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, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. The balance sheet as of December 31, 2020 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, 2020.
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 Pandemic and Other Supply Disruptions
Throughout 2020, COVID-19 materially impacted the Company’s business and results of operations. During the first quarter of 2020, the impact of COVID-19 was initially experienced primarily by operations in China. Following the declaration of COVID-19 as a global pandemic on March 11, 2020, government authorities around the world began to impose shelter-in-place orders and other restrictions. As a result, many OEMs began suspending manufacturing operations, particularly in North America and Europe. This led to various temporary closures of, or reduced operations at, the Company’s manufacturing facilities, late in the first quarter of 2020 and throughout the second quarter of 2020. During the second half of 2020, as global management of COVID-19 evolved and government restrictions were removed or lessened, production levels improved, and substantially all of the Company’s production facilities resumed closer to normal operations by the end of the third quarter of 2020.
During 2021, trailing impacts of the shut downs and production declines related, in part, to COVID-19 created component supply constraints, particularly semiconductor chips, that have and are expected to continue to have significant impacts on global industry production levels. In addition, it is possible a resurgence of the COVID-19 pandemic could result in adverse impacts in the future. Management cannot reasonably estimate the full impact the ongoing supply constraints or the COVID-19 pandemic could have on the Company’s financial condition, results of operations or cash flows in the future.
NOTE 2 NEW ACCOUNTING PRONOUNCEMENTS
In January 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-1, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815).” It clarifies the interaction among the accounting for equity securities, equity method investments, and certain derivative instruments. Specifically, for the purposes of applying the ASC Topic 321 measurement alternative, a company should consider observable transactions immediately before applying or upon discontinuing the equity method. Additionally, when determining the accounting for certain forward contracts and purchased options entered into to purchase securities, a company should not consider if the underlying securities would be accounted for under the equity method (ASC Topic 323) or fair value option (ASC Topic 825). This guidance was effective for interim and annual periods beginning after December 15, 2020. The Company adopted this guidance as of January 1, 2021, and there was no impact on its Consolidated Financial Statements.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes.” It removes certain exceptions to the general principles in ASC Topic 740 and improves consistent application of and simplifies GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance. This guidance was effective for interim and annual reporting periods beginning after December 15, 2020. The Company adopted this guidance as of January 1, 2021, and the impact on its Consolidated Financial Statements was immaterial.
In August 2018, the FASB issued ASU No. 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20).” It (i) requires the removal of disclosures that are no longer considered cost beneficial; (ii) clarifies specific requirements of certain disclosures; and (iii) adds new disclosure requirements, including the weighted average interest crediting rates for cash balance plans and other plans with promised interest crediting rates, and reasons for significant gains and losses related to changes in the benefit obligation. This guidance was effective for annual periods beginning after December 15, 2020. The Company adopted this guidance as of January 1, 2021, 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.
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 identifiable assets acquired, liabilities assumed, and any non-controlling interest as of the acquisition date fair value. Various valuation techniques are used to determine the fair value of intangible assets, with the primary techniques being forms of the income approach, specifically the relief-from-royalty and multi-period excess earnings valuation methods. Under these valuation approaches, the Company is required to make estimates and assumptions from a market participant perspective and may include revenue growth rates, estimated earnings, royalty rates, obsolescence factors, contributory asset charges, customer attrition and discount rates.
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. Refer to Note 14, “Notes Payable And Debt,” to the Condensed Consolidated Financial Statements for more information. 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 September 30, 2021. The acquisition further strengthens BorgWarner’s commercial vehicle and industrial electrification capabilities, which positions the Company to capitalize on what it believes to be a fast-growing battery module and pack market.
On August 2, 2021, the Company initiated a merger squeeze-out process under German law for the purpose of acquiring 100% of AKASOL. To determine the appropriate cash compensation for all outstanding AKASOL shares, the Company has engaged a valuation firm to determine the current fair value of the shares, the adequacy of which will be subsequently examined by an independent, court-appointed auditor. The overall process will take several months and will require a resolution to be passed by AKASOL’s shareholders in a general meeting.
The purchase price was allocated on a preliminary basis as of June 4, 2021. Assets acquired and liabilities assumed were recorded at estimated fair values based on management’s estimates, available information, and supportable assumptions that management considered reasonable. Certain estimated values for the acquisition, including goodwill and deferred taxes, are not yet finalized, and the preliminary purchase price allocations are subject to change as the Company completes its analysis of the fair value at the date of acquisition. The final valuation of assets acquired and liabilities assumed may be materially different from the estimated values shown below.
The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of June 4, 2021, the acquisition date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Initial Allocation
|
|
Measurement Period Adjustments
|
|
Revised Allocation
|
ASSETS
|
|
|
|
|
|
Cash and cash equivalents (including restricted cash of $16 million)
|
$
|
29
|
|
|
$
|
—
|
|
|
$
|
29
|
|
Receivables, net
|
16
|
|
|
—
|
|
|
16
|
|
Inventories, net
|
42
|
|
|
(2)
|
|
|
40
|
|
Prepayments and other current assets
|
5
|
|
|
—
|
|
|
5
|
|
Property, plant and equipment, net
|
106
|
|
|
4
|
|
|
110
|
|
|
|
|
|
|
|
Goodwill
|
707
|
|
|
(4)
|
|
|
703
|
|
Other intangible assets, net
|
130
|
|
|
—
|
|
|
130
|
|
|
|
|
|
|
|
Total assets acquired
|
1,035
|
|
|
(2)
|
|
|
1,033
|
|
LIABILITIES
|
|
|
|
|
|
Notes payable and other short-term debt
|
8
|
|
|
—
|
|
|
8
|
|
Accounts payable
|
22
|
|
|
—
|
|
|
22
|
|
Other current liabilities
|
13
|
|
|
5
|
|
|
18
|
|
Long-term debt
|
69
|
|
|
—
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-current liabilities
|
39
|
|
|
(7)
|
|
|
32
|
|
Total liabilities assumed
|
151
|
|
|
(2)
|
|
|
149
|
|
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 $703 million, including the impact of measurement period adjustments, was recorded within the Company’s Air Management segment. The goodwill consists of the Company’s expected future economic benefits that will arise from acquiring this business, which is established in making next-generation products for electric vehicles and the potential development and deployment of future technologies, across a global customer base, in this market and across adjacent industries. The goodwill is not expected to be deductible for tax purposes.
The following table summarizes the other intangible assets acquired:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Estimated Life
|
|
Estimated Fair Value
|
Amortized intangible assets:
|
|
|
|
Developed technology
|
5 years
|
|
$
|
70
|
|
Customer relationships
|
11 years
|
|
25
|
|
Total amortized intangible assets
|
|
|
95
|
|
Unamortized trade name
|
Indefinite
|
|
35
|
|
Total other intangible assets
|
|
|
$
|
130
|
|
Generally accepted valuation practice indicates that assets and liabilities may be valued using a range of methodologies. The property, plant and equipment acquired were valued using a combination of cost and market approaches. Goodwill and identifiable intangible assets were valued using the income approach. Noncontrolling interests were valued using a market approach. Management used a third-party valuation firm to assist in the determination of the preliminary purchase accounting fair values; however, management ultimately oversees the third-party valuation firm to ensure that the transaction-specific assumptions are appropriate.
The impact of the AKASOL acquisition on net sales and net earnings was immaterial for the three and nine months ended September 30, 2021. Due to its insignificant size relative to the Company, supplemental pro forma financial information of the combined entity for the current and prior reporting period is not provided.
Delphi Technologies PLC
On October 1, 2020, the Company completed its acquisition of 100% of the outstanding ordinary shares of Delphi Technologies PLC (“Delphi Technologies”) from the shareholders of Delphi Technologies pursuant to the terms of the Transaction Agreement, dated January 28, 2020, as amended on May 6, 2020, by and between the Company and Delphi Technologies (the “Transaction Agreement”). Pursuant to the terms of the Transaction Agreement, the Company issued, in exchange for each Delphi Technologies share, 0.4307 of a share of common stock of the Company, par value $0.01 per share and cash in lieu of any fractional share. In the aggregate, the Company delivered consideration of approximately $2.4 billion. The acquisition strengthens the Company’s electronics and power electronics products, capabilities and scale, positions the Company for greater growth as electrified propulsion systems gain momentum and enhances key combustion, commercial vehicle and aftermarket product offerings. Upon closing, the Company also assumed approximately $800 million (par value) in aggregate principal amount of Delphi Technologies’ outstanding 5.000% Senior Notes due 2025 (the “DT Notes”).
On October 5, 2020, the Company completed its offer to exchange new BorgWarner notes for the DT Notes. Approximately $776 million in aggregate principal amount of outstanding DT Notes, representing 97% of the $800 million total outstanding principal amount of the DT Notes, were validly exchanged and cancelled for new BorgWarner notes. Following such cancellation, approximately $24 million in aggregate principal amount of the DT Notes remain outstanding. Since the majority of the DT Notes were exchanged, for the DT notes that remain outstanding, the Company was able to eliminate substantially all of the restrictive covenants and events of default not related to payment on the $800 million in outstanding senior notes of the Company.
The following table summarizes the purchase price for Delphi Technologies:
|
|
|
|
|
|
(in millions, except for share data)
|
|
BorgWarner common stock issued for purchase of Delphi Technologies
|
37,188,819
|
BorgWarner share price at October 1, 2020
|
$
|
39.54
|
|
Fair value of stock consideration
|
$
|
1,470
|
|
Stock compensation consideration
|
7
|
Total stock consideration
|
$
|
1,477
|
|
Cash consideration
|
18
|
|
Repayment of Delphi Technologies’ debt
|
896
|
|
Total consideration
|
$
|
2,391
|
|
The Company finalized its valuation of the assets and liabilities of the Delphi Technologies acquisition during the third quarter of 2021. During the nine months ended September 30, 2021, the Company made measurement period adjustments based on new information about facts and circumstances that existed as of the acquisition date.
The following table summarizes the final fair values of assets acquired and liabilities assumed as of the acquisition date and subsequent measurement period adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Initial Allocation
|
|
Measurement Period Adjustments
|
|
Revised Allocation
|
ASSETS
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
460
|
|
|
$
|
—
|
|
|
$
|
460
|
|
Receivables, net
|
901
|
|
|
(4)
|
|
|
897
|
|
Inventories, net
|
398
|
|
|
(5)
|
|
|
393
|
|
Prepayments and other current assets
|
77
|
|
|
2
|
|
|
79
|
|
Property, plant and equipment, net
|
1,548
|
|
|
(31)
|
|
|
1,517
|
|
Investments and other long-term receivables
|
103
|
|
|
(1)
|
|
|
102
|
|
Goodwill
|
710
|
|
|
44
|
|
|
754
|
|
Other intangible assets, net
|
760
|
|
|
—
|
|
|
760
|
|
Other non-current assets
|
359
|
|
|
1
|
|
|
360
|
|
Total assets acquired
|
5,316
|
|
|
6
|
|
|
5,322
|
|
LIABILITIES
|
|
|
|
|
|
Notes payable and other short-term debt
|
2
|
|
|
—
|
|
|
2
|
|
Accounts payable
|
692
|
|
|
1
|
|
|
693
|
|
Other current liabilities
|
609
|
|
|
9
|
|
|
618
|
|
Long-term debt
|
934
|
|
|
—
|
|
|
934
|
|
Other non-current liabilities:
|
|
|
|
|
|
Retirement-related
|
313
|
|
|
—
|
|
|
313
|
|
Other non-current liabilities
|
286
|
|
|
(4)
|
|
|
282
|
|
Total liabilities assumed
|
2,836
|
|
|
6
|
|
|
2,842
|
|
Noncontrolling interest
|
89
|
|
|
—
|
|
|
89
|
|
Net assets and noncontrolling interest acquired
|
$
|
2,391
|
|
|
$
|
—
|
|
|
$
|
2,391
|
|
Any excess of the purchase price over the fair value of net assets was recognized as goodwill. Goodwill of $754 million, including the impact of measurement period adjustments, was allocated across the Company’s four segments, as noted in the table below. The goodwill consists of the Company’s expected future economic benefits that will arise from expected future product sales and operational synergies from combining Delphi Technologies with its existing business and is not deductible for tax purposes.
|
|
|
|
|
|
(in millions)
|
|
Air Management
|
$
|
150
|
|
e-Propulsion & Drivetrain
|
301
|
|
Fuel Injection
|
—
|
|
Aftermarket
|
303
|
|
Total acquisition date goodwill
|
$
|
754
|
|
The following table summarizes the other intangible assets acquired:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Estimated Life
|
|
Estimated Fair Value
|
Amortized intangible assets:
|
|
|
|
Developed technology
|
14 years
|
|
$
|
270
|
|
Customer relationships
|
15 years
|
|
380
|
|
Total amortized intangible assets
|
|
|
650
|
|
Unamortized trade name
|
Indefinite
|
|
110
|
|
Total other intangible assets
|
|
|
$
|
760
|
|
Generally accepted valuation practice indicates that assets and liabilities may be valued using a range of methodologies. The property, plant and equipment and inventory acquired were valued using a combination of cost and market approaches. Goodwill, identifiable intangible assets, noncontrolling interests and the equity method investment were valued using the income approach. Management used a third-party valuation firm to assist in the determination of the preliminary purchase accounting fair values; however, management ultimately oversees the third-party valuation firm to ensure that the transaction-specific assumptions are appropriate.
On a pro forma basis, the combined net sales of the Company and Delphi Technologies for the three and nine months ended September 30, 2020 were $3,588 million and $8,866 million, respectively.
Romeo Power, Inc.
In May 2019, the Company invested $50 million in exchange for a 20% equity interest in Romeo Systems, Inc., now known as Romeo Power, Inc., (“Romeo”) a technology-leading battery module and pack supplier that was then privately held. The Company accounted for this investment in Series A-1 Preferred Stock of Romeo under the measurement alternative in ASC Topic 321, “Investments - Equity Securities” for equity securities without a readily determinable fair value. Such investments are measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. 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 owns a 60% interest. Romeo JV is a variable interest entity focusing on producing battery module and pack technology. The Company is the primary beneficiary of Romeo JV and consolidates Romeo JV in its consolidated financial statements.
On December 29, 2020, through the business combination of Romeo Systems, Inc. and special purpose acquisition company RMG Acquisition Corporation, a new entity, Romeo Power, Inc., became a publicly listed company. The Company’s ownership in Romeo was reduced to 14%, and the investment no longer qualified for the measurement alternative under ASC Topic 321 as the investment now has a readily determinable fair value. Therefore, during the fourth quarter 2020, a gain of $391 million was recorded to adjust the carrying value of the Company’s investment to fair value of $432 million as of December 31, 2020. The investment is recorded at fair value on an ongoing basis with changes in fair value being recognized in Unrealized 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 September 30, 2021, the investment’s fair value was $95 million, which is reflected in Investments and other long-term receivables in the Company’s Condensed Consolidated Balance Sheets.
Prior to December 29, 2020, there was not a readily determinable fair value of Romeo and the Company assessed it for any impairment indicators or other changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. In the first quarter of 2020
after completing a qualitative assessment which indicated the Company’s equity securities in Romeo may have been impaired, the Company recorded a $9 million impairment charge to reflect this investment at its estimated fair value of $41 million. The estimated fair value of Romeo was determined using unobservable inputs including quantitative information from lower valuations in recently completed or proposed financings and the liquidation preferences included in the Romeo stock agreements. These unobservable inputs are considered Level 3.
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 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 have evaluated the terms of our 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 $21 million and $16 million at September 30, 2021 and December 31, 2020, 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 $23 million and $1 million at September 30, 2021 and $22 million and $6 million at December 31, 2020, respectively. These amounts are reflected as revenue over the term of the arrangement (typically 3 to 7 years) as the underlying products are shipped and represent the Company’s remaining performance obligations as of the end of the period.
Sales to certain aftermarket customers provide to the customers a right of return. The Company recognizes an estimated return asset (and adjusts for cost of sales) for the right to recover the products returned by the customer. ASC Topic 606 requires that return assets be presented separately from inventory. As of September 30, 2021 and December 31, 2020, the Company had return assets of $9 million and $8 million, respectively, recorded in Prepayments and other current assets in the Company’s Condensed Consolidated Balance Sheets.
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, 2021 and December 31, 2020, the Company recorded customer incentive payments of $38 million and $43 million, respectively, in Prepayments and other current assets, and $142 million and $166 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 reporting segment and region and reflects the results of former Delphi Technologies entities in the three and nine months ended September 30, 2021. Refer to Note 23, “Reporting Segments And Related Information,” to the Condensed Consolidated Financial Statements for more information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2021
|
(In millions)
|
Air Management
|
|
e-Propulsion & Drivetrain
|
|
Fuel Injection
|
|
Aftermarket
|
|
Total
|
North America
|
$
|
460
|
|
|
$
|
471
|
|
|
$
|
13
|
|
|
$
|
81
|
|
|
$
|
1,025
|
|
Europe
|
647
|
|
|
183
|
|
|
201
|
|
|
114
|
|
|
1,145
|
|
Asia
|
483
|
|
|
524
|
|
|
144
|
|
|
16
|
|
|
1,167
|
|
Other
|
43
|
|
|
6
|
|
|
16
|
|
|
14
|
|
|
79
|
|
Total
|
$
|
1,633
|
|
|
$
|
1,184
|
|
|
$
|
374
|
|
|
$
|
225
|
|
|
$
|
3,416
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
(In millions)
|
Air Management
|
|
e-Propulsion & Drivetrain
|
|
Fuel Injection
|
|
Aftermarket
|
|
Total
|
North America
|
$
|
384
|
|
|
$
|
456
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
840
|
|
Europe
|
658
|
|
|
186
|
|
|
—
|
|
|
—
|
|
|
844
|
|
Asia
|
391
|
|
|
429
|
|
|
—
|
|
|
—
|
|
|
820
|
|
Other
|
26
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
30
|
|
Total
|
$
|
1,459
|
|
|
$
|
1,075
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,534
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2021
|
(In millions)
|
Air Management
|
|
e-Propulsion & Drivetrain
|
|
Fuel Injection
|
|
Aftermarket
|
|
Total
|
North America
|
$
|
1,456
|
|
|
$
|
1,459
|
|
|
$
|
17
|
|
|
$
|
232
|
|
|
$
|
3,164
|
|
Europe
|
2,265
|
|
|
710
|
|
|
731
|
|
|
324
|
|
|
4,030
|
|
Asia
|
1,586
|
|
|
1,710
|
|
|
428
|
|
|
46
|
|
|
3,770
|
|
Other
|
112
|
|
|
18
|
|
|
48
|
|
|
41
|
|
|
219
|
|
Total
|
$
|
5,419
|
|
|
$
|
3,897
|
|
|
$
|
1,224
|
|
|
$
|
643
|
|
|
$
|
11,183
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
(In millions)
|
Air Management
|
|
e-Propulsion & Drivetrain
|
|
Fuel Injection
|
|
Aftermarket
|
|
Total
|
North America
|
$
|
938
|
|
|
$
|
1,069
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,007
|
|
Europe
|
1,707
|
|
|
467
|
|
|
—
|
|
|
—
|
|
|
2,174
|
|
Asia
|
988
|
|
|
995
|
|
|
—
|
|
|
—
|
|
|
1,983
|
|
Other
|
64
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
75
|
|
Total
|
$
|
3,697
|
|
|
$
|
2,542
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,239
|
|
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 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2021
|
(in millions
|
Air Management
|
|
e-Propulsion & Drivetrain
|
|
Fuel Injection
|
|
Corporate
|
|
Total
|
Employee termination benefits
|
$
|
7
|
|
|
$
|
2
|
|
|
$
|
29
|
|
|
$
|
—
|
|
|
$
|
38
|
|
Other
|
4
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
13
|
|
Total restructuring expense
|
$
|
11
|
|
|
$
|
11
|
|
|
$
|
29
|
|
|
$
|
—
|
|
|
$
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
Air Management
|
|
e-Propulsion & Drivetrain
|
|
Fuel Injection
|
|
Corporate
|
|
Total
|
Employee termination benefits
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
10
|
|
Other
|
5
|
|
|
4
|
|
|
—
|
|
|
1
|
|
|
10
|
|
Total restructuring expense
|
$
|
14
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2021
|
|
Air Management
|
|
e-Propulsion & Drivetrain
|
|
Fuel Injection
|
|
Corporate
|
|
Total
|
Employee termination benefits
|
$
|
30
|
|
|
$
|
9
|
|
|
$
|
56
|
|
|
$
|
—
|
|
|
$
|
95
|
|
Other
|
10
|
|
|
35
|
|
|
—
|
|
|
3
|
|
|
48
|
|
Total restructuring expense
|
$
|
40
|
|
|
$
|
44
|
|
|
$
|
56
|
|
|
$
|
3
|
|
|
$
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
Air Management
|
|
e-Propulsion & Drivetrain
|
|
Fuel Injection
|
|
Corporate
|
|
Total
|
Employee termination benefits
|
$
|
31
|
|
|
$
|
18
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
50
|
|
Other
|
12
|
|
|
9
|
|
|
—
|
|
|
1
|
|
|
22
|
|
Total restructuring expense
|
$
|
43
|
|
|
$
|
27
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
72
|
|
The following tables display a rollforward of the restructuring liability recorded within the Company’s Condensed Consolidated Balance Sheets and the related cash flow activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions
|
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
|
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
|
|
|
|
|
|
|
|
|
Employee Termination Benefits
|
|
Other
|
|
Total
|
Balance at January 1, 2020
|
$
|
34
|
|
|
$
|
—
|
|
|
$
|
34
|
|
Restructuring expense, net
|
50
|
|
|
22
|
|
|
72
|
|
Cash payments
|
(40)
|
|
|
(6)
|
|
|
(46)
|
|
Foreign currency translation adjustment and other
|
—
|
|
|
2
|
|
|
2
|
|
|
|
|
|
|
|
Balance at September 30, 2020
|
44
|
|
|
18
|
|
|
62
|
|
Less: Non-current restructuring liability
|
16
|
|
|
3
|
|
|
19
|
|
Current restructuring liability at September 30, 2020
|
$
|
28
|
|
|
$
|
15
|
|
|
$
|
43
|
|
In February 2020, the Company announced a restructuring plan to address existing structural costs. 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. During the three and nine months ended September 30, 2020, the Company recorded $20 million and $72 million of restructuring charges related to this plan, respectively. Cumulatively, the Company has incurred $229 million of restructuring charges related to this plan. This plan is expected to result in a total of $300 million of restructuring costs through 2022. Nearly all of the restructuring charges associated with this plan are expected to be cash expenditures.
In 2019, legacy Delphi Technologies announced a restructuring plan to reshape and realign its global technical center footprint and reduce salaried and contract staff. The Company continued actions under this program post-acquisition and has recorded cumulative charges of $64 million since October 1, 2020, including approximately $62 million in restructuring charges during the nine months ended September 30, 2021. The majority of the actions under this program have been completed.
The following provides details of restructuring expense incurred by the Company’s reporting segments during the three and nine months ended September 30, 2021 and 2020, related to the two plans discussed above:
Air Management
•During the three and nine months ended September 30, 2021, the segment recorded $10 million and $36 million of restructuring cost, respectively, primarily related to severance costs, professional fees and a voluntary termination program to reduce existing structural costs.
•During the nine months ended September 30, 2021, the segment recorded $4 million primarily related to severance costs under the legacy Delphi Technologies plan.
•During the three and nine months ended September 30, 2020, the segment recorded $14 million
and $43 million of restructuring costs, respectively, of which $8 million and $21 million related to a voluntary termination program where approximately 350 employees accepted termination packages, and $7 million and $19 million related to severance costs and professional fees for specific actions to reduce structural costs. During the nine months ended September 30, 2020 2020, the segment also recorded $3 million of employee termination benefits related to the announced closure of a facility in Europe affecting approximately 200 employees.
e-Propulsion & Drivetrain
•During the three and nine months ended September 30, 2021, the segment recorded $7 million and $17 million, respectively, primarily related to severance costs, equipment relocation and professional fees to reduce existing structural costs. During the three and nine months ended September 30, 2021, the segment recorded $4 million and $27 million related to contractual settlements, professional fees and other costs associated with the announced closure of a facility in Europe.
•During the three and nine months ended September 30, 2020, the segment recorded $3 million and $8 million, respectively, primarily related to professional fees for actions to reduce structural costs and severance costs. During the nine months ended September 30, 2020, the segment also recorded $19 million of employee termination benefits related to the announced closure of a facility in Europe affecting approximately 350 employees.
Fuel Injection
•During the three and nine months ended September 30, 2021, the segment recorded $29 million and $56 million, respectively, primarily for the statutory minimum benefits and incremental one-time termination benefits negotiated with local labor authorities related to the legacy Delphi Technologies restructuring plan.
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,
|
(in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Gross R&D expenditures
|
$
|
231
|
|
|
$
|
115
|
|
|
$
|
675
|
|
|
$
|
336
|
|
Customer reimbursements
|
(47)
|
|
|
(15)
|
|
|
(142)
|
|
|
(39)
|
|
Net R&D expenditures
|
$
|
184
|
|
|
$
|
100
|
|
|
$
|
533
|
|
|
$
|
297
|
|
During the three and nine months ended September 30, 2021, legacy Delphi Technologies had net R&D expenditures of $73 million and $205 million, respectively.
NOTE 7 OTHER OPERATING EXPENSE, NET
Items included in Other operating expense, net consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
Restructuring expense (Note 5)
|
$
|
51
|
|
|
$
|
20
|
|
|
$
|
143
|
|
|
$
|
72
|
|
Merger, acquisition and divestiture expense
|
8
|
|
|
16
|
|
|
36
|
|
|
58
|
|
Loss on sale
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
Asset impairments
|
—
|
|
|
—
|
|
|
—
|
|
|
17
|
|
Net gain on insurance recovery for property damage
|
(1)
|
|
|
(3)
|
|
|
(3)
|
|
|
(9)
|
|
Other income, net
|
(4)
|
|
|
(4)
|
|
|
(10)
|
|
|
(5)
|
|
Other operating expense, net
|
$
|
54
|
|
|
$
|
29
|
|
|
$
|
173
|
|
|
$
|
133
|
|
Merger, acquisition and divestiture expense: During the three months ended September 30, 2021, the Company recorded merger, acquisition and divestiture expense of $8 million, primarily related to professional fees associated with the acquisition of AKASOL and the Company's review of strategic acquisition and divestiture targets. During the nine months ended September 30, 2021, the Company recorded merger, acquisition and divestiture expense of $36 million, primarily related to professional fees for integration and other support associated with the Company’s acquisition of Delphi Technologies and AKASOL. During the three and nine months ended September 30, 2020, the Company recorded merger, acquisition and divestiture expense of $16 million and $58 million, respectively, primarily related to professional fees associated with the Company’s acquisition of Delphi Technologies.
Loss on sale: During the nine months ended September 30, 2021, the Company recorded a loss of $7 million in connection with the sale of an e-Propulsion & Drivetrain technical center in Europe.
Asset impairments: During the nine months ended September 30, 2020, the Company recorded asset impairment costs of $9 million in the Air Management segment and $8 million in the e-Propulsion & Drivetrain segment, related to the write down of property, plant and equipment associated with the announced closures of two European facilities.
Net gain on insurance recovery for property damage: During the nine months ended September 30, 2021 and 2020, the Company recorded a $3 million and $9 million net gain, respectively, from insurance recovery proceeds, which primarily represents the amount received for replacement cost in excess of carrying value for losses sustained from a tornado that damaged the Company’s plant in Seneca, South Carolina. As of September 30, 2021, the insurance claim has been fully settled.
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, 2021 and 2020 was 40% and 53%, respectively. 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 2020 rate was unfavorably impacted by $51 million of additional income tax expense, primarily related to final U.S. Treasury regulations that were issued during the three months ended September 30, 2020.
The Company’s effective tax rate for the nine months ended September 30, 2021 and 2020 was 24% and 51%, respectively. 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 includes 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. For the nine months ended September 30, 2020, the effective tax rate was unfavorably impacted by $130 million of restructuring expenses and merger, acquisition and divestiture expenses, some of which, were largely non-deductible for tax purposes, resulting in only $23 million of tax benefit being recognized. This rate was further unfavorably impacted by $17 million of asset impairment charges for which no tax benefit was recognized as full valuation allowances were recorded against the corresponding deferred tax assets. The Company also recorded reductions in income tax expense of $10 million for other one-time adjustments primarily related to tax law changes in India that were enacted during the first three months of 2020 and the release of certain unrecognized tax benefits due to the closure of an audit.
The annual effective tax rates differ from the U.S. statutory rate primarily due to foreign rates which vary from those in the U.S., jurisdictions with pretax losses for which no tax benefit could be realized, U.S. taxes on foreign earnings, the realization of certain business tax credits (including foreign tax credits), and permanent differences between book and tax treatment for certain items (including equity in affiliates’ earnings).
NOTE 9 INVENTORIES, NET
A summary of Inventories, net is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
(in millions)
|
2021
|
|
2020
|
Raw material and supplies
|
$
|
1,082
|
|
|
$
|
827
|
|
Work in progress
|
182
|
|
|
150
|
|
Finished goods
|
410
|
|
|
324
|
|
FIFO inventories
|
1,674
|
|
|
1,301
|
|
LIFO reserve
|
(25)
|
|
|
(15)
|
|
Inventories, net
|
$
|
1,649
|
|
|
$
|
1,286
|
|
NOTE 10 OTHER CURRENT AND NON-CURRENT ASSETS
Additional detail related to assets is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
(in millions)
|
2021
|
|
2020
|
Prepayments and other current assets:
|
|
|
|
Prepaid tooling
|
$
|
91
|
|
|
$
|
84
|
|
Prepaid taxes
|
44
|
|
|
64
|
|
Customer incentive payments (Note 4)
|
38
|
|
|
43
|
|
Prepaid engineering
|
29
|
|
|
33
|
|
Contract assets (Note 4)
|
21
|
|
|
16
|
|
Other
|
85
|
|
|
72
|
|
Total prepayments and other current assets
|
$
|
308
|
|
|
$
|
312
|
|
|
|
|
|
Investments and other long-term receivables:
|
|
|
|
Investment in equity affiliates
|
$
|
297
|
|
|
$
|
297
|
|
Equity securities (Note 3)
|
150
|
|
|
472
|
|
Other long-term receivables
|
66
|
|
|
51
|
|
Total investments and other long-term receivables
|
$
|
513
|
|
|
$
|
820
|
|
|
|
|
|
Other non-current assets:
|
|
|
|
Deferred income taxes
|
$
|
282
|
|
|
$
|
291
|
|
Operating leases
|
200
|
|
|
211
|
|
Customer incentive payments (Note 4)
|
142
|
|
|
166
|
|
Other
|
75
|
|
|
60
|
|
Total other non-current assets
|
$
|
699
|
|
|
$
|
728
|
|
NOTE 11 ASSETS AND LIABILITIES HELD FOR SALE
In 2021, the Company announced its strategy to aggressively grow its electrification portfolio over time through organic investments and technology-focused acquisitions. Additionally, the Company announced a plan to dispose of certain internal combustion assets in support of that strategy. As of September 30, 2021, the Company identified a business (disposal group) in its e-Propulsion & Drivetrain segment located in the Americas region that met the held for sale criteria. As such, assets of $105 million, including allocated goodwill of $18 million, and liabilities of $22 million were reclassified as held for sale on the Condensed Consolidated Balance Sheets as of September 30, 2021. The fair value of the assets and liabilities, less costs to sell, was determined to approximate the carrying value; therefore, the Company did not record any adjustment to the carrying value of the disposal group. The business did not meet the criteria to be classified as a discontinued operation.
The assets and liabilities classified as held for sale as of September 30, 2021 consist of:
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
(in millions)
|
2021
|
|
|
Assets held for sale:
|
|
|
|
Receivables, net
|
$
|
28
|
|
|
|
Inventories, net
|
12
|
|
|
|
Prepayments and other current assets
|
1
|
|
|
|
Property, plant and equipment, net
|
46
|
|
|
|
Goodwill
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets held for sale
|
$
|
105
|
|
|
|
|
|
|
|
Liabilities held for sale:
|
|
|
|
Accounts payable
|
$
|
15
|
|
|
|
Other current liabilities
|
7
|
|
|
|
Total liabilities held for sale
|
$
|
22
|
|
|
|
NOTE 12 GOODWILL AND OTHER INTANGIBLES
During the fourth quarter of each year, the Company assesses its goodwill 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 2021 requiring additional assessment or testing. Future changes in the judgments, assumptions and estimates from those used in acquisition-related valuations and goodwill impairment testing, including discount rates or future operating results and related cash flow projections, could result in significantly different estimates of the fair values in the future. An increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated fair values, which may result in impairment charges that could materially affect the Company’s financial statements in any given year.
A summary of the changes in the carrying amount of goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Air Management
|
|
e-Propulsion & Drivetrain
|
|
Aftermarket
|
|
Total
|
Gross goodwill balance, December 31, 2020
|
$
|
1,517
|
|
|
$
|
1,313
|
|
|
$
|
299
|
|
|
$
|
3,129
|
|
Accumulated impairment losses, December 31, 2020
|
(502)
|
|
|
—
|
|
|
—
|
|
|
(502)
|
|
Net goodwill balance, December 31, 2020
|
$
|
1,015
|
|
|
$
|
1,313
|
|
|
$
|
299
|
|
|
$
|
2,627
|
|
Goodwill during the period:
|
|
|
|
|
|
|
|
Acquisition
|
707
|
|
|
—
|
|
|
—
|
|
|
707
|
|
Measurement period adjustments
|
(4)
|
|
|
28
|
|
|
16
|
|
|
40
|
|
Held for sale
|
—
|
|
|
(18)
|
|
|
—
|
|
|
(18)
|
|
Other, primarily translation adjustment
|
(36)
|
|
|
(31)
|
|
|
(4)
|
|
|
(71)
|
|
Ending balance, September 30, 2021
|
$
|
1,682
|
|
|
$
|
1,292
|
|
|
$
|
311
|
|
|
$
|
3,285
|
|
The Company’s other intangible assets, primarily from acquisitions, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
(in millions)
|
Estimated useful lives (years)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patented and unpatented technology
|
5 - 15
|
|
$
|
445
|
|
|
$
|
97
|
|
|
$
|
348
|
|
|
$
|
383
|
|
|
$
|
77
|
|
|
$
|
306
|
|
Customer relationships
|
7 - 15
|
|
883
|
|
|
299
|
|
|
584
|
|
|
893
|
|
|
272
|
|
|
621
|
|
Miscellaneous
|
2 - 13
|
|
10
|
|
|
7
|
|
|
3
|
|
|
10
|
|
|
7
|
|
|
3
|
|
Total amortized intangible assets
|
|
|
1,338
|
|
|
403
|
|
|
935
|
|
|
1,286
|
|
|
356
|
|
|
930
|
|
Unamortized trade names
|
|
|
199
|
|
|
—
|
|
|
199
|
|
|
166
|
|
|
—
|
|
|
166
|
|
Total other intangible assets
|
|
|
$
|
1,537
|
|
|
$
|
403
|
|
|
$
|
1,134
|
|
|
$
|
1,452
|
|
|
$
|
356
|
|
|
$
|
1,096
|
|
NOTE 13 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)
|
2021
|
|
2020
|
Beginning balance, January 1
|
$
|
253
|
|
|
$
|
116
|
|
Provisions for current period sales
|
69
|
|
|
36
|
|
Adjustments of prior estimates
|
17
|
|
|
14
|
|
|
|
|
|
|
|
|
|
Payments
|
(90)
|
|
|
(41)
|
|
Other, primarily translation adjustment
|
(2)
|
|
|
2
|
|
Ending balance, September 30
|
$
|
247
|
|
|
$
|
127
|
|
The product warranty liability is classified in the Condensed Consolidated Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
(in millions)
|
2021
|
|
2020
|
Other current liabilities
|
$
|
143
|
|
|
$
|
164
|
|
Other non-current liabilities
|
104
|
|
|
89
|
|
Total product warranty liability
|
$
|
247
|
|
|
$
|
253
|
|
NOTE 14 NOTES PAYABLE AND DEBT
As of September 30, 2021 and December 31, 2020, the Company had debt outstanding as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
(in millions)
|
2021
|
|
2020
|
Short-term borrowings
|
$
|
44
|
|
|
$
|
45
|
|
|
|
|
|
Long-term debt
|
|
|
|
1.800% Senior notes due 11/07/22 (€500 million par value)
|
—
|
|
|
609
|
|
3.375% Senior notes due 03/15/25 ($500 million par value)
|
498
|
|
|
498
|
|
5.000% Senior notes due 03/15/25 ($800 million par value)*
|
895
|
|
|
912
|
|
2.650% Senior notes due 07/01/27 ($1,100 million par value)
|
1,090
|
|
|
1,088
|
|
7.125% Senior notes due 02/15/29 ($121 million par value)
|
119
|
|
|
119
|
|
1.000% Senior Notes due 05/19/31 (€1,000 million par value)
|
1,137
|
|
|
—
|
|
4.375% Senior notes due 03/15/45 ($500 million par value)
|
494
|
|
|
494
|
|
Term loan facilities, finance leases and other
|
65
|
|
|
22
|
|
Total long-term debt
|
4,298
|
|
|
3,742
|
|
Less: current portion
|
10
|
|
|
4
|
|
Long-term debt, net of current portion
|
$
|
4,288
|
|
|
$
|
3,738
|
|
________________
*Includes the fair value step-up from the Delphi Technologies acquisition, which was based on observable market data and will be amortized as a reduction to interest expense over the remaining life of the instrument using the effective interest method.
The Company may utilize uncommitted lines of credit for short-term working capital requirements. As of September 30, 2021 and December 31, 2020, the Company had $44 million and $45 million, respectively, in borrowings under these facilities, which are classified in Notes payable and other short-term debt on the Condensed Consolidated Balance Sheets.
On May 19, 2021, in anticipation of the acquisition of AKASOL and to refinance the Company's €500 million 1.800% senior notes due in November 2022, the Company issued €1.0 billion in 1.000% senior notes due May 2031. Interest is payable annually in arrears on May 19 of each year. These senior notes are not guaranteed by any of the Company’s subsidiaries. On June 18, 2021, the Company repaid its €500 million 1.800% senior notes due November 2022 and incurred a loss on debt extinguishment of $20 million, which is reflected in Interest expense in the Condensed Consolidated Statement of Operations.
On February 19, 2021, the Company entered into a $900 million, 364-day delayed-draw term loan facility to satisfy certain cash confirmation requirements in support of the proposed acquisition of AKASOL. The facility was cancelled on May 19, 2021 in accordance with its terms, following the Company’s issuance of the €1.0 billion in senior notes.
The Company has a $2.0 billion multi-currency revolving credit facility that allows the Company the ability to increase the facility by $1.0 billion with bank group approval. 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, 2021. At September 30, 2021 and December 31, 2020, 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, 2021 and December 31, 2020.
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, 2021 and December 31, 2020, the estimated fair values of the Company’s senior unsecured notes totaled $4,510 million and $4,052 million, respectively. The estimated fair values were $277 million higher than their carrying value at September 30, 2021 and $332 million higher than their carrying value at December 31, 2020. Fair market values of the senior unsecured notes are developed using observable values for similar debt instruments, which are considered Level 2 inputs as defined by ASC Topic 820. The carrying values of the Company's multi-currency revolving credit facility and commercial paper program 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 $35 million and $33 million at September 30, 2021 and December 31, 2020, respectively. The letters of credit typically act as guarantees of payment to certain third parties in accordance with specified terms and conditions.
NOTE 15 OTHER CURRENT AND NON-CURRENT LIABILITIES
Additional detail related to liabilities is presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
(in millions)
|
2021
|
|
2020
|
Other current liabilities:
|
|
|
|
Payroll and employee related
|
$
|
321
|
|
|
$
|
301
|
|
Customer related
|
247
|
|
|
198
|
|
Product warranties (Note 13)
|
143
|
|
|
164
|
|
Employee termination benefits (Note 5)
|
103
|
|
|
101
|
|
Income taxes payable
|
99
|
|
|
102
|
|
Indirect taxes
|
59
|
|
|
69
|
|
Accrued freight
|
52
|
|
|
41
|
|
Operating leases
|
48
|
|
|
47
|
|
Interest
|
31
|
|
|
18
|
|
Contract liabilities (Note 4)
|
23
|
|
|
22
|
|
Dividends payable
|
20
|
|
|
6
|
|
Insurance
|
19
|
|
|
20
|
|
Retirement related
|
16
|
|
|
16
|
|
Other
|
249
|
|
|
304
|
|
Total other current liabilities
|
$
|
1,430
|
|
|
$
|
1,409
|
|
|
|
|
|
Other non-current liabilities:
|
|
|
|
Other income tax liabilities
|
$
|
254
|
|
|
$
|
300
|
|
Deferred income taxes
|
240
|
|
|
276
|
|
Operating leases
|
159
|
|
|
172
|
|
Product warranties (Note 13)
|
104
|
|
|
89
|
|
Derivative instruments
|
78
|
|
|
162
|
|
Deferred income
|
65
|
|
|
55
|
|
Employee termination benefits (Note 5)
|
47
|
|
|
59
|
|
Other
|
81
|
|
|
68
|
|
Total other non-current liabilities
|
$
|
1,028
|
|
|
$
|
1,181
|
|
NOTE 16 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, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis of fair value measurements
|
|
|
(in millions)
|
Balance at September 30, 2021
|
|
Quoted prices in active markets for identical items
(Level 1)
|
|
Significant other observable inputs
(Level 2)
|
|
Significant unobservable inputs
(Level 3)
|
|
Valuation technique
|
Assets:
|
|
|
|
|
|
|
|
|
|
Investment in equity securities
|
$
|
95
|
|
|
$
|
95
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
A
|
Foreign currency contracts
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
A
|
Net investment hedge contracts
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
A
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
A
|
Net investment hedge contracts
|
$
|
77
|
|
|
$
|
—
|
|
|
$
|
77
|
|
|
$
|
—
|
|
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis of fair value measurements
|
|
|
(in millions)
|
Balance at
December 31, 2020
|
|
Quoted prices in active markets for identical items
(Level 1)
|
|
Significant other observable inputs
(Level 2)
|
|
Significant unobservable inputs
(Level 3)
|
|
Valuation
technique
|
Assets:
|
|
|
|
|
|
|
|
|
|
Investment in equity securities
|
$
|
432
|
|
|
$
|
432
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
A
|
Foreign currency contracts
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
A
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
A
|
Net investment hedge contracts
|
$
|
161
|
|
|
$
|
—
|
|
|
$
|
161
|
|
|
$
|
—
|
|
|
A
|
NOTE 17 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. At September 30, 2021 and December 31, 2020, the Company had no derivative contracts that contained credit 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, 2021 and December 31, 2020, the Company had no material commodity derivative contracts. The Company primarily utilizes forward and option contracts, which are designated as cash flow hedges.
The Company manages its interest rate risk by balancing its exposure to fixed and variable rates while attempting to optimize its interest costs. The Company, at times, selectively uses interest rate swaps and options to reduce market value risk associated with changes in interest rates (fair value hedges and cash flow hedges). At September 30, 2021 and December 31, 2020, 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, 2021 and December 31, 2020, the following foreign currency derivative contracts were outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives (in millions)*
|
Functional Currency
|
|
Traded Currency
|
|
Notional in traded currency
September 30, 2021
|
|
Notional in traded currency
December 31, 2020
|
|
Ending Duration
|
British pound
|
|
Euro
|
|
80
|
|
|
97
|
|
|
Dec - 22
|
|
|
|
|
|
|
|
|
|
Chinese renminbi
|
|
US dollar
|
|
51
|
|
|
113
|
|
|
Dec - 22
|
Chinese renminbi
|
|
Euro
|
|
14
|
|
|
—
|
|
|
Dec - 21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro
|
|
Polish zloty
|
|
199
|
|
|
147
|
|
|
Dec - 22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro
|
|
US dollar
|
|
49
|
|
|
41
|
|
|
Dec - 22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Korean won
|
|
US dollar
|
|
12
|
|
|
19
|
|
|
Dec - 21
|
|
|
|
|
|
|
|
|
|
US dollar
|
|
British pound
|
|
10
|
|
|
—
|
|
|
Dec - 22
|
US dollar
|
|
Euro
|
|
113
|
|
|
55
|
|
|
Nov - 21
|
US dollar
|
|
Korean won
|
|
75,014
|
|
|
15,000
|
|
|
Dec - 22
|
US dollar
|
|
Singapore dollar
|
|
37
|
|
|
47
|
|
|
Dec - 22
|
US dollar
|
|
Thailand baht
|
|
1,720
|
|
|
—
|
|
|
May - 22
|
US dollar
|
|
Mexican peso
|
|
1,251
|
|
|
1,178
|
|
|
Dec - 22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Table above excludes non-significant traded currency pairings with total notional amounts less than $10 million U.S. dollar equivalent as of September 30, 2021 and December 31, 2020.
|
The Company selectively uses cross-currency swaps to hedge the foreign currency exposure associated with its net investment in certain foreign operations (net investment hedges). At September 30, 2021 and December 31, 2020, the following cross-currency swap contracts were outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
(millions of dollars)
|
September 30, 2021
|
|
December 31, 2020
|
|
Ending duration
|
US dollar to Euro:
|
|
|
|
|
|
Fixed receiving notional
|
$
|
500
|
|
|
$
|
500
|
|
|
Mar - 25
|
Fixed paying notional
|
€
|
450
|
|
|
€
|
450
|
|
|
Mar - 25
|
US dollar to Euro:
|
|
|
|
|
|
Fixed receiving notional
|
$
|
1,100
|
|
|
$
|
1,100
|
|
|
Jul - 27
|
Fixed paying notional
|
€
|
976
|
|
|
€
|
976
|
|
|
Jul - 27
|
US dollar to Japanese yen:
|
|
|
|
|
|
Fixed receiving notional
|
$
|
100
|
|
|
$
|
100
|
|
|
Feb - 23
|
Fixed paying notional
|
¥
|
10,978
|
|
|
¥
|
10,978
|
|
|
Feb - 23
|
At September 30, 2021 and December 31, 2020, the following amounts were recorded in the Condensed Consolidated Balance Sheets as being payable to or receivable from counterparties under ASC Topic 815:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Assets
|
|
Liabilities
|
Derivatives designated as hedging instruments Under 815:
|
|
Location
|
|
September 30, 2021
|
|
December 31, 2020
|
|
Location
|
|
September 30, 2021
|
|
December 31, 2020
|
Foreign currency
|
|
Prepayments and other current assets
|
|
$
|
5
|
|
|
$
|
1
|
|
|
Other current liabilities
|
|
$
|
8
|
|
|
$
|
4
|
|
Foreign currency
|
|
Other non-current assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other non-current liabilities
|
|
$
|
1
|
|
|
$
|
1
|
|
Net investment hedges
|
|
Other non-current assets
|
|
$
|
6
|
|
|
$
|
—
|
|
|
Other non-current liabilities
|
|
$
|
77
|
|
|
$
|
161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
|
|
Prepayments and other current assets
|
|
$
|
8
|
|
|
$
|
4
|
|
|
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 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 be recognized in income using a systematic and rational method over the life of the hedging instrument. Any difference between the change in fair value of the excluded component and amounts recognized in income under that systematic and rational method will be recognized in AOCI.
Effectiveness for net investment hedges is assessed at the inception of the hedging relationship and quarterly, thereafter. Gains and losses arising from these contracts that are included in the assessment of effectiveness are deferred into foreign currency translation adjustments and only released when the subsidiary being hedged is sold or substantially liquidated. The initial value of any component excluded from the assessment of effectiveness will be recognized in income using a systematic and rational method over the life of the hedging instrument. Any difference between the change in fair value of the
excluded component and amounts recognized in income under that systematic and rational method will be recognized in AOCI.
During the nine months ended September 30, 2021, the Company repaid its €500 million 1.800% senior notes due November 2022, which was designated as a net investment hedge resulting in a deferred loss of $50 million that will remain in accumulated other comprehensive loss until the net investment is sold, completely liquidated or substantially liquidated. The Company has designated the €1.0 billion in 1.000% senior notes due May 2031, issued in May 2021, as a net investment hedge of the Company’s investment in its European subsidiaries.
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, 2021 market rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Deferred gain (loss) in AOCI at
|
|
Gain (loss) expected to be reclassified to income in one year or less
|
Contract Type
|
|
September 30, 2021
|
|
December 31, 2020
|
|
Net investment hedges:
|
|
|
|
|
|
|
Foreign currency
|
|
$
|
(7)
|
|
|
$
|
(1)
|
|
|
$
|
—
|
|
Cross-currency swaps
|
|
(71)
|
|
|
(161)
|
|
|
—
|
|
Foreign currency-denominated debt
|
|
46
|
|
|
(68)
|
|
|
—
|
|
Total
|
|
$
|
(32)
|
|
|
$
|
(230)
|
|
|
$
|
—
|
|
Derivative instruments designated as hedging instruments as defined by ASC Topic 815 held during the period resulted in the following gains and losses recorded in income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
(in millions)
|
|
Net sales
|
|
Cost of sales
|
|
Selling, general and administrative expenses
|
|
Other comprehensive income (loss)
|
Total amounts of earnings and other comprehensive income(loss) line items in which the effects of cash flow hedges are recorded
|
|
$
|
2,534
|
|
|
$
|
2,017
|
|
|
$
|
204
|
|
|
$
|
57
|
|
Gain (loss) on cash flow hedging relationships:
|
|
|
|
|
|
|
|
|
Foreign currency:
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in other comprehensive income
|
|
|
|
|
|
|
|
$
|
1
|
|
Gain (loss) reclassified from AOCI to income
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
(in millions)
|
|
Net sales
|
|
Cost of sales
|
|
Selling, general and administrative expenses
|
|
Other comprehensive income (loss)
|
Total amounts of earnings and other comprehensive income(loss) line items in which the effects of cash flow hedges are recorded
|
|
$
|
6,239
|
|
|
$
|
5,101
|
|
|
$
|
601
|
|
|
$
|
(3)
|
|
Gain (loss) on cash flow hedging relationships:
|
|
|
|
|
|
|
|
|
Foreign currency:
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in other comprehensive income
|
|
|
|
|
|
|
|
$
|
(1)
|
|
Gain (loss) reclassified from AOCI to income
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) on derivative instruments designated as net investment hedges were recognized in other comprehensive income (loss) during the periods presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
Net investment hedges
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Foreign currency
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(6)
|
|
|
$
|
1
|
|
Cross-currency swaps
|
|
$
|
43
|
|
|
$
|
(89)
|
|
|
$
|
90
|
|
|
$
|
(71)
|
|
Foreign currency-denominated debt
|
|
$
|
27
|
|
|
$
|
(24)
|
|
|
$
|
64
|
|
|
$
|
(26)
|
|
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)
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
Net investment hedges
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
$
|
6
|
|
|
$
|
6
|
|
|
$
|
16
|
|
|
$
|
13
|
|
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' functional currency. These derivatives resulted in the following gains recorded in income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
Contract Type
|
|
Location
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Foreign Currency
|
|
Selling, general and administrative expenses
|
|
|
$
|
6
|
|
|
$
|
(1)
|
|
|
$
|
11
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 18 RETIREMENT BENEFIT PLANS
The Company has a number of defined benefit pension plans and other postretirement benefit plans covering eligible salaried and hourly employees and their dependents. The estimated contributions to the Company's defined benefit pension plans for 2021 range from $15 million to $25 million, of which $15 million has been contributed through the first nine months of the year. The other postretirement 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) cost recorded in the Condensed Consolidated Statements of Operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
Other postretirement
employee benefits
|
(in millions)
|
|
2021
|
|
2020
|
|
Three Months Ended September 30,
|
|
US
|
|
Non-US
|
|
US
|
|
Non-US
|
|
2021
|
|
2020
|
Service cost
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
|
1
|
|
|
8
|
|
|
1
|
|
|
2
|
|
|
—
|
|
|
—
|
|
Expected return on plan assets
|
|
(2)
|
|
|
(20)
|
|
|
(2)
|
|
|
(6)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized prior service credit
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
|
(1)
|
|
Amortization of unrecognized loss
|
|
2
|
|
|
3
|
|
|
1
|
|
|
3
|
|
|
—
|
|
|
1
|
|
Net periodic benefit (income) cost
|
|
$
|
—
|
|
|
$
|
(3)
|
|
|
$
|
(1)
|
|
|
$
|
4
|
|
|
$
|
(1)
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
Other postretirement
employee benefits
|
(in millions)
|
|
2021
|
|
2020
|
|
Nine Months Ended September 30,
|
|
US
|
|
Non-US
|
|
US
|
|
Non-US
|
|
2021
|
|
2020
|
Service cost
|
|
$
|
—
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
|
2
|
|
|
23
|
|
|
4
|
|
|
7
|
|
|
—
|
|
|
1
|
|
Expected return on plan assets
|
|
(7)
|
|
|
(62)
|
|
|
(7)
|
|
|
(18)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized prior service credit
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
|
—
|
|
|
(2)
|
|
|
(2)
|
|
Amortization of unrecognized loss
|
|
3
|
|
|
10
|
|
|
2
|
|
|
8
|
|
|
1
|
|
|
1
|
|
Net periodic benefit (income) cost
|
|
$
|
(3)
|
|
|
$
|
(10)
|
|
|
$
|
(2)
|
|
|
$
|
12
|
|
|
$
|
(1)
|
|
|
$
|
—
|
|
The components of net periodic benefit (income) cost other than the service cost component are included in Other postretirement income in the Condensed Consolidated Statements of Operations.
NOTE 19 STOCKHOLDERS' EQUITY
The changes of the Stockholders’ Equity items during the three and nine months ended September 30, 2021 and 2020, 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, 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 loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(73)
|
|
|
(6)
|
|
Balance, September 30, 2021
|
$
|
3
|
|
|
$
|
2,617
|
|
|
$
|
(1,810)
|
|
|
$
|
6,582
|
|
|
$
|
(746)
|
|
|
$
|
374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2020
|
$
|
3
|
|
|
$
|
1,115
|
|
|
$
|
(1,623)
|
|
|
$
|
5,903
|
|
|
$
|
(787)
|
|
|
$
|
152
|
|
Dividends declared ($0.17 per share*)
|
—
|
|
|
—
|
|
|
—
|
|
|
(35)
|
|
|
—
|
|
|
(15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net issuance for executive stock plan
|
—
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net issuance of restricted stock
|
—
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
111
|
|
|
—
|
|
|
18
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
57
|
|
|
6
|
|
Balance, September 30, 2020
|
$
|
3
|
|
|
$
|
1,128
|
|
|
$
|
(1,623)
|
|
|
$
|
5,979
|
|
|
$
|
(730)
|
|
|
$
|
161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BorgWarner Inc. stockholders' equity
|
|
|
(in millions)
|
Issued common stock
|
|
Capital in excess of par value
|
|
Treasury stock
|
|
Retained earnings
|
|
Accumulated other comprehensive income (loss)
|
|
Noncontrolling interests
|
Balance, December 31, 2020
|
$
|
3
|
|
|
$
|
2,614
|
|
|
$
|
(1,834)
|
|
|
$
|
6,296
|
|
|
$
|
(651)
|
|
|
$
|
296
|
|
Dividends declared ($0.51 per share*)
|
—
|
|
|
—
|
|
|
—
|
|
|
(122)
|
|
|
—
|
|
|
(51)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net issuance for executive stock plan
|
—
|
|
|
7
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net issuance of restricted stock
|
—
|
|
|
(4)
|
|
|
21
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of AKASOL
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
96
|
|
Purchase of noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(33)
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
408
|
|
|
—
|
|
|
77
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(95)
|
|
|
(11)
|
|
Balance, September 30, 2021
|
$
|
3
|
|
|
$
|
2,617
|
|
|
$
|
(1,810)
|
|
|
$
|
6,582
|
|
|
$
|
(746)
|
|
|
$
|
374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BorgWarner Inc. stockholders' equity
|
|
|
(in millions)
|
Issued common stock
|
|
Capital in excess of par value
|
|
Treasury stock
|
|
Retained earnings
|
|
Accumulated other comprehensive income (loss)
|
|
Noncontrolling interests
|
Balance, December 31, 2019
|
$
|
3
|
|
|
$
|
1,145
|
|
|
$
|
(1,657)
|
|
|
$
|
5,942
|
|
|
$
|
(727)
|
|
|
$
|
138
|
|
Dividends declared ($0.51 per share*)
|
—
|
|
|
—
|
|
|
—
|
|
|
(105)
|
|
|
—
|
|
|
(20)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net issuance for executive stock plan
|
—
|
|
|
(11)
|
|
|
12
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net issuance of restricted stock
|
—
|
|
|
(6)
|
|
|
22
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
142
|
|
|
—
|
|
|
40
|
|
Other comprehensive (loss) income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3)
|
|
|
3
|
|
Balance, September 30, 2020
|
$
|
3
|
|
|
$
|
1,128
|
|
|
$
|
(1,623)
|
|
|
$
|
5,979
|
|
|
$
|
(730)
|
|
|
$
|
161
|
|
__________________________________
* The dividends declared relate to BorgWarner common stock.
NOTE 20 ACCUMULATED OTHER COMPREHENSIVE LOSS
The following tables summarize the activity within accumulated other comprehensive loss during the three and nine months ended September 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Foreign currency translation adjustments
|
|
Hedge instruments
|
|
Defined benefit retirement plans
|
|
|
|
Total
|
Beginning balance, June 30, 2021
|
$
|
(351)
|
|
|
$
|
(2)
|
|
|
$
|
(320)
|
|
|
|
|
$
|
(673)
|
|
Comprehensive (loss) income before reclassifications
|
(55)
|
|
|
(2)
|
|
|
8
|
|
|
|
|
(49)
|
|
Income taxes associated with comprehensive (loss) income before reclassifications
|
(26)
|
|
|
—
|
|
|
(1)
|
|
|
|
|
(27)
|
|
Reclassification from accumulated other comprehensive loss
|
—
|
|
|
1
|
|
|
2
|
|
|
|
|
3
|
|
Income taxes reclassified into net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
Ending balance, September 30, 2021
|
$
|
(432)
|
|
|
$
|
(3)
|
|
|
$
|
(311)
|
|
|
|
|
$
|
(746)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Foreign currency translation adjustments
|
|
Hedge instruments
|
|
Defined benefit retirement plans
|
|
|
|
Total
|
Beginning balance, June 30, 2020
|
$
|
(557)
|
|
|
$
|
(1)
|
|
|
$
|
(229)
|
|
|
|
|
$
|
(787)
|
|
Comprehensive (loss) income before reclassifications
|
25
|
|
|
1
|
|
|
7
|
|
|
|
|
33
|
|
Income taxes associated with comprehensive (loss) income before reclassifications
|
24
|
|
|
—
|
|
|
2
|
|
|
|
|
26
|
|
Reclassification from accumulated other comprehensive loss
|
—
|
|
|
—
|
|
|
(3)
|
|
|
|
|
(3)
|
|
Income taxes reclassified into net earnings
|
—
|
|
|
—
|
|
|
1
|
|
|
|
|
1
|
|
Ending balance, September 30, 2020
|
$
|
(508)
|
|
|
$
|
—
|
|
|
$
|
(222)
|
|
|
|
|
$
|
(730)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Foreign currency translation adjustments
|
|
Hedge instruments
|
|
Defined benefit retirement plans
|
|
|
|
Total
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Foreign currency translation adjustments
|
|
Hedge instruments
|
|
Defined benefit retirement plans
|
|
|
|
Total
|
Balance, December 31, 2019
|
$
|
(497)
|
|
|
$
|
—
|
|
|
$
|
(230)
|
|
|
|
|
$
|
(727)
|
|
Comprehensive (loss) income before reclassifications
|
(31)
|
|
|
(1)
|
|
|
13
|
|
|
|
|
(19)
|
|
Income taxes associated with comprehensive (loss) income before reclassifications
|
20
|
|
|
—
|
|
|
1
|
|
|
|
|
21
|
|
Reclassification from accumulated other comprehensive loss
|
—
|
|
|
1
|
|
|
(8)
|
|
|
|
|
(7)
|
|
Income taxes reclassified into net earnings
|
—
|
|
|
—
|
|
|
2
|
|
|
|
|
2
|
|
Ending balance, September 30, 2020
|
$
|
(508)
|
|
|
$
|
—
|
|
|
$
|
(222)
|
|
|
|
|
$
|
(730)
|
|
NOTE 21 CONTINGENCIES
In the normal course of business, the Company is party to various commercial and legal claims, actions and complaints, including matters involving warranty claims, intellectual property claims, general liability and other risks. It is not possible to predict with certainty whether or not the Company will ultimately be successful in any of these commercial and legal matters or, if not, what the impact might be. The Company’s management does not expect that an adverse outcome in any of these commercial and legal claims, actions and complaints that are currently pending will have a material adverse effect on the Company’s results of operations, financial position or cash flows. An adverse outcome could nonetheless be material to the results of operations or cash flows.
There is a warranty claim that an OEM customer has asserted for which the Company has recorded an accrual of $10 million representing its best estimate of probable loss at September 30, 2021. However, the Company is working through the warranty claim process with the customer, and much remains uncertain regarding the Company’s liability for the claim. Facts may become known that may result in additional losses relating to this matter that could be material to the Company’s 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 presently be liable for the cost of clean-up and other remedial activities at 26 such sites as of September 30, 2021 and December 31, 2020. 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 $6 million and $7 million as of September 30, 2021 and December 31, 2020, respectively, included in Other current and Other non-current liabilities in the Condensed Consolidated Balance Sheets. This accrual is based on information available to the Company (which, in most cases, includes an estimate of allocation of liability among PRPs; the probability that other PRPs, many of whom are large, solvent public companies, will fully pay the cost apportioned to them; currently available information from PRPs and/or federal or state environmental agencies concerning the scope of contamination and estimated remediation and consulting costs; and remediation alternatives).
NOTE 22 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 647,057 and 113,532 performance share units excluded from the computation of the diluted earnings for the three months ended September 30, 2021 and 2020, respectively. There were 783,799 and 113,532 performance share units excluded from the computation of the diluted earnings per share for the nine months ended September 30, 2021 and 2020, respectively. These units were excluded, because the related performance criteria had not been met as of the balance sheet date.
The following table reconciles the numerators and denominators used to calculate basic and diluted earnings per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in millions, except per share amounts)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Basic earnings per share:
|
|
|
|
|
|
|
|
Net earnings attributable to BorgWarner Inc.
|
$
|
96
|
|
|
$
|
111
|
|
|
$
|
408
|
|
|
$
|
142
|
|
Weighted average shares of common stock outstanding
|
238.2
|
|
|
206.0
|
|
|
238.0
|
|
|
205.9
|
|
Basic earnings per share of common stock
|
$
|
0.40
|
|
|
$
|
0.54
|
|
|
$
|
1.71
|
|
|
$
|
0.69
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
Net earnings attributable to BorgWarner Inc.
|
$
|
96
|
|
|
$
|
111
|
|
|
$
|
408
|
|
|
$
|
142
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
238.2
|
|
|
206.0
|
|
|
238.0
|
|
|
205.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of stock-based compensation
|
1.6
|
|
|
1.3
|
|
|
1.3
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding including dilutive shares
|
239.8
|
|
|
207.3
|
|
|
239.3
|
|
|
206.7
|
|
Diluted earnings per share of common stock
|
$
|
0.40
|
|
|
$
|
0.53
|
|
|
$
|
1.70
|
|
|
$
|
0.69
|
|
|
|
|
|
|
|
|
|
Anti-dilutive stock-based awards excluded from the calculation of diluted earnings per share:
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
NOTE 23 REPORTING SEGMENTS AND RELATED INFORMATION
The Company’s business is comprised of four reporting segments: Air Management, e-Propulsion & Drivetrain, Fuel Injection and Aftermarket. These segments are strategic business groups that are managed separately as each represents a specific grouping of related automotive components and systems.
The Company allocates resources to each segment based upon the projected after-tax return on invested capital (“ROIC”) of its business initiatives. ROIC is comprised of Segment Adjusted EBIT after deducting notional taxes compared to the projected average capital investment required. Segment Adjusted EBIT is comprised of earnings before interest, income taxes and noncontrolling interest (“EBIT”) adjusted for restructuring, merger, acquisition and divestiture expense, impairment charges, affiliates’ earnings and other items not reflective of ongoing operating income or loss.
Segment Adjusted EBIT is the measure of segment income or loss used by the Company. The Company believes Segment Adjusted EBIT is most reflective of the operational profitability or loss of our reporting
segments. The following tables show segment information and Segment Adjusted EBIT for the Company’s reporting segments:
Net Sales by Reporting Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Air Management
|
$
|
1,671
|
|
|
$
|
1,476
|
|
|
$
|
5,536
|
|
|
$
|
3,736
|
|
e-Propulsion & Drivetrain
|
1,223
|
|
|
1,075
|
|
|
4,026
|
|
|
2,542
|
|
Fuel Injection
|
420
|
|
|
—
|
|
|
1,375
|
|
|
—
|
|
Aftermarket
|
227
|
|
|
—
|
|
|
650
|
|
|
—
|
|
Inter-segment eliminations
|
(125)
|
|
|
(17)
|
|
|
(404)
|
|
|
(39)
|
|
Net sales
|
$
|
3,416
|
|
|
$
|
2,534
|
|
|
$
|
11,183
|
|
|
$
|
6,239
|
|
Segment Adjusted EBIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Air Management
|
$
|
214
|
|
|
$
|
225
|
|
|
$
|
813
|
|
|
$
|
461
|
|
e-Propulsion & Drivetrain
|
85
|
|
|
131
|
|
|
354
|
|
|
195
|
|
Fuel Injection
|
37
|
|
|
—
|
|
|
108
|
|
|
—
|
|
Aftermarket
|
29
|
|
|
—
|
|
|
82
|
|
|
—
|
|
Segment Adjusted EBIT
|
365
|
|
|
356
|
|
|
1,357
|
|
|
656
|
|
Corporate, including stock-based compensation
|
54
|
|
|
39
|
|
|
201
|
|
|
114
|
|
Restructuring expense
|
51
|
|
|
20
|
|
|
143
|
|
|
72
|
|
|
|
|
|
|
|
|
|
Merger, acquisition and divestiture expense
|
8
|
|
|
16
|
|
|
36
|
|
|
58
|
|
Loss on sale
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
Asset impairments
|
—
|
|
|
—
|
|
|
—
|
|
|
17
|
|
Net gain on insurance recovery for property damage
|
(1)
|
|
|
(3)
|
|
|
(3)
|
|
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in affiliates’ earnings, net of tax
|
(12)
|
|
|
(3)
|
|
|
(40)
|
|
|
(10)
|
|
Unrealized loss on equity securities
|
61
|
|
|
—
|
|
|
337
|
|
|
9
|
|
Interest income
|
(3)
|
|
|
(3)
|
|
|
(9)
|
|
|
(8)
|
|
Interest expense
|
21
|
|
|
20
|
|
|
84
|
|
|
50
|
|
Other postretirement income
|
(10)
|
|
|
(2)
|
|
|
(33)
|
|
|
(5)
|
|
Earnings before income taxes and noncontrolling interest
|
196
|
|
|
272
|
|
|
634
|
|
|
368
|
|
Provision for income taxes
|
79
|
|
|
143
|
|
|
149
|
|
|
186
|
|
Net earnings
|
117
|
|
|
129
|
|
|
$
|
485
|
|
|
$
|
182
|
|
Net earnings attributable to noncontrolling interest, net of tax
|
21
|
|
|
18
|
|
|
77
|
|
|
40
|
|
Net earnings attributable to BorgWarner Inc.
|
$
|
96
|
|
|
$
|
111
|
|
|
$
|
408
|
|
|
$
|
142
|
|
NOTE 24 OPERATING CASH FLOWS AND OTHER SUPPLEMENTAL FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
(in millions)
|
2021
|
|
2020
|
OPERATING
|
|
|
|
Net earnings
|
$
|
485
|
|
|
$
|
182
|
|
Adjustments to reconcile net earnings to net cash flows from operations:
|
|
|
|
Depreciation and amortization
|
585
|
|
|
339
|
|
Restructuring expense, net of cash paid
|
118
|
|
|
49
|
|
Stock-based compensation expense
|
42
|
|
|
29
|
|
Loss on sale
|
7
|
|
|
—
|
|
Loss on debt extinguishment
|
20
|
|
|
—
|
|
Asset impairments
|
—
|
|
|
17
|
|
Deferred income tax (benefit) provision
|
(101)
|
|
|
56
|
|
Unrealized loss on equity securities
|
337
|
|
|
9
|
|
Gain on insurance recovery received for property damages
|
(5)
|
|
|
(9)
|
|
Other non-cash adjustments
|
(18)
|
|
|
(1)
|
|
Net earnings adjustments to reconcile to net cash flows from operations
|
1,470
|
|
|
671
|
|
Retirement plan contributions
|
(15)
|
|
|
(15)
|
|
Changes in assets and liabilities, excluding effects of acquisitions, divestitures and foreign currency translation adjustments:
|
|
|
|
Receivables
|
(45)
|
|
|
(25)
|
|
Inventories
|
(382)
|
|
|
3
|
|
Prepayments and other current assets
|
(7)
|
|
|
(4)
|
|
Accounts payable and accrued expenses
|
(231)
|
|
|
153
|
|
Prepaid taxes and income taxes payable
|
21
|
|
|
(2)
|
|
Other assets and liabilities
|
(47)
|
|
|
27
|
|
Net cash provided by operating activities
|
$
|
764
|
|
|
$
|
808
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
Cash paid during the period for:
|
|
|
|
Interest, net
|
$
|
93
|
|
|
$
|
53
|
|
Income taxes, net of refunds
|
$
|
271
|
|
|
$
|
110
|
|
|
|
|
|
|
Balance as of:
|
Non-cash investing transactions:
|
September 30,
2021
|
|
December 31,
2020
|
Period end accounts payable related to property, plant and equipment purchases
|
$
|
105
|
|
|
$
|
182
|
|