net | | | 470 | |
| Prepayments and other current assets | | | 39 | |
| | | |
| | | |
| Total current assets of discontinued operations | | | $ | 1,616 | |
| | | |
| Property, plant and equipment, net | | | 939 | |
| Investments and long-term receivables | | | 77 | |
| Goodwill | | | 419 | |
| Other intangible assets, net | | | 432 | |
| Other non-current assets | | | 179 | |
| | | |
| Total non-current assets of discontinued operations | | | $ | 2,046 | |
| | | |
| LIABILITIES | | | |
| Notes payable and other short-term debt | | | $ | 2 | |
| Accounts payable | | | 538 | |
| Other current liabilities | | | 406 | |
| | | |
| | | |
| Total current liabilities of discontinued operations | | | $ | 946 | |
| | | |
| Long-term debt | | | 26 | |
| Retirement-related liabilities | | | 94 | |
| Other non-current liabilities | | | 175 | |
| | | |
| Total non-current liabilities of discontinued operations | | | $ | 295 | |
The following table summarizes the financial results from discontinued operations of PHINIA.
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Net sales | $ | — | | | $ | 857 | | | $ | 1,723 | | | $ | 2,496 | |
| Cost of sales | — | | | 658 | | | 1,362 | | | 1,958 | |
| Gross profit | — | | | 199 | | | 361 | | | 538 | |
| | | | | | | |
| Selling, general and administrative expenses | — | | | 72 | | | 173 | | | 228 | |
| Restructuring expense | — | | | 3 | | | 7 | | | 8 | |
| Other operating expense, net | 52 | | | — | | | 117 | | | 33 | |
| Operating (loss) income | (52) | | | 124 | | | 64 | | | 269 | |
| | | | | | | |
| Equity in affiliates’ earnings, net of tax | — | | | (5) | | | (5) | | | (8) | |
| | | | | | | |
| Interest expense, net | — | | | — | | | — | | | 1 | |
| Other postretirement expense (income) | — | | | (7) | | | — | | | (24) | |
| Earnings from discontinued operations before income taxes | (52) | | | 136 | | | 69 | | | 300 | |
| | | | | | | |
| Provision for income taxes | (15) | | | 36 | | | 81 | | | 75 | |
| | | | | | | |
| Net (loss) earnings from discontinued operations attributable to PHINIA | $ | (37) | | | $ | 100 | | | $ | (12) | | | $ | 225 | |
In connection with the Spin-Off, the Company entered into a transition services agreement through which the Company and PHINIA will continue to provide certain services to each other following the Spin-Off. These services include IT, HR, finance, facilities, procurement, sales, IP & engineering costs. The combined impact of these services is reported in results of continuing operations in the Condensed Consolidated Financial Statements. The Company provided $7 million to PHINIA, and PHINIA provided $2 million to the Company, for these services during the three months ended September 30, 2023.
The Company incurred $52 million and $117 million of costs relating to the Spin-Off during the three and nine months ended September 30, 2023, respectively, that are reflected within Net (loss) earnings from discontinued operations in our Condensed Consolidated Statements of Operations. Spin-Off costs are primarily comprised of professional fees and costs to separate certain operational activities.
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.
Charging Forward - Electrification Portfolio Strategy
In 2021, the Company announced its strategy to aggressively grow its eProducts over time through organic investments and technology-focused acquisitions. eProducts include all products utilized on or for electric vehicles (“EVs”) plus those same products and components that are included in hybrid powertrains whose underlying technologies are adaptable or applicable to those used in or for EVs. The Company believes it is well positioned for the industry’s anticipated migration to EVs.
In June 2023, the Company announced the next phase of its Charging Forward strategy which focuses on profitably growing eProducts while maximizing the value of the Company’s Foundational products portfolio. Foundational products include all products utilized on internal combustion engines plus those same products and components that are also included in hybrid powertrains. As a result of executing its strategy, the Company expects that by 2027, it will achieve over $10 billion in annual eProducts sales, deliver eProducts adjusted operating margin of approximately 7% and maintain its double-digit adjusted operating margins for its Foundational products portfolio. During the nine months ended September 30, 2023, the Company’s eProducts revenue was approximately $1.5 billion, or 14% of its total revenue.
On July 3, 2023, BorgWarner completed the previously announced spin-off (“Spin-Off”) of its Fuel Systems and Aftermarket segments in a transaction intended to qualify as tax free to the Company’s stockholders for U.S. federal income tax purposes, which was accomplished by the distribution of 100% of the outstanding common stock of PHINIA, Inc. (“PHINIA”) to holders of record of common stock of the Company on a pro-rata basis. Each holder of record of common stock of the Company received one share of PHINIA common stock for every five shares of common stock of the Company held on June 23, 2023, the record date for the distribution (“Distribution Date”). In lieu of fractional shares of PHINIA, shareholders of the Company received cash. PHINIA is an independent public company trading under the symbol “PHIN” on the New York Stock Exchange.
The historical results of operations and the financial position of PHINIA for periods prior to the Spin-Off are presented as discontinued operations in the accompanying Condensed Consolidated Financial Statements.
Acquisitions
Eldor Corporation’s Electric Hybrid Systems Business
On June 19, 2023, the Company announced that it had entered into a share purchase agreement to acquire the Electric Hybrid Systems business segment of Eldor Corporation (“Eldor”), which is headquartered in Italy. The purchase price due at closing is €75 million ($79 million), with up to €175 million ($185 million) in contingent payments that could be paid over the two years following closing. The Company expects the acquisition to complement the Company’s existing ePropulsion product portfolio by enhancing the Company’s engineering capabilities in power electronics. The transaction is subject to satisfaction of customary closing conditions and is expected to close in the fourth quarter of 2023.
Hubei Surpass Sun Electric Charging Business
On September 20, 2022,March 1, 2023, the Company announced that it had entered into an Equity Transfer Agreement under which BorgWarner will acquirecompleted its acquisition of the electric vehicle solution, smart grid and smart energy businesses of Hubei Surpass Sun Electric. The transaction hasElectric, pursuant to an enterprise value up to ¥410 million ($60 million), of which approximately ¥267 million ($39 million) will be delivered at or soon after closing and up to ¥143 million ($21 million) could be paid in the form of contingent payments over approximately two years following the closing.Equity Transfer Agreement. The acquisition complements the Company’s existing European and North American charging footprint by adding a presence in China. The transaction is subject to satisfactiontotal consideration was ¥288 million ($42 million), including ¥268 million ($39 million) of customary closing conditionsbase purchase price and is expected to close¥20 million ($3 million) of estimated earn-out payments. The Company paid ¥217 million ($31 million) of the base purchase price in the first quarternine months ended September 30, 2023. The remaining ¥51 million ($8 million) of 2023. Refer to Note 3, “Acquisitions,”base purchase price is payable in two installments with the last payment due before April 30, 2025. In addition, pursuant to the Condensed Consolidated Financial Statementsagreement, the Company
could be obligated to remit up to ¥103 million ($15 million), in Itemthe form of contingent payments over approximately two years following the closing.
Drivetek AG
On December 1, 2022, the Company acquired Drivetek AG, 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 help to accelerate the growth of this report for more information.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 approximately $131 million at closing, and up to $30 million could be paid in the form of contingent payments over the next three years. Results of operations for Rhombus are included in the Company’s financial informationyears following the date of acquisition. Refer to Note 3, “Acquisitions,” to the Condensed Consolidated Financial Statements in Item 1 of this report for more information.
Santroll Automotive Components
On March 31, 2022, the Company completed its acquisition of 100% ofacquired Santroll Automotive Components, (“Santroll”), a carve-out of Santroll Electric Auto’s eMotor business, pursuant to the terms of an Equity Transfer Agreement (“ETA”).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 $207$192 million, which includes final working capital and net debt adjustments of $5 million. The consideration includesincluding approximately ¥1.1¥1.0 billion ($167152 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 no longer expects to recapture a previously anticipated $5 million of post-closing adjustments, which has been recorded in Other operating expense, net. Pursuant to the Equity Transfer Agreement for the acquisition, the obligation of the Company to remit up to ¥0.3 billion (approximately $47 million) of earn-out payments was contingent upon achievement of certain sales volume targets and certain estimated future volume targets associated with newly awarded business. During the nine months ended September 30, 2022. The2023, the Company paid approximately ¥0.2 billion ($24 million) to settle the remaining $10 million of base purchase price is recorded in Other current liabilities in the Company’s Condensed Consolidated Balance Sheet as of September 30, 2022. Results of operations for Santroll are included in the Company’s financial information following the date of acquisition. earn-out liability and related adjustments.
Refer to Note 3, “Acquisitions,” to the Condensed Consolidated Financial Statements in Item 1 of this report for more information.
AKASOL
On June 4, 2021, the Company completed a voluntary public takeover offer for shares of AKASOL AG (“AKASOL”), resulting in ownership of 89% of AKASOL’s outstanding shares. During 2021, the Company increased its ownership to 93% through the subsequent purchase of additional shares. On February 10, 2022, the Company completed a merger squeeze out process (the “Squeeze Out”) to obtain the remaining shares, resulting 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. 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. UAW Strike.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 continue to cause intermittent COVID-19-related disruptions in the Company’s supply chain and local manufacturing operations. For a significant portion of the second quarter of 2022, China imposed lock-downs in many cities due to an increase in COVID-19 cases in the region, which contributed to a decline in industry production in China during the quarter. The Company also continues to face supplier disruptions due to a global semiconductor shortage in the automotive industry. Further, actions taken by Russia in Ukraine have impacted the automotive industry particularly in Europe, including the Company’s suppliers, its customers and its operations more generally. The Company is in the process of winding down its Aftermarket operation in Russia, which is not material Prior to the Company’s financial statements.United Auto Workers (“UAW”) strikes that commenced in September 2023, the Company expected its aggregate sales to Ford, Stellantis, and General Motors in North America to be just under $250 million per month on average during 2023. In October 2023, the UAW strikes expanded to include facilities that the Company currently supplies. However, in late October the UAW reached tentative agreements with Ford, Stellantis and General Motors and production has resumed at some of their manufacturing facilities. These tentative agreements have not yet been ratified by the UAW. If they are not ratified, it remains possible that there could be prolonged strikes that could have a material impact on the Company.
Commodities and Other Inflationary Impacts. Prices for commodities remain volatile, and since the beginning inof 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.(e.g., lithium and cobalt). In addition, many globalmost economies includingwhere the United States, are experiencingCompany operates have experienced elevated levels of inflation more generally, which is driving an increase in other input costs.As a result, the Company has experienced, and is continuing to experience, higher costs.
The Company continues to negotiate the pass through and recovery of higher costs with customers. Certain agreements were substantively reached with various customers in the second and third quarters of 2022. These agreements do not enable the Company to recover 100 percent of its increased costs, and as a result, the Company’s operating margins have been negatively impacted.
Foreign Currency Impacts. The rapid strengthening of the U.S. Dollar relative to major foreign currencies, including the Euro, Korean Won and Chinese Renminbi, and related translation of these currencies to the U.S. Dollar unfavorably impacted the Company’s net sales, earnings and cash flows. Continued significant fluctuations of foreign currencies against the U.S. Dollar may further negatively impact the Company’s financial results.
Outlook
The Company continues to expectexpects global industry production to modestly increase year over yearyear-over-year in 2022. However, various global disruptions, including, but not limited to, input cost inflation, supply chain disruptions and further impacts from Russia’s invasion of Ukraine could impact the Company’s 2022 expectation.2023. The Company also expects net new business-related sales growth, due to the increased penetration of BorgWarner products around the world,and increasing eProduct revenue, to drive a sales increase in excess of the expected growth in its industry production.production outlook. Recoveries by the Company from its customers of material cost inflation arising from non-contractual commercial negotiations with those customers and normal contractual customer commodity pass-through arrangements are also expected to increase net sales year-over-year. As a result, of all of these considerations, the Company expects increased revenue in 2022,2023, excluding the impact of foreign currencies.
The Company expects its resultsthe earnings benefit of this revenue growth to be impactedpartially offset by a planned increase in eProduct-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 productseProducts and is primarily related to supporting the development and 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, continued 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 September 30, 20222023 vs. Three Months Ended September 30, 20212022
The following table presents a summary of our operating results:
| | | Three Months Ended September 30, | | Three Months Ended September 30, |
| (in millions, except per share data) | (in millions, except per share data) | 2022 | | 2021 | (in millions, except per share data) | 2023 | | 2022 |
| Net sales | Net sales | | % of net sales | | | % of net sales | Net sales | | % of net sales | | | % of net sales |
| Air Management | Air Management | $ | 1,908 | | | 47.0 | % | | $ | 1,576 | | | 46.1 | % | Air Management | $ | 1,945 | | | 53.7 | % | | $ | 1,843 | | | 57.1 | % |
| e-Propulsion & Drivetrain | 1,371 | | | 33.8 | | | 1,134 | | | 33.2 | | |
| Fuel Systems | 600 | | | 14.8 | | | 515 | | | 15.1 | | |
| Aftermarket | 327 | | | 8.1 | | | 316 | | | 9.3 | | |
| Drivetrain & Battery Systems | | Drivetrain & Battery Systems | 1,145 | | | 31.6 | | | 954 | | | 29.6 | |
| ePropulsion | | ePropulsion | 571 | | | 15.8 | | | 489 | | | 15.2 | |
| Inter-segment eliminations | Inter-segment eliminations | (146) | | | (3.6) | | | (125) | | | (3.7) | | Inter-segment eliminations | (39) | | | (1.1) | | | (60) | | | (1.9) | |
| Total net sales | Total net sales | 4,060 | | | 100.0 | | | 3,416 | | | 100.0 | | Total net sales | 3,622 | | | 100.0 | | | 3,226 | | | 100.0 | |
| Cost of sales | Cost of sales | 3,254 | | | 80.1 | | | 2,766 | | | 81.0 | | Cost of sales | 2,970 | | | 82.0 | | | 2,619 | | | 81.2 | |
| Gross profit | Gross profit | 806 | | | 19.9 | | | 650 | | | 19.0 | | Gross profit | 652 | | | 18.0 | | | 607 | | | 18.8 | |
| Selling, general and administrative expenses - R&D, net | Selling, general and administrative expenses - R&D, net | 199 | | | 4.9 | | | 184 | | | 5.4 | | Selling, general and administrative expenses - R&D, net | 192 | | | 5.3 | | | 178 | | | 5.5 | |
| Selling, general and administrative expenses - Other | Selling, general and administrative expenses - Other | 198 | | | 4.9 | | | 159 | | | 4.7 | | Selling, general and administrative expenses - Other | 138 | | | 3.8 | | | 147 | | | 4.6 | |
| Restructuring expense | Restructuring expense | 8 | | | 0.2 | | | 51 | | | 1.5 | | Restructuring expense | 56 | | | 1.5 | | | 5 | | | 0.2 | |
| Other operating expense, net | 12 | | | 0.3 | | | 3 | | | 0.1 | | |
| Other operating (income) expense, net | | Other operating (income) expense, net | (6) | | | (0.2) | | | 12 | | | 0.4 | |
| Operating income | Operating income | 389 | | | 9.6 | | | 253 | | | 7.4 | | Operating income | 272 | | | 7.5 | | | 265 | | | 8.2 | |
| Equity in affiliates’ earnings, net of tax | Equity in affiliates’ earnings, net of tax | (10) | | | (0.2) | | | (12) | | | (0.4) | | Equity in affiliates’ earnings, net of tax | (10) | | | (0.3) | | | (5) | | | (0.2) | |
| Unrealized (gain) loss on equity securities | (1) | | | — | | | 61 | | | 1.8 | | |
| Interest expense, net | 12 | | | 0.3 | | | 18 | | | 0.5 | | |
| Other postretirement income | (8) | | | (0.2) | | | (10) | | | (0.3) | | |
| Earnings before income taxes and noncontrolling interest | 396 | | | 9.8 | | | 196 | | | 5.7 | | |
| Realized and unrealized loss (gain) on debt and equity securities | | Realized and unrealized loss (gain) on debt and equity securities | 60 | | | 1.7 | | | (1) | | | — | |
| Interest (income) expense, net | | Interest (income) expense, net | (19) | | | (0.5) | | | 12 | | | 0.4 | |
| Other postretirement expense (income) | | Other postretirement expense (income) | 3 | | | 0.1 | | | (1) | | | — | |
| Earnings from continuing operations before income taxes and noncontrolling interest | | Earnings from continuing operations before income taxes and noncontrolling interest | 238 | | | 6.6 | | | 260 | | | 8.1 | |
| Provision for income taxes | Provision for income taxes | 104 | | | 2.6 | | | 79 | | | 2.3 | | Provision for income taxes | 133 | | | 3.7 | | | 68 | | | 2.1 | |
| Net earnings from continuing operations | | Net earnings from continuing operations | 105 | | | 2.9 | | | 192 | | | 6.0 | |
| Net (loss) earnings from discontinued operations | | Net (loss) earnings from discontinued operations | (37) | | | (1.0) | | | 100 | | | 3.1 | |
| Net earnings | Net earnings | 292 | | | 7.2 | | | 117 | | | 3.4 | | Net earnings | 68 | | | 1.9 | | | 292 | | | 9.1 | |
| Net earnings attributable to noncontrolling interest, net of tax | 19 | | | 0.5 | | | 21 | | | 0.6 | | |
| Net earnings from continuing operations attributable to noncontrolling interest, net of tax | | Net earnings from continuing operations attributable to noncontrolling interest, net of tax | 18 | | | 0.5 | | | 19 | | | 0.6 | |
| | Net earnings attributable to BorgWarner Inc. | Net earnings attributable to BorgWarner Inc. | $ | 273 | | | 6.7 | % | | $ | 96 | | | 2.8 | % | Net earnings attributable to BorgWarner Inc. | $ | 50 | | | 1.4 | % | | $ | 273 | | | 8.5 | % |
| Earnings per share — diluted | $ | 1.16 | | | | | $ | 0.40 | | | | |
| Earnings per share from continuing operations — diluted | | Earnings per share from continuing operations — diluted | $ | 0.37 | | | | | $ | 0.73 | | | |
Net sales
Net sales for the three months ended September 30, 20222023 totaled $4,060$3,622 million, an increase of 19%$396 million, or 12%, compared to the three months ended September 30, 2021. In December 2021, the Company sold its Water Valley, Mississippi manufacturing facility, which accounted for $38 million of2022. The change in net sales infor the three months ended September 30, 2021 that did not recur in 2022. Foreign currencies resulted in a year-over-year decrease in sales of approximately $320 million primarily due to the weakening of the Euro, Korean Won and Chinese Renminbi relative to the U.S. Dollar. The increase excluding these items2023 was primarily due to higher industry production compared todriven by the prior year, increased demand for the Company’s products and the impact of commercial negotiations with the Company’s customers.following:
Cost of•Favorable volume, mix and net new business increased sales approximately $322 million, or 10%. This increase was primarily driven by higher weighted average market production as a percentage of net salesestimated by the Company, which was 80.1% duringup approximately 6% from the three months ended September 30, 2022, compared to 81.0% during2022. The remaining portion of this increase primarily reflected sales growth above market production, which the three months ended September 30, 2021. TheCompany believes reflected higher demand for its products. Weighted average market production reflects light and commercial vehicle production as reported by IHS weighted for the Company’s material costgeographic exposure, as estimated by the Company.
•Fluctuations in foreign currencies resulted in a percentage of sales was 57% and 54% of net sales during the three months ended September 30, 2022 and 2021, respectively. Theyear-over-year increase in material cost as a percentagesales of sales reflects increasing commodity and other material and input costs. Gross profit and gross margin wereapproximately $44 million primarily due to the strengthening of the Euro, partially offset by the weakening of the Chinese Renminbi, in each case relative to the U.S. Dollar.
$806•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 $23 million.
•Acquisitions contributed $8 million in additional sales during the three months ended September 30, 2023.
Cost of sales and gross profit
Cost of sales and cost of sales as a percentage of net sales were $2,970 million and 19.9%82.0%, respectively, during the three months ended September 30, 20222023, compared to $650$2,619 million and 19.0%81.2%, respectively, during the three months ended September 30, 2021.2022. The change in cost of sales for the three months ended September 30, 2023 was primarily driven by the following:
•Higher sales volume, mix and net new business increased cost of sales by approximately $236 million.
•Fluctuations in foreign currencies resulted in a year-over-year increase in cost of sales of approximately $50 million primarily due to the strengthening of the Euro, partially offset by the weakening of the Chinese Renminbi, in each case relative to the U.S. Dollar.
•Cost of sales was also impacted by material cost inflation of approximately $24 million arising from non-contractual commercial negotiations and normal contractual supplier commodity pass-through arrangements with the Company’s suppliers.
Gross profit and gross margin were $652 million and 18.0%, respectively, during the three months ended September 30, 2023, compared to $607 million and 18.8%, respectively, during the three months ended September 30, 2022. The decrease in gross margin was primarily due to conversion on higher revenue, partially offset by higher material costs.the factors discussed above.
Selling, general and administrative expenses (“SG&A”)
SG&A for the three months ended September 30, 2022 were $3972023 was $330 million as compared to $343$325 million for the three months ended September 30, 2021.2022. SG&A as a percentage of net sales was 9.8%9.1% and 10.0%10.1% for the three months ended September 30, 2023 and 2022, and 2021, respectively. The change in SG&A was primarily attributable to:
•Research and Development (“R&D”) costs increased by $14 million. R&D costs, net of customer reimbursements, were $199 million, or 4.9%5.3% of net sales for the three months ended September 30, 2022,2023, compared to $184 million, or 5.4%5.5% of net sales for the three months ended September 30, 2021. The increase in R&D costs, net of customer reimbursements, was primarily due to increasing net investment related to the Company’s electrification product portfolio.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.
•Administrative expenses decreased by $15 million, which included various items such as professional fees.
Restructuring expense was $8$56 million and $51$5 million for the three months ended September 30, 20222023 and 2021,2022, respectively, primarily related to employee benefit costs.termination benefits. Refer to Note 5 “Restructuring” to the Condensed Consolidated Financial Statements in Item 1 of this report for more information.
In 2023, the Company announced a $130 million to $150 million restructuring plan to address structural costs in its Foundational products businesses. During the three months ended September 30, 2023, the Company recorded $56 million of restructuring costs related to this plan.
Other operating (income) expense, net was $12income of $6 million and $3expense of $12 million for the three months ended September 30, 2023 and 2022, and 2021, respectively. For both
During the three months ended September 30, 2022 and 2021, merger, acquisition and divestiture2023, the Company recorded a $7 million gain related expenses, net were $8 million. Additionally, duringto the sale of a European manufacturing facility. The sale of the facility was pursuant to a formal
restructuring plan. During the three months ended September 30, 2022, the Company revised its estimate of the expected earn-out related to a previous divestiture resulting in a $9 million loss in the period.
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 $10 million and $12$5 million for the three months ended September 30, 20222023 and 2021,2022, respectively. This line item is driven by the results of the Company’s unconsolidated joint ventures.
UnrealizedRealized and unrealized loss (gain) loss on debt and equity securities was a gainloss of $1$60 million and a lossgain of $61$1 million for the three months ended September 30, 20222023 and 2021,2022, respectively. This line item reflects the net realized and unrealized gains or losses recognized due to the recording ofvaluing the Company’s investments at fair value. For further details, see Note 3, “Acquisitions,”the three months ended September 30, 2023, this primarily related to losses recognized to adjust the Condensed Consolidated Financial StatementsCompany’s investment in Item 1 of this report.Wolfspeed Inc. (“Wolfspeed”) convertible debt securities to fair value.
Interest (income) expense, net was $12income of $19 million and $18expense of $12 million for the three months ended September 30, 2023 and 2022, and 2021, respectively. This decrease was primarily due to higher interest ratesDuring the three months ended September 30, 2023, the Company recorded a $28 million gain on cash and cash equivalents balances and lower expense related toextinguishment of the Company’s cross-currency swaps.3.375% and 5.000% Senior Notes.
Provision for income taxes was $104$133 million for the three months ended September 30, 2022,2023, resulting in an effective rate of 26%56%. This is compared to $79$68 million, or an effective rate of 40%26%, for the three-month periodthree months ended September 30, 2021.
2022. During the three months ended September 30, 2021,2023, a discrete tax benefit of approximately $31 million was recorded in relation to various changes in filling positions from prior years, a discrete tax benefit of approximately $12 million was recorded in relation to the Spin-Off, and a discrete tax expense of approximately $87 million was recorded in relation to changes in judgement related to the realization of deferred tax assets, primarily due to the impact of the Spin-Off on the allocation of the Company’s effective tax rate was unfavorably impacted by $59 million of restructuring expenses and merger, acquisition and divestiture expenses, some of which were non-deductibleprofits across jurisdictions for tax purposes. As such, the Company recognized a de minimispurposes as well as various tax benefit associated with these expenses instructuring actions and strategies. During the three months ended September 30, 2021.2022, a discrete tax benefit of $1 million was recorded relating to other tax adjustments.
Nine Months Ended September 30, 20222023 vs. Nine Months Ended September 30, 20212022
The following table presents a summary of our operating results:
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions, except per share data) | (in millions, except per share data) | 2022 | | 2021 | (in millions, except per share data) | 2023 | | 2022 |
| Net sales | Net sales | | % of net sales | | | % of net sales | Net sales | | % of net sales | | | % of net sales |
| Air Management | Air Management | $ | 5,510 | | | 47.1 | % | | $ | 5,223 | | | 46.7 | % | Air Management | $ | 5,951 | | | 55.7 | % | | $ | 5,328 | | | 57.2 | % |
| e-Propulsion & Drivetrain | 3,917 | | | 33.5 | | | 3,756 | | | 33.6 | | |
| Fuel Systems | 1,707 | | | 14.6 | | | 1,688 | | | 15.1 | | |
| Aftermarket | 960 | | | 8.2 | | | 920 | | | 8.2 | | |
| Drivetrain & Battery Systems | | Drivetrain & Battery Systems | 3,218 | | | 30.1 | | | 2,745 | | | 29.5 | |
| ePropulsion | | ePropulsion | 1,624 | | | 15.2 | | | 1,361 | | | 14.6 | |
| Inter-segment eliminations | Inter-segment eliminations | (401) | | | (3.4) | | | (404) | | | (3.6) | | Inter-segment eliminations | (117) | | | (1.1) | | | (116) | | | (1.2) | |
| Total net sales | Total net sales | $ | 11,693 | | | 100.0 | | | 11,183 | | | 100.0 | | Total net sales | 10,676 | | | 100.0 | | | 9,318 | | | 100.0 | |
| Cost of sales | Cost of sales | 9,425 | | | 80.6 | | | 8,953 | | | 80.1 | | Cost of sales | 8,767 | | | 82.1 | | | 7,588 | | | 81.4 | |
| Gross profit | Gross profit | 2,268 | | | 19.4 | | | 2,230 | | | 19.9 | | Gross profit | 1,909 | | | 17.9 | | | 1,730 | | | 18.6 | |
| Selling, general and administrative expenses - R&D, net | Selling, general and administrative expenses - R&D, net | 597 | | | 5.1 | | | 533 | | | 4.8 | | Selling, general and administrative expenses - R&D, net | 541 | | | 5.1 | | | 534 | | | 5.7 | |
| Selling, general and administrative expenses - Other | Selling, general and administrative expenses - Other | 582 | | | 5.0 | | | 551 | | | 4.9 | | Selling, general and administrative expenses - Other | 422 | | | 4.0 | | | 417 | | | 4.5 | |
| Restructuring expense | Restructuring expense | 50 | | | 0.4 | | | 143 | | | 1.3 | | Restructuring expense | 68 | | | 0.6 | | | 42 | | | 0.5 | |
| Other operating expense, net | 26 | | | 0.2 | | | 30 | | | 0.3 | | |
| Other operating (income) expense, net | | Other operating (income) expense, net | (1) | | | — | | | (7) | | | (0.1) | |
| Operating income | Operating income | 1,013 | | | 8.7 | | | 973 | | | 8.7 | | Operating income | 879 | | | 8.2 | | | 744 | | | 8.0 | |
| Equity in affiliates’ earnings, net of tax | Equity in affiliates’ earnings, net of tax | (29) | | | (0.2) | | | (40) | | | (0.4) | | Equity in affiliates’ earnings, net of tax | (23) | | | (0.2) | | | (21) | | | (0.2) | |
| Unrealized loss on equity securities | 27 | | | 0.2 | | | 337 | | | 3.0 | | |
| Realized and unrealized loss on debt and equity securities | | Realized and unrealized loss on debt and equity securities | 129 | | | 1.2 | | | 27 | | | 0.3 | |
| Interest expense, net | Interest expense, net | 42 | | | 0.4 | | | 75 | | | 0.7 | | Interest expense, net | 3 | | | — | | | 41 | | | 0.4 | |
| Other postretirement income | (26) | | | (0.2) | | | (33) | | | (0.3) | | |
| Earnings before income taxes and noncontrolling interest | 999 | | | 8.5 | | | 634 | | | 5.7 | | |
| Other postretirement expense (income) | | Other postretirement expense (income) | 8 | | | 0.1 | | | (2) | | | — | |
| Earnings from continuing operations before income taxes and noncontrolling interest | | Earnings from continuing operations before income taxes and noncontrolling interest | 762 | | | 7.1 | | | 699 | | | 7.5 | |
| Provision for income taxes | Provision for income taxes | 252 | | | 2.2 | | | 149 | | | 1.3 | | Provision for income taxes | 230 | | | 2.2 | | | 177 | | | 1.9 | |
| Net earnings from continuing operations | | Net earnings from continuing operations | 532 | | | 5.0 | | | 522 | | | 5.6 | |
| Net (loss) earnings from discontinued operations | | Net (loss) earnings from discontinued operations | (12) | | | (0.1) | | | 225 | | | 2.4 | |
| Net earnings | Net earnings | 747 | | | 6.4 | | | 485 | | | 4.3 | | Net earnings | 520 | | | 4.9 | | | 747 | | | 8.0 | |
| Net earnings attributable to noncontrolling interest, net of tax | 58 | | | 0.5 | | | 77 | | | 0.7 | | |
| Net earnings from continuing operations attributable to noncontrolling interest, net of tax | | Net earnings from continuing operations attributable to noncontrolling interest, net of tax | 49 | | | 0.5 | | | 58 | | | 0.6 | |
| Net earnings attributable to BorgWarner Inc. | Net earnings attributable to BorgWarner Inc. | $ | 689 | | | 5.9 | % | | $ | 408 | | | 3.6 | % | Net earnings attributable to BorgWarner Inc. | $ | 471 | | | 4.4 | % | | $ | 689 | | | 7.4 | % |
| Earnings per share — diluted | $ | 2.90 | | | | | $ | 1.70 | | | | |
| Earnings per share from continuing operations — diluted | | Earnings per share from continuing operations — diluted | $ | 2.06 | | | | | $ | 1.95 | | | |
Net sales
Net sales for the nine months ended September 30, 20222023 totaled $11,693$10,676 million, an increase of 5%$1,358 million, or 15%, compared to the nine months ended September 30, 2022. The change in net sales for the nine months ended September 30, 2023 was primarily driven by the following:
•Favorable volume, mix and net new business increased sales approximately $1,305 million, or 14%. This increase was primarily driven by higher weighted average market production as estimated by the Company, which was up approximately 11% from the nine months ended September 30, 2021. Acquisitions,2022. The remaining portion of this increase primarily AKASOL, contributed $124 million in additionalreflected sales in the nine months ended September 30, 2022. In December 2021,growth above market production, which the Company soldbelieves reflected higher demand for its Water Valley, Mississippi manufacturing facility, which accountedproducts. Weighted average market production reflects light and commercial vehicle production as reported by IHS weighted for $137 million of net salesthe Company’s geographic exposure, as estimated by the Company.
•Fluctuations in the nine months ended September 30, 2021 that did not recur in 2022. Foreignforeign currencies resulted in a year-over-year decrease in sales of approximately $654$121 million primarily due to the weakening of the Euro,Chinese Renminbi and Korean Won, and Chinese Renminbipartially offset by the strengthening of the Euro, in each case relative to the U.S. Dollar. The increase excluding these items was primarily due to higher industry production compared to the prior year, increased demand for the Company’s products and the impact of commercial negotiations with the Company’s customers.
Cost of sales as a percentage of net sales was 80.6% during the nine months ended September 30, 2022, compared to 80.1% during the nine months ended September 30, 2021. The Company’s material cost as a percentage of sales was 57% and 54% of net sales during the nine months ended September 30, 2022 and 2021, respectively. The increase in material cost as a percentage of sales reflects increasing commodity and other material and input costs. Gross profit and gross margin were $2,268 million and 19.4%, respectively, during the nine months ended September 30, 2022 compared to $2,230 million and 19.9%, respectively, during the nine months ended September 30, 2021. The decrease in gross margin was primarily due to increases in commodity and other input costs.
•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 $155 million.
•Acquisitions contributed $48 million in additional sales during the nine months ended September 30, 2023.
Cost of sales and gross profit
Cost of sales and cost of sales as a percentage of net sales were $8,767 million and 82.1%, respectively, during the nine months ended September 30, 2023, compared to $7,588 million and 81.4%, respectively, during the nine months ended September 30, 2022. The change in cost of sales for the nine months ended September 30, 2023 was primarily driven by the following:
•Higher sales volume, mix and net new business increased cost of sales by approximately $1,016 million.
•Fluctuations in foreign currencies resulted in a year-over-year decrease in cost of sales of approximately $80 million primarily due to the weakening of the Chinese Renminbi and Korean Won, partially offset by the strengthening of the Euro, in each case relative to the U.S. Dollar.
•Cost of sales was also impacted by material cost inflation of approximately $142 million arising from non-contractual commercial negotiations and normal contractual supplier commodity pass-through arrangements with the Company’s suppliers.
Gross profit and gross margin were $1,909 million and 17.9%, respectively, during the nine months ended September 30, 2023, compared to $1,730 million and 18.6%, respectively, during the nine months ended September 30, 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 nine months ended September 30, 2022 were $1,1792023 was $963 million as compared to $1,084$951 million for the nine months ended September 30, 2021.2022. SG&A as a percentage of net sales was 10.1%9.0% and 9.7%10.2% for the nine months ended September 30, 20222023 and 2021,2022, respectively. The increasechange in SG&A was primarily attributable to increased research and development costs, partially offset by decreases in employee costs.to:
•Research and Development (“R&D”) costs remained relatively flat. R&D costs, net of customer reimbursements, were $597 million, or 5.1% of net sales for the nine months ended September 30, 2022,2023, compared to $533 million, or 4.8%5.7% of net sales for the nine months ended September 30, 2021. The increase in R&D2022.
•Employee-related costs net of customer reimbursements, was primarily due to increasing net investment related to the Company’s electrification product portfolio.increased $25 million.
•Administrative expenses decreased by $11 million, which included various items such as professional fees.
Restructuring expense was $50$68 million and $143$42 million for the nine months ended September 30, 20222023 and 2021,2022, respectively, primarily related to employee benefit costs.termination benefits. Refer to Note 5 “Restructuring” to the Condensed Consolidated Financial Statements in Item 1 of this report for more information.
During 2022,In 2023, the Company approved individualannounced a $130 million to $150 million restructuring actions that primarily relatedplan to specific reductionsaddress structural costs in headcount.its Foundational products businesses. During the nine months ended September 30, 2022,2023, the Company recorded $18 million related to these actions.
In February 2020, the Company announced a $300 million restructuring plan to address existing structural costs. During the nine months ended September 30, 2022 and 2021, the Company recorded $28 million and $81$68 million of restructuring chargescosts related to this plan, respectively. Cumulatively, the Company has incurred $279 million of restructuring charges related to this plan. As of September 30, 2022 the plan is substantially complete, with any remaining restructuring costs expected to be incurred by the end of 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.
Other operating (income) expense, net was $26income of $1 million and $30$7 million for the nine months ended September 30, 20222023 and 2021,2022, respectively.
ForDuring the nine months ended September 30, 2023 and September 30, 2022, the Company recorded merger and 2021, merger, acquisition and divestiture related expenses,expense, net were $40of $18 million and $36$13 million, respectively. The increase in 2022 wasrespectively, primarily related to professional fees associated with specific acquisition initiatives.
During the nine months ended September 30, 2023, the Company recorded a $13 million gain, primarily related to the sale of a European manufacturing facility and disposition initiatives.other fixed assets. The sale of the facility was pursuant to a formal restructuring plan.
During the nine months ended September 30, 2022, the Company recorded a $24 million 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 in Item 1 of this report 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 $29$23 million and $40$21 million for the nine months ended September 30, 20222023 and 2021,2022, respectively. This line item is driven by the results of the Company’s unconsolidated joint ventures.
UnrealizedRealized and unrealized loss on debt and equity securities was $27$129 million and $337$27 million for the nine months ended September 30, 20222023 and 2021,2022, respectively. This line item reflects the net unrealized gains or losses recognized due to recordingvaluing the Company’s investments at fair value, andvalue. For the 2021 amount wasnine months ended September 30, 2023, this primarily related to losses recognized to adjust the Company’s investment in Romeo Power, Inc. InWolfspeed convertible debt securities to fair value. For the nine months ended September 30, 2022, the Company recorded a loss and sold all of its remaining investment in Romeo Power, Inc. For further details, see Note 3, “Acquisitions,” to the Condensed Consolidated Financial Statements in Item 1 of this report.
Interest expense, net was $42$3 million and $75$41 million for the nine months ended September 30, 2023 and 2022, and 2021, respectively. The decrease in interest expense, net was primarily due toDuring the $20nine months ended September 30, 2023, the Company recorded a $28 million lossgain on debt extinguishment recorded in 2021 that related to the early repayment of the Company’s €500 million 1.800% senior notes settled on June 18, 2021.3.375% and 5.000% Senior Notes.
Provision for income taxes was $252$230 million for the nine months ended September 30, 2022,2023, resulting in an effective rate of 25%30%. This is compared to $149$177 million, or an effective rate of 24%25%, for the nine-month periodnine months ended September 30, 2021.
2022. During the nine months ended September 30, 2021, the Company recognized a $55 million tax benefit related to a reduction in certain unrecognized tax benefits and accrued interest for a matter in which the statute of limitations had lapsed. The Company also recognized2023, a discrete tax benefit of $20approximately $14 million was recorded related to an increasethe resolution of tax audits, a discrete tax benefit of approximately $41 million was recorded in itsrelation to the Spin-Off, a discrete tax benefit of approximately $39 million was recorded in relation to various changes in filling positions for prior years, a discrete tax expense of approximately $9 million was recorded for the impact of enacted tax law changes, and a discrete tax expense of approximately $85 million was recorded in relation to changes in judgement related to the recovery of deferred tax assets, as a resultprimarily due to the impact of an increase in the United Kingdom (“UK”) statutory tax rate from 19% to 25%. Further,Spin-Off on the allocation of the Company’s effectiveprofits across jurisdictions for tax rate forpurposes as well as various tax structuring actions and strategies. During the nine months ended September 30, 2021 included2022, a net discrete tax benefit of $33$8 million primarily relatedwas recorded relating to changes to certain withholding rates applied to unremitted earnings. The effectiveother tax rate was unfavorably impacted by $179 millionadjustments.
Non-comparable items impacting the Company’s earnings per diluted share
The Company’s earnings per diluted share were $1.16$0.37 and $0.40$0.73 for the three months ended September 30, 20222023 and 2021,2022, respectively, and $2.90$2.06 and $1.70$1.95 for the nine months ended September 30, 2023 and 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. The Company believes the following table is useful in highlighting non-comparable items that impacted its earnings per diluted share: | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Non-comparable items: | Non-comparable items: | 2022 | | 2021 | | 2022 | | 2021 | Non-comparable items: | 2023 | | 2022 | | 2023 | | 2022 |
| Merger, acquisition and divestiture expense, net | | Merger, acquisition and divestiture expense, net | $ | (0.01) | | | $ | (0.01) | | | $ | (0.05) | | | $ | (0.07) | |
| Restructuring expense | Restructuring expense | $ | (0.03) | | | $ | (0.21) | | | $ | (0.20) | | | $ | (0.52) | | Restructuring expense | (0.17) | | | (0.02) | | | (0.21) | | | (0.17) | |
| Merger, acquisition and divestiture expense, net | (0.02) | | | (0.04) | | | (0.15) | | | (0.14) | | |
| Service and lease agreement termination | | Service and lease agreement termination | — | | | — | | | (0.03) | | | — | |
| Loss (gain) on sale of business | Loss (gain) on sale of business | (0.03) | | | — | | | 0.05 | | | (0.02) | | Loss (gain) on sale of business | — | | | (0.03) | | | 0.02 | | | 0.05 | |
| Other | — | | | — | | | (0.06) | | | — | | |
| Loss on debt extinguishment | — | | | — | | | — | | | (0.06) | | |
| Unrealized gain (loss) on equity securities | — | | | (0.19) | | | (0.11) | | | (1.07) | | |
Tax adjustments1 | — | | | 0.04 | | | 0.04 | | | 0.42 | | |
| Gain on sale of assets | | Gain on sale of assets | 0.03 | | | — | | | 0.04 | | | — | |
| Gain on debt extinguishment | | Gain on debt extinguishment | 0.09 | | | — | | | 0.09 | | | — | |
| Other non-comparable items | | Other non-comparable items | (0.05) | | | 0.01 | | | (0.06) | | | 0.03 | |
| Realized and unrealized (loss) gain on debt and equity securities | | Realized and unrealized (loss) gain on debt and equity securities | (0.32) | | | — | | | (0.55) | | | (0.11) | |
| Tax adjustments | | Tax adjustments | (0.18) | | | — | | | — | | | 0.04 | |
| Total impact of non-comparable items per share - diluted | Total impact of non-comparable items per share - diluted | $ | (0.08) | | | $ | (0.40) | | | $ | (0.43) | | | $ | (1.39) | | Total impact of non-comparable items per share - diluted | $ | (0.61) | | | $ | (0.05) | | | $ | (0.75) | | | $ | (0.23) | |
_____________________________
| | | | | |
1
| During the nine months ended September 30, 2021, the Company recognized a $55 million tax benefit related to the lapse of the statute of limitations for a tax matter, a $20 million benefit related to an increase in deferred tax assets associated with an increase in the UK tax rate, and a $33 million of tax benefit primarily related to changes to certain withholding rates applied to unremitted earnings. |
Results by ReportingReportable Segment
The Company’s business is aggregated into four reportingthree reportable segments: Air Management, e-PropulsionDrivetrain & Drivetrain, FuelBattery Systems, (formerly known as Fuel Injection) and Aftermarket.ePropulsion. These segments are strategic business groups that are managed separately as each represents a specific grouping of related automotive components and systems. In previous quarters, the Company presented two additional segments, Fuel Systems and Aftermarket, for a total of five reportable segments. As a result of the Spin-Off, Fuel Systems and Aftermarket are no longer reportable segments. The historical results of operations and the financial position of PHINIA for periods prior to the Spin-Off are presented as discontinued operations in the accompanying Condensed Consolidated Financial Statements.
In the first quarter of 2023, the Company elected to disaggregate the former e-Propulsion & Drivetrain reportable segment into two separate reportable 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, electronic control units, 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 reportingreportable segment disclosures have been updated accordingly, which includedincluding recasting prior period information for the new reporting structure.structures and to reflect the discontinued operations related to the Spin-Off.
Segment Adjusted Operating Income (Loss) is the first quarter of 2022, the Company updated the definition of its measure of segment income or loss to excludeused by 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 toCompany. Segment Adjusted Operating Income.
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 reportingreportable segments. Segment Adjusted Operating Margin is the Segment Adjusted Operating Income (Loss) divided by net sales of the reportable segment.
The following tables presents net sales and Segment Adjusted Operating Income (Loss) for the Company’s reportingreportable segments:
Three Months Ended September 30, 20222023 vs. Three Months Ended September 30, 20212022
| | | Three Months Ended September 30, 2022 | | Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2023 | | Three Months Ended September 30, 2022 |
| (in millions) | (in millions) | Net sales | | Segment Adjusted Operating Income | | % margin | | Net sales | | Segment Adjusted Operating Income | | % margin | (in millions) | Net sales | | Segment Adjusted Operating Income (Loss) | | % margin | | Net sales | | Segment Adjusted Operating Income (Loss) | | % margin |
| Air Management | Air Management | $ | 1,908 | | | $ | 277 | | | 14.5 | % | | $ | 1,576 | | | $ | 214 | | | 13.6 | % | Air Management | $ | 1,945 | | | $ | 294 | | | 15.1 | % | | $ | 1,843 | | | $ | 291 | | | 15.8 | % |
| e-Propulsion & Drivetrain | 1,371 | | | 86 | | | 6.3 | % | | 1,134 | | | 83 | | | 7.3 | % | |
| Fuel Systems | 600 | | | 83 | | | 13.8 | % | | 515 | | | 50 | | | 9.7 | % | |
| Aftermarket | 327 | | | 49 | | | 15.0 | % | | 316 | | | 43 | | | 13.6 | % | |
| Drivetrain & Battery Systems | | Drivetrain & Battery Systems | 1,145 | | | 147 | | | 12.8 | % | | 954 | | | 103 | | | 10.8 | % |
| ePropulsion | | ePropulsion | 571 | | | (20) | | | (3.5) | % | | 489 | | | (33) | | | (6.7) | % |
| Inter-segment eliminations | Inter-segment eliminations | (146) | | | — | | | (125) | | | — | | | Inter-segment eliminations | (39) | | | — | | | (60) | | | — | | |
| Totals | Totals | $ | 4,060 | | | $ | 495 | | | $ | 3,416 | | | $ | 390 | | | Totals | $ | 3,622 | | | $ | 421 | | | $ | 3,226 | | | $ | 361 | | |
The Air Management segment’s net sales increased $332$102 million, or 21%, and Segment Adjusted Operating Income increased $63 million from the three months ended September 30, 2021. Foreign currencies resulted in a year-over-year decrease in sales of approximately $177 million primarily due to the weakening of the Euro, Korean Won and Chinese Renminbi relative to the U.S. Dollar. The increase excluding these items was primarily due to higher industry production compared to the prior year and the impact of commercial negotiations with the Company’s customers. The Segment Adjusted Operating margin was 14.5% for the three months ended September 30, 2022, compared to 13.6% for the three months ended September 30, 2021. The Segment Adjusted Operating margin increase was primarily due to higher revenue which was partially offset by inflationary impacts on costs.
The e-Propulsion & Drivetrain segment’s net sales increased $237 million, or 21%6%, and Segment Adjusted Operating Income increased $3 million from the three months ended September 30, 2021. In December 2021, the Company sold its Water Valley, Mississippi manufacturing facility which accounted for $38 million of net sales in the three months ended September 30, 2021 that did not recur in 2022. Foreign currencies resulted in a year-over-year decrease in sales of approximately $82 million primarily due to the weakening of the Euro, Chinese Renminbi and Korean Won relative to the U.S. Dollar. The increase excluding these items was primarily due to increased demand for the Company’s products,
higher industry production compared to the prior year and the impact of commercial negotiations with the Company’s customers. The e-Propulsion & Drivetrain Segment Adjusted Operating margin was 6.3% during the three months ended September 30, 2022, down from 7.3% during the three months ended September 30, 2021. The Segment Adjusted Operating margin decrease was primarily due to increased investments in R&D for electrification products.
The Fuel Systems segment’s net sales increased $85 million, or 17%, and Segment Adjusted Operating Income increased $33 million from the three months ended September 30, 2021. Foreign currencies resulted in a year-over-year decrease in sales of approximately $45 million primarily due to the strengthening of the Euro, partially offset by the weakening of the Chinese Renminbi, in each case relative to the U.S. Dollar. Acquisitions contributed $8 million in additional sales during the three months ended September 30, 2023. The increase excluding these items was primarily due to approximately $58 million of volume, mix, net new business driven by increased demand for the Company’s products, higher weighted average market production compared to the prior year, non-contractual commercial negotiations and normal contractual customer commodity pass-through arrangements with the Company’s customers. Segment Adjusted Operating Margin was 15.1% for the three months ended September 30, 2023, compared to 15.8% during the three months ended September 30, 2022. The Segment Adjusted Operating Income increase was primarily due to conversion on higher sales and customer recoveries of inflation, partially offset by higher input costs due to inflation and eProducts investments.
The Drivetrain & Battery Systems segment’s net sales increased $191 million, or 20%, and Segment Adjusted Operating Income increased $44 million from the three months ended September 30, 2022. Foreign currencies resulted in a year-over-year increase in sales of approximately $12 million primarily due to the strengthening of the Euro, partially offset by the weakening of the Chinese Renminbi, in each case relative to the U.S. Dollar. The increase excluding the impact of foreign currencies was primarily due to approximately $164 million of volume, mix and net new business driven by increased demand for the Company’s battery systems, higher industryweighted average market production compared to the prior year, and the impact ofnon-contractual commercial negotiations and normal contractual customer commodity pass-through arrangements with the Company’s customers. The Fuel Systems Segment Adjusted Operating marginMargin was 13.8%12.8% for the three months ended September 30, 2022,2023, compared to 9.7% for10.8% during the three months ended September 30, 2021.2022. The Segment Adjusted Operating marginIncome increase was primarily due to conversion on higher revenue.sales and customer recoveries of inflation, partially offset by higher input costs due to inflation and battery systems operating losses.
The AftermarketePropulsion segment’s net sales increased $11$82 million, or 3%17%, and Segment Adjusted Operating Income increased $6
Loss decreased $13 million from the three months ended September 30, 2021.2022. Foreign currencies resulted in a year-over-year decrease in sales of approximately $16$13 million primarily due to the weakening of the EuroChinese Renminbi relative to the U.S. Dollar. The increase excluding the impact of foreign currenciesthese items was primarily due to pricingapproximately $93 million of volume, mix and net new business driven by increased demand for the Company’s products, higher weighted average market production compared to the prior year. Theyear, non-contractual commercial negotiations and normal contractual customer commodity pass-through arrangements with the Company’s customers. Segment Adjusted Operating marginMargin was 15.0%(3.5)% for the three months ended September 30, 2022,2023, compared to 13.6% for(6.7)% during the three months ended September 30, 2021.2022. The Segment Adjusted Operating margin increaseLoss was primarily due to increased pricing.investments in R&D for eProducts. The Segment Adjusted Operating Loss improvement was due to conversion on higher sales, customer recoveries of inflation, lower R&D and SG&A spending, partially offset by higher input costs due to inflation and depreciation.
Nine Months Ended September 30, 20222023 vs. Nine Months Ended September 30, 20212022
| | | Nine Months Ended September 30, 2022 | | Nine Months Ended September 30, 2021 | | | Nine Months Ended September 30, 2023 | | Nine Months Ended September 30, 2022 |
| (in millions) | (in millions) | Net sales | | Segment Adjusted Operating Income | | % margin | | Net sales | | Segment Adjusted Operating Income | | % margin | | (in millions) | Net sales | | Segment Adjusted Operating Income (Loss) | | % margin | | Net sales | | Segment Adjusted Operating Income (Loss) | | % margin |
| Air Management | Air Management | $ | 5,510 | | | $ | 755 | | | 13.7 | % | | $ | 5,223 | | | $ | 791 | | | 15.1 | % | | Air Management | $ | 5,951 | | | $ | 884 | | | 14.9 | % | | $ | 5,328 | | | $ | 793 | | | 14.9 | % |
| e-Propulsion & Drivetrain | 3,917 | | | 270 | | | 6.9 | % | | 3,756 | | | 349 | | | 9.3 | % | | |
| Fuel Systems | 1,707 | | | 193 | | | 11.3 | % | | 1,688 | | | 159 | | | 9.4 | % | | |
| Aftermarket | 960 | | | 139 | | | 14.5 | % | | 920 | | | 123 | | | 13.4 | % | | |
| Drivetrain & Battery Systems | | Drivetrain & Battery Systems | 3,218 | | | 400 | | | 12.4 | % | | 2,745 | | | 330 | | | 12.0 | % |
| ePropulsion | | ePropulsion | 1,624 | | | (74) | | | (4.6) | % | | 1,361 | | | (89) | | | (6.5) | % |
| Inter-segment eliminations | Inter-segment eliminations | (401) | | | — | | | (404) | | | — | | | | Inter-segment eliminations | (117) | | | — | | | (116) | | | — | | |
| Totals | Totals | $ | 11,693 | | | $ | 1,357 | | | $ | 11,183 | | | $ | 1,422 | | | | Totals | $ | 10,676 | | | $ | 1,210 | | | $ | 9,318 | | | $ | 1,034 | | |
The Air Management segment’s net sales increased $287$623 million, or 5%12%, and Segment Adjusted Operating Income decreased $36increased $91 million from the nine months ended September 30, 2021. The acquisition of AKASOL contributed $111 million of additional sales in the nine months ended September 30, 2022. Foreign currencies resulted in a year-over-year decrease in sales of approximately $373$44 million primarily due to the weakening of the EuroChinese Renminbi and Korean Won, partially offset by the strengthening of the Euro, in each case relative to the U.S. Dollar. Acquisitions contributed $23 million in additional sales during the nine months ended September 30, 2023. The increase excluding these items was primarily due to approximately $658 million of volume, mix and net new business driven by increased demand for the Company’s products, higher industryweighted average market production compared to the prior year, and the impact ofnon-contractual commercial negotiations and normal contractual customer commodity pass-through arrangements with the Company’s customers. The Segment Adjusted Operating marginMargin was 13.7%14.9% for the nine months ended September 30, 2022, compared to 15.1% for the nine months ended2023 and September 30, 2021.2022. The Segment Adjusted Operating margin decreaseIncome increase was primarily due to the dilutive impact of the acquisition of AKASOLconversion on higher sales and the net impact ofcustomer recoveries, which was offset by higher commodity and other input costs.costs due to inflation.
The e-PropulsionDrivetrain & DrivetrainBattery Systems segment’s net sales increased $161$473 million, or 4%17%, and Segment Adjusted Operating Income decreased $79increased $70 million from the nine months ended September 30, 2021. In 2021, the Company sold its Water Valley, Mississippi manufacturing facility which accounted for $137 million of net sales in the nine months ended September 30, 2021 that did not recur in 2022.
Foreign currencies resulted in a year-over-year decrease in sales of approximately $160$31 million primarily due to the weakening of the Euro, Korean Won and Chinese Renminbi, relative topartially offset by the U.S. Dollar. The increase excluding these items was primarily due to increased demand for the Company’s products, higher industry production compared to the prior year and the impact of commercial negotiations with the Company’s customers. The e-Propulsion & Drivetrain Segment Adjusted Operating margin was 6.9% during the nine months ended September 30, 2022, down from 9.3% during the nine months ended September 30, 2021. The Segment Adjusted Operating margin decrease was primarily due to increased investments in R&D and the net impact of higher commodity and other input costs.
The Fuel Systems segment’s net sales increased $19 million, or 1%, and Segment Adjusted Operating Income increased $34 million from the nine months ended September 30, 2021. Foreign currencies resulted in a year-over-year decrease in sales of approximately $89 million primarily due to the weakeningstrengthening of the Euro, in each case relative to the U.S. Dollar. The increase excluding the impact of foreign currencies was primarily due to approximately $490 million of volume, mix and net new business driven by increased demand for the Company’s battery systems, higher industryweighted average market production compared to the prior year, and the impact ofnon-contractual commercial negotiations and normal contractual customer commodity pass-through arrangements with the Company’s customers. The Segment Adjusted Operating marginMargin was 11.3%12.4% for the nine months ended September 30, 2022,2023, compared to 9.4% for12.0% during the nine months ended September 30, 2021.2022. The Segment Adjusted Operating marginIncome increase was primarily due to conversion on higher revenue.sales and customer recoveries, partially offset by higher input costs due to inflation and investments in R&D for battery systems.
The AftermarketePropulsion segment’s net sales increased $40$263 million, or 4%19%, and Segment Adjusted Operating Income increased $16Loss decreased $15 million from the nine months ended September 30, 2021.2022. Foreign currencies resulted in a year-over-year decrease in sales of approximately $32$46 million primarily due to the weakening of the EuroChinese Renminbi relative to the U.S. Dollar. Acquisitions contributed $25 million in additional sales during the nine months ended September 30, 2023. The increase excluding the impact of foreign currenciesthese items was primarily due to pricingapproximately $282 million of volume, mix and net new business driven by increased demand for the Company’s products. The Aftermarketproducts, higher weighted average market production compared to the prior year, non-contractual commercial negotiations and normal contractual customer commodity pass-through arrangements with the Company’s customers. Segment Adjusted Operating marginMargin was 14.5%(4.6)% for the nine months ended September 30, 2022,2023, compared to 13.4% for(6.5)% during the nine months ended September 30, 2021.2022. The Segment Adjusted Operating margin increaseLoss was primarily due to increased pricing.investments in R&D for eProducts. The Segment Adjusted Operating Loss improvement was due to conversion on higher sales related to eProducts growth.
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 September 30, 2022,2023, the Company had liquidity of $3,241$2,949 million, comprised of cash and cash equivalent balances of $1,241$949 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 September 30, 2022,2023, cash balances of $984$625 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.September 2028. 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 September 30, 2022.2023. At September 30, 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 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 September 30, 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 $2.0 billion.
In addition to the revolving credit facility, the Company’s universal shelf registration statement filed with the U.S. Securities and Exchange Commission provides the Company with the ability to issue various debt and equity instrumentssecurities subject to market conditions.
On February 9, 2022,8, 2023, April 27, 202226, 2023 and July 28, 2022,26, 2023, the Company’s Board of Directors declared quarterly cash dividends of $0.17, $0.17 and $0.11 per share of common stock.stock, respectively. The dividends were paid on March 15, 2022,2023, June 15, 20222023 and September 15, 2022,2023, respectively. The Company’s third quarter cash dividend rate compared to the second quarter dividend rate reflects the impact of the Spin-Off.
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 each of Fitch, Standard & Poor’s and Moody’s is stable. None of the Company's debt agreements require accelerated repayment in the event of a downgrade in credit ratings.
Cash Flows
Operating Activities
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | (in millions) | 2022 | | 2021 | (in millions) | 2023 | | 2022 |
| OPERATING | | | | |
| OPERATING ACTIVITIES OF CONTINUING OPERATIONS | | OPERATING ACTIVITIES OF CONTINUING OPERATIONS | | | |
| Net earnings | Net earnings | $ | 747 | | | $ | 485 | | Net earnings | $ | 532 | | | $ | 522 | |
| Adjustments to reconcile net earnings to net cash flows from operations: | | |
| Adjustments to reconcile net earnings from continuing operations to net cash provided by operating activities from continuing operations: | | Adjustments to reconcile net earnings from continuing operations to net cash provided by operating activities from continuing operations: | |
| Depreciation and tooling amortization | Depreciation and tooling amortization | 469 | | | 520 | | Depreciation and tooling amortization | 376 | | | 360 | |
| Intangible asset amortization | Intangible asset amortization | 74 | | | 65 | | Intangible asset amortization | 51 | | | 52 | |
| Restructuring expense, net of cash paid | Restructuring expense, net of cash paid | 41 | | | 118 | | Restructuring expense, net of cash paid | 61 | | | 39 | |
| Stock-based compensation expense | Stock-based compensation expense | 43 | | | 42 | | Stock-based compensation expense | 50 | | | 36 | |
| (Gain) loss on sales of businesses | (17) | | | 7 | | |
| Gain on debt extinguishment | | Gain on debt extinguishment | (28) | | | — | |
| Gain on sale of business | | Gain on sale of business | (5) | | | (17) | |
| | Deferred income tax benefit | (21) | | | (101) | | |
| Unrealized loss on equity securities | 27 | | | 337 | | |
| Loss on debt extinguishment | — | | | 20 | | |
| Gain on insurance recovery received for property damages | — | | | (5) | | |
| Deferred income tax expense (benefit) | | Deferred income tax expense (benefit) | 19 | | | (14) | |
| Realized and unrealized loss on debt and equity securities | | Realized and unrealized loss on debt and equity securities | 129 | | | 27 | |
| Other non-cash adjustments | Other non-cash adjustments | (9) | | | (18) | | Other non-cash adjustments | (80) | | | (1) | |
| Net earnings adjustments to reconcile to net cash flows from operations | 1,354 | | | 1,470 | | |
| Adjustments to reconcile net earnings from continuing operations to net cash provided by operating activities from continuing operations | | Adjustments to reconcile net earnings from continuing operations to net cash provided by operating activities from continuing operations | 1,105 | | | 1,004 | |
| Retirement plan contributions | Retirement plan contributions | (18) | | | (15) | | Retirement plan contributions | (13) | | | (18) | |
| 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: | |
| Receivables | Receivables | (726) | | | (45) | | Receivables | (767) | | | (544) | |
| Inventories | Inventories | (258) | | | (382) | | Inventories | (126) | | | (187) | |
| Accounts payable and accrued expenses | Accounts payable and accrued expenses | 288 | | | (231) | | Accounts payable and accrued expenses | 301 | | | 274 | |
| Other assets and liabilities | Other assets and liabilities | 39 | | | (33) | | Other assets and liabilities | 10 | | | 23 | |
| Net cash provided by operating activities | $ | 679 | | | $ | 764 | | |
| Net cash provided by operating activities from continuing operations | | Net cash provided by operating activities from continuing operations | $ | 510 | | | $ | 552 | |
Net cash provided by operating activities was $679 million and $764$510 million for the nine months ended September 30, 2022 and 2021, respectively.2023 compared to net cash provided by operating activities of $552 million for the nine months ended September 30, 2022. The decrease for the nine months ended September 30, 2022,2023 compared with the nine months ended September 30, 20212022 was primarily due to lower net earnings adjusted for non-cash charges.increased working capital investments.
Investing Activities
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | (in millions) | 2022 | | 2021 | (in millions) | 2023 | | 2022 |
| INVESTING | | | | |
| INVESTING ACTIVITIES OF CONTINUING OPERATIONS | | INVESTING ACTIVITIES OF CONTINUING OPERATIONS | | | |
| Capital expenditures, including tooling outlays | Capital expenditures, including tooling outlays | $ | (511) | | | $ | (494) | | Capital expenditures, including tooling outlays | $ | (624) | | | $ | (427) | |
| Capital expenditures for damage to property, plant and equipment | — | | | (2) | | |
| Insurance proceeds received for damage to property, plant and equipment | — | | | 5 | | |
| Payments for businesses acquired, net of cash acquired | Payments for businesses acquired, net of cash acquired | (288) | | | (759) | | Payments for businesses acquired, net of cash acquired | (31) | | | (288) | |
| Proceeds from settlement of net investment hedges, net | Proceeds from settlement of net investment hedges, net | 40 | | | 21 | | Proceeds from settlement of net investment hedges, net | 25 | | | 40 | |
| Proceeds from (payments for) investments in equity securities | 27 | | | (15) | | |
| Proceeds from investments in debt and equity securities, net | | Proceeds from investments in debt and equity securities, net | 63 | | | 27 | |
| Proceeds from the sale of business, net | Proceeds from the sale of business, net | 25 | | | — | | Proceeds from the sale of business, net | — | | | 25 | |
| Proceeds from asset disposals and other, net | Proceeds from asset disposals and other, net | 21 | | | 6 | | Proceeds from asset disposals and other, net | 29 | | | 16 | |
| Net cash used in investing activities | $ | (686) | | | $ | (1,238) | | |
| Net cash used in investing activities from continuing operations | | Net cash used in investing activities from continuing operations | $ | (538) | | | $ | (607) | |
Net cash used in investing activities was $686$538 million during the first nine months of 20222023 compared to $1,238$607 million during the first nine months of 2021.2022. In 2023, the Company paid $31 million related to the acquisition of the electric vehicle solution, smart grid and smart energy businesses of Hubei Surpass Sun Electric. In 2022, the Company acquiredpaid $288 million related to the acquisitions of Rhombus Energy
Solutions and Santroll Automotive Components, the impacts of which were partially offset by proceeds related to the liquidation of the Company’s investment in Romeo Power, Inc. and the sale of the Company’s 60% interest in BorgWarner Romeo Power LLC. During the nine months ended September 30, 2021, the Company acquired AKASOL.Components. As a percentage of sales, capital expenditures were 4.4%5.8% and 4.6% for both the nine months ended September 30, 2023 and 2022, and 2021.respectively. The increase in capital expenditures was to support the planned growth of eProducts.
Financing Activities
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | (in millions) | 2022 | | 2021 | (in millions) | 2023 | | 2022 |
| FINANCING | | | | |
| Net decrease in notes payable | $ | — | | | $ | (8) | | |
| FINANCING ACTIVITIES OF CONTINUING OPERATIONS | | FINANCING ACTIVITIES OF CONTINUING OPERATIONS | | | |
| Net increase in notes payable | | Net increase in notes payable | $ | 3 | | | $ | — | |
| Additions to debt | Additions to debt | 2 | | | 1,273 | | Additions to debt | 4 | | | 2 | |
| Payments for debt issuance costs | Payments for debt issuance costs | — | | | (10) | | Payments for debt issuance costs | (3) | | | — | |
| Repayments of debt, including current portion | Repayments of debt, including current portion | (9) | | | (698) | | Repayments of debt, including current portion | (444) | | | (9) | |
| Payments for purchase of treasury stock | Payments for purchase of treasury stock | (240) | | | — | | Payments for purchase of treasury stock | — | | | (240) | |
| Payments for stock-based compensation items | Payments for stock-based compensation items | (18) | | | (14) | | Payments for stock-based compensation items | (25) | | | (18) | |
| Payments for contingent consideration | | Payments for contingent consideration | (23) | | | — | |
| Purchase of noncontrolling interest | Purchase of noncontrolling interest | (59) | | | (33) | | Purchase of noncontrolling interest | (15) | | | (56) | |
| Net distribution from PHINIA | | Net distribution from PHINIA | 401 | | | — | |
| Dividends paid to BorgWarner stockholders | Dividends paid to BorgWarner stockholders | (121) | | | (122) | | Dividends paid to BorgWarner stockholders | (105) | | | (121) | |
| Dividends paid to noncontrolling stockholders | Dividends paid to noncontrolling stockholders | (48) | | | (38) | | Dividends paid to noncontrolling stockholders | (71) | | | (48) | |
| Net cash (used in) provided by financing activities | $ | (493) | | | $ | 350 | | |
| Net cash used in financing activities from continuing operations | | Net cash used in financing activities from continuing operations | $ | (278) | | | $ | (490) | |
Net cash used in financing activities was $493$278 million during the first nine months of 20222023 compared to net cash provided by financing activities of $350$490 million during the first nine months of 2021.2022. Net cash used in financing activities during the first nine months of 2022ended September 30, 2023 was primarily related to the $240 million of BorgWarner share repurchases, $121$105 million in dividends paid to the Company’s stockholders, $57 million paid to settle the AKASOL Squeeze Out and purchase the remaining outstanding shares and $48$71 million in dividends paid to noncontrolling stockholders of the Company’s consolidated joint ventures.ventures and $23 million in contingent consideration payments. Additionally, during the nine months ended September 30, 2023, the Company used $15 million to purchase the noncontrolling interest of a joint venture in Korea. Finally, during the nine months ended September 30, 2023, the Company executed the Spin-Off and received a net distribution, which was primarily utilized to purchase and extinguish a portion of senior notes due in 2025.
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, governmental investigations and related proceedings, 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 2617 and 22 such sites as of September 30, 20222023 and December 31, 2021.2022, respectively. 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, Korean Won, Mexican Peso, Polish Zloty, Singapore Dollar Korean Won, Mexican Peso,and Thailand Baht and Turkish Lira.Baht. 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 net investment
hedges to reduce exposure to translation exchange rate risk. As of September 30, 20222023 and December 31, 2021,2022, the Company recorded a deferred gain of $385$224 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 and nine months ended September 30, 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 September 30, 2022 | | Nine Months Ended September 30, 2022 | | (in millions, except for percentages) | Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 |
| Chinese renminbi | Chinese renminbi | (6) | % | | $ | (138) | | | (11) | % | | $ | (270) | | | Chinese renminbi | (1) | % | | $ | (1) | | | (6) | % | | $ | (101) | |
| Euro | Euro | (6) | % | | $ | (61) | | | (14) | % | | $ | (135) | | | Euro | (3) | % | | $ | (47) | | | (1) | % | | $ | (48) | |
| Korean won | Korean won | (11) | % | | $ | (62) | | | (17) | % | | $ | (116) | | | Korean won | (3) | % | | $ | (12) | | | (7) | % | | $ | (30) | |
| British pound | (8) | % | | $ | (28) | | | (18) | % | | $ | (65) | | | |
|
| | (in millions, except for percentages) | (in millions, except for percentages) | Three Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 | (in millions, except for percentages) | Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 |
| Chinese renminbi | | Chinese renminbi | (6) | % | | $ | (138) | | | (11) | % | | $ | (270) | |
| Euro | | Euro | (6) | % | | $ | (61) | | | (14) | % | | $ | (135) | |
| Korean won | Korean won | (4) | % | | $ | (27) | | | (9) | % | | $ | (62) | | Korean won | (11) | % | | $ | (62) | | | (17) | % | | $ | (116) | |
| Euro | (2) | % | | $ | (34) | | | (5) | % | | $ | (54) | | |
| Brazilian real | (9) | % | | $ | (17) | | | (5) | % | | $ | (8) | | |
| British pound | British pound | (3) | % | | $ | (8) | | | (1) | % | | $ | (6) | | British pound | (8) | % | | $ | (28) | | | (18) | % | | $ | (65) | |
| Chinese renminbi | — | % | | $ | 5 | | | 1 | % | | $ | 29 | | |
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.
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. On April 22, 2021, the plaintiffs dismissed the case without prejudice, without any payment by the Company. On June 9, 2021, a different stockholder delivered a litigation demand to the Board of Directors (the “Board”) under Delaware law that included similar allegations and demanded that the Board conduct an investigation and commence a civil action against appropriate directors and officers. On January 20, 2022, the parties agreed to a memorandum of understanding (the “MOU”) detailing, among other things, mutually agreed upon corporate governance reforms that the Company would implement.
Following the agreement to the MOU by the parties, on May 23, 2022 stockholders Don David Price, Maria Nyiradi, and Peter Wahler (the “Plaintiffs”) filed a derivative action with the United States District Court for the Eastern District of Michigan captioned Price, et al. v. Michas, et. Al. (E.D. Mich.). On June 2, 2022, the Company and the Plaintiffs filed with the court an agreement to settle the derivative action (the “Stipulation of Settlement”). As part of Stipulation of Settlement, the Company: (i) agreed to adopt certain governance reforms, and (ii) agreed to attorneys’ fees and expenses in an amount under $1 million. On September 26, 2022, the court issued a final order approving the Stipulation of Settlement.
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 nine months ended September 30, 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, and Issuer Purchases of Equity Securities
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 September 30, 2022,2023, the Company has repurchasedrepurchased $456 million of common 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 providesand 2023 Stock Incentive Plan provide 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.
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 September 30, 2022:2023:
| | Issuer Purchases of Equity Securities | Issuer Purchases of Equity Securities | Issuer Purchases of Equity Securities |
| Period | Period | | Total number of shares purchased | | Average price per share | | Total number of shares purchased as part of publicly announced plans or programs | | Approximate dollar value of shares that may yet be purchased under plans or programs (in millions) | Period | | Total number of shares purchased | | Average price per share | | Total number of shares purchased as part of publicly announced plans or programs | | Approximate dollar value of shares that may yet be purchased under plans or programs (in millions) |
| July 1, 2022 - July 31, 2022 | | | | | | | | | |
| July 1, 2023 - July 31, 2023 | | July 1, 2023 - July 31, 2023 | | | | | | | | |
| Common Stock Repurchase Program | Common Stock Repurchase Program | | — | | | $ | — | | | — | | | $ | 644 | | Common Stock Repurchase Program | | — | | | $ | — | | | — | | | $ | 544 | |
| Employee transactions | Employee transactions | | 3,199 | | | $ | 34.64 | | | — | | | Employee transactions | | — | | | $ | — | | | — | | |
| August 1, 2022 - August 31, 2022 | | |
| August 1, 2023 - August 31, 2023 | | August 1, 2023 - August 31, 2023 | |
| Common Stock Repurchase Program | Common Stock Repurchase Program | | 1,645,230 | | | $ | 38.31 | | | 1,645,230 | | | $ | 581 | | Common Stock Repurchase Program | | — | | | $ | — | | | — | | | $ | 544 | |
| Employee transactions | Employee transactions | | — | | | $ | — | | | — | | | Employee transactions | | 11 | | | $ | 45.44 | | | — | | |
| September 1, 2022 - September 30, 2022 | | |
| September 1, 2023 - September 30, 2023 | | September 1, 2023 - September 30, 2023 | |
| Common Stock Repurchase Program | Common Stock Repurchase Program | | 986,321 | | | $ | 37.49 | | | 986,321 | | | $ | 544 | | Common Stock Repurchase Program | | — | | | $ | — | | | — | | | $ | 544 | |
| Employee transactions | Employee transactions | | 2,692 | | | $ | 36.44 | | | — | | | Employee transactions | | 816 | | | $ | 40.56 | | | — | | |
Item 5. Other Information
During the three months ended September 30, 2023, no director or Section 16 officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item 6. Exhibits
| | | | | | | | | | | |
| Exhibit 10.1 | | |
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| Exhibit 10.2 | | |
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| Exhibit 31.1 | | |
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| Exhibit 31.2 | | |
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| Exhibit 32.1 | | |
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| Exhibit 101.INS | | Inline 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.* |
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| Exhibit 101.SCH | | Inline XBRL Taxonomy Extension Schema Document.* |
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| Exhibit 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document.* |
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| Exhibit 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document.* |
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| Exhibit 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document.* |
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| Exhibit 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document.* |
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| Exhibit 104.1 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).* |
*Filed herewith.
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: October 27, 2022November 2, 2023