Electrifying Our Future
2021 Stockholders letter
and annual report
on Form 10-K
Charging
Forward
1
The year 2021
was one of
significant
transformation.
FRÉDÉRIC B. LISSALDE
President and Chief Executive Officer
ORGANIC EV
EV FOCUSED
OPTIMIZE
GROWTH
M&A
COMBUSTION
PORTFOLIO
Dear Fellow Stockholders,
As I reflect on the past year, it
is clear 2021 was an important
time for BorgWarner.
Through the dedication and
perseverance of our team,
we were able to succeed on
many fronts despite facing
significant adversity impacting
our end markets. The resilience
of our team is simply amazing.
While the pandemic has tested
everyone over the past two
years, I am immensely proud
of everything we were able
to achieve during 2021. In
short, it was a challenging
yet very productive year. We
completed the integration
of our largest acquisition
to date and dramatically
accelerated the company’s
charge forward towards
electrification. While much
was accomplished, as we look
to the future, we have many
exciting opportunities ahead.
our vision of a clean and
energy-efficient world – we are
also committed to achieving
carbon neutrality by 2035.
Charging Forward
The year 2021 was one of
significant transformation.
Most importantly, in March,
we unveiled Project Charging
Forward – the acceleration of
our electrification strategy,
which is expected to bring
the company’s electric vehicle
(EV) revenue to approximately
45% in 2030 from less than
3% in 2021. We’ve been
building toward capitalizing
on this opportunity for years
and are confident we have
the scale, portfolio, financial
strength and team to execute
successfully. As part of that
strategy – and aligned with
The Charging Forward Plan
Comprises Three Pillars:
We strive to deliver profitable
growth in EVs. We are working
to achieve this through the
addition of Delphi Technologies
and our ability to capture
synergies. The Integrated Drive
Module (iDM), which combines
our inverter, motor and gearbox,
is a perfect example. We are
pursuing EV-focused mergers
and acquisitions. We are
focused on opportunities to
gain scale, to improve diversity
in technology, customers and
geography, and to vertically
integrate our EV portfolio.
2021 STOCKHOLDERS LETTER AND ANNUAL REPORT ON FORM 10–K11 1
FRÉDÉRIC B. LISSALDE
President and Chief Executive Officer
ORGANIC EV
GROWTH
EV FOCUSED
M&A
OPTIMIZE
COMBUSTION
PORTFOLIO
The year 2021
was one of
significant
transformation.
Dear Fellow Stockholders,
electrification. While much
our vision of a clean and
was accomplished, as we look
energy-efficient world – we are
As I reflect on the past year, it
to the future, we have many
also committed to achieving
is clear 2021 was an important
exciting opportunities ahead.
carbon neutrality by 2035.
time for BorgWarner.
Through the dedication and
Charging Forward
perseverance of our team,
we were able to succeed on
The year 2021 was one of
The Charging Forward Plan
Comprises Three Pillars:
many fronts despite facing
significant transformation.
We strive to deliver profitable
significant adversity impacting
Most importantly, in March,
growth in EVs. We are working
our end markets. The resilience
we unveiled Project Charging
to achieve this through the
of our team is simply amazing.
Forward – the acceleration of
addition of Delphi Technologies
our electrification strategy,
and our ability to capture
While the pandemic has tested
which is expected to bring
synergies. The Integrated Drive
everyone over the past two
the company’s electric vehicle
Module (iDM), which combines
years, I am immensely proud
(EV) revenue to approximately
our inverter, motor and gearbox,
of everything we were able
45% in 2030 from less than
is a perfect example. We are
to achieve during 2021. In
3% in 2021. We’ve been
pursuing EV-focused mergers
short, it was a challenging
building toward capitalizing
and acquisitions. We are
yet very productive year. We
on this opportunity for years
focused on opportunities to
completed the integration
and are confident we have
gain scale, to improve diversity
of our largest acquisition
to date and dramatically
the scale, portfolio, financial
in technology, customers and
strength and team to execute
geography, and to vertically
accelerated the company’s
successfully. As part of that
integrate our EV portfolio.
charge forward towards
strategy – and aligned with
2021 STOCKHOLDERS LETTER AND ANNUAL REPORT ON FORM 10–K11 2
3
We plan to optimize our
combustion portfolio and reduce
our exposure by disposing of
parts of the portfolio that are
lower growth, lower margin
or lack product leadership.
The sale of our Water Valley,
Mississippi facility to Atar Capital
is an excellent example of this
process, and we plan to deliver
further progress in 2022.
We expect to execute this
strategy while sustaining top-
quartile, double-digit margin
performance and generating
approximately $4.5 billion
in free cash flow between
2021 and 2025 (before the
impact of dispositions). We
believe we can fund our
growth in EVs primarily from
the free cash flow generated
by our existing operations.
Growth Through Acquisitions
As we have stated,
acquisitions will play an
important role in our future.
We entered 2021 having just
successfully completed the
largest acquisition in the
company’s history, but we
still had a lot of work left to
do to fully integrate Delphi
Technologies. Today, that
integration is essentially
complete, with our teams
operating effectively as one
company, cost synergies
tracking ahead of plan, and,
most importantly, positive
feedback from our customers!
Our combined companies
have significant potential to
accelerate new business wins. For
instance, we were able to secure
a program with the Hyundai
Group for an iDM program on
its upcoming global A-segment
EVs, with an expected launch in
mid-2023. This is a significant
program for the company –
our first iDM award combining
BorgWarner’s and legacy Delphi
Technologies’ portfolios. It is a
validation of the potential we saw
in bringing our two companies
together. I want to acknowledge
the team’s intense efforts to win
this award just a few months after
we completed the acquisition.
The combination of Delphi
Technologies’ technology with
BorgWarner’s customer intimacy,
operational excellence and strong
balance sheet is a testament to
why we won this business award
and bodes well for the future!
$14.8B
Adjusted Earnings
Performance
Per Diluted Share*
$10.2B
$10.2B
$10.5B
$9.8B
2017 2018 2019 2020 2021
Sales
In Billions
Our combined
companies have
significant potential
to accelerate new
business wins.
Building upon this
from leading OEMS. We have
double-digit, adjusted operating
accomplishment, we planned
welcomed the AKASOL team
margin performance despite the
and executed the acquisition
to BorgWarner and look
significant production volatility
of AKASOL AG (AKASOL)
forward to our first full year
that disrupted the industry
during the year, significantly
with them as part of the team.
during 2021. We achieved this
expanding our commercial
vehicle electrification
capabilities. AKASOL designs
Recording Our Success
while continuing to increase
our R&D spending to support
future growth and delivering a
and manufactures customizable
We are proud of our strong
solid cash flow performance.
battery packs for use in
top-line performance in 2021,
buses, commercial vehicles,
especially when compared
During 2021, we were awarded a
rail vehicles and industrial
to the industry declines. We
number of significant EV awards,
vehicles, as well as in marine
produced approximately
and I’d like to highlight some of
applications. As a leader in the
$14.8B in sales, which is an
the most interesting projects.
space, AKASOL had been on
approximately 12%* increase
our radar for a long time as a
organically, outperforming
We earned an award for a
potential partner. AKASOL’s
all major regional markets,
North American high-voltage
proprietary system technology
which increased only 2%
silicon inverter program with
is cell agnostic, providing a
on combined basis.
low cost, flexible solution to
a global OEM, expected to
launch in 2024 – our largest
world-class customers, with a
It is because of our strong team
inverter award to date in terms
strong order backlog primarily
that we were able to produce
of expected annual revenue and
*Adjusted earnings performance per diluted share and organic sales are non-US-GAAP measures. See reconciliation at the end of stockholders letter.
2021 STOCKHOLDERS LETTER AND ANNUAL REPORT ON FORM 10–K 2
3
We plan to optimize our
Growth Through Acquisitions
a program with the Hyundai
combustion portfolio and reduce
our exposure by disposing of
As we have stated,
parts of the portfolio that are
acquisitions will play an
Group for an iDM program on
its upcoming global A-segment
EVs, with an expected launch in
lower growth, lower margin
important role in our future.
mid-2023. This is a significant
or lack product leadership.
We entered 2021 having just
program for the company –
The sale of our Water Valley,
successfully completed the
our first iDM award combining
Mississippi facility to Atar Capital
largest acquisition in the
BorgWarner’s and legacy Delphi
is an excellent example of this
company’s history, but we
Technologies’ portfolios. It is a
process, and we plan to deliver
still had a lot of work left to
validation of the potential we saw
further progress in 2022.
do to fully integrate Delphi
in bringing our two companies
Technologies. Today, that
together. I want to acknowledge
We expect to execute this
integration is essentially
the team’s intense efforts to win
strategy while sustaining top-
complete, with our teams
this award just a few months after
quartile, double-digit margin
operating effectively as one
we completed the acquisition.
performance and generating
company, cost synergies
The combination of Delphi
approximately $4.5 billion
in free cash flow between
tracking ahead of plan, and,
Technologies’ technology with
most importantly, positive
BorgWarner’s customer intimacy,
2021 and 2025 (before the
feedback from our customers!
operational excellence and strong
impact of dispositions). We
balance sheet is a testament to
believe we can fund our
Our combined companies
why we won this business award
growth in EVs primarily from
have significant potential to
and bodes well for the future!
the free cash flow generated
accelerate new business wins. For
by our existing operations.
instance, we were able to secure
$14.8B
Adjusted Earnings
Performance
Per Diluted Share*
$10.2B
$10.2B
$10.5B
$9.8B
Sales
In Billions
2017 2018 2019 2020 2021
Our combined
companies have
significant potential
to accelerate new
business wins.
Building upon this
accomplishment, we planned
and executed the acquisition
of AKASOL AG (AKASOL)
during the year, significantly
expanding our commercial
vehicle electrification
capabilities. AKASOL designs
and manufactures customizable
battery packs for use in
buses, commercial vehicles,
rail vehicles and industrial
vehicles, as well as in marine
applications. As a leader in the
space, AKASOL had been on
our radar for a long time as a
potential partner. AKASOL’s
proprietary system technology
is cell agnostic, providing a
low cost, flexible solution to
world-class customers, with a
strong order backlog primarily
from leading OEMS. We have
welcomed the AKASOL team
to BorgWarner and look
forward to our first full year
with them as part of the team.
Recording Our Success
We are proud of our strong
top-line performance in 2021,
especially when compared
to the industry declines. We
produced approximately
$14.8B in sales, which is an
approximately 12%* increase
organically, outperforming
all major regional markets,
which increased only 2%
on combined basis.
It is because of our strong team
that we were able to produce
double-digit, adjusted operating
margin performance despite the
significant production volatility
that disrupted the industry
during 2021. We achieved this
while continuing to increase
our R&D spending to support
future growth and delivering a
solid cash flow performance.
During 2021, we were awarded a
number of significant EV awards,
and I’d like to highlight some of
the most interesting projects.
We earned an award for a
North American high-voltage
silicon inverter program with
a global OEM, expected to
launch in 2024 – our largest
inverter award to date in terms
of expected annual revenue and
*Adjusted earnings performance per diluted share and organic sales are non-US-GAAP measures. See reconciliation at the end of stockholders letter.
2021 STOCKHOLDERS LETTER AND ANNUAL REPORT ON FORM 10–K 4
5
Significant awards
across electrification
product portfolio
Geely ZEEKR 001 HV
Coolant Heater
Hyundai iDM
Chinese Luxury NEV
400V iDM
N.A. Global OEM
HV SiC Inverter
Global CV Customer
800V Inverter
GILLIG Third Generation
Battery System
Chinese Luxury NEV
800V iDM
European OEM
800V Inverter
European OEM
400V Inverter
European OEM 800V
SiC Inverter
BMW
HV Coolant Heater
our first major silicon-carbide-
based (SiC) inverter win for
the North American market.
We received an 800-volt
electric motor award with
a large global commercial
vehicle (CV) EV customer,
expected to launch in 2024.
This multi-faceted platform will
support the manufacturer’s
goal of a common electric
drivetrain. These products are
available in multiple variants
to serve our expanding
commercial vehicle EV market
and will allow customers to
significantly reduce charging
time while achieving a
higher power density.
We were awarded an 800-
volt SiC inverter project with
a German OEM, expected to
launch in early 2025, which
expands upon our existing
400-volt inverter business with
that customer. Our inverter
offers superior operational
characteristics such as
enhanced driving performance
and longer range. Our
technology delivers a lighter
and smaller system at lower
cost with greater durability.
We received multiple iDM
awards during 2021, including
with Hyundai for its upcoming
global A-segment EV
production, planned to start
in mid-2023, as well as an iDM
with a leading luxury new-
energy vehicle maker in China.
We were recently awarded a
third generation battery system
with GILLIG, a leading North
American bus manufacturer.
Developed for long-distance
applications, the product can
be scaled for customers’ needs
and aligns with transit agencies
who are converting their fleets
to zero-emissions, with greater
range to meet duty cycles.
This project will be produced
in our Hazel Park, Michigan
facility, which we expect will
have production capacity of
2 GWh by the end of 2023.
Investing in a
Sustainable Future
Together, the BorgWarner
team embraces our vision of a
clean, energy-efficient world.
Our people are making our
mission – “to deliver innovative
and sustainable mobility
solutions for the vehicle
market” – a reality through
their efforts every single day.
There are numerous examples
we’ve made this past year
to back up this statement:
Uses Of Cash In Millions of Dollars
$6 $41
$142
$560
$150
$107
$189
$124
$100
2017
$451
$146
$216
2020
$546
$481
$141
$172
$63
$140
$100
2019
Net Debt Repayment
Derecognition of
Asbestos-Related Subsidiary
M&A Activity
Dividends
Share Repurchases
Capital Expenditures
$441
$666
2018
$812
$162
2021
2021 STOCKHOLDERS LETTER AND ANNUAL REPORT ON FORM 10–K 4
5
Significant awards
across electrification
product portfolio
Geely ZEEKR 001 HV
Coolant Heater
Hyundai iDM
Chinese Luxury NEV
400V iDM
N.A. Global OEM
HV SiC Inverter
Global CV Customer
800V Inverter
GILLIG Third Generation
Battery System
Chinese Luxury NEV
800V iDM
European OEM
800V Inverter
European OEM
400V Inverter
European OEM 800V
SiC Inverter
BMW
HV Coolant Heater
Uses Of Cash In Millions of Dollars
$107
$189
$124
$100
2017
$451
$6 $41
$142
$560
$150
$546
$172
$63
$140
$141
$481
2018
$812
$441
$666
$100
2019
Net Debt Repayment
Derecognition of
Asbestos-Related Subsidiary
M&A Activity
Dividends
Share Repurchases
Capital Expenditures
We were awarded an 800-
American bus manufacturer.
There are numerous examples
volt SiC inverter project with
Developed for long-distance
we’ve made this past year
a German OEM, expected to
applications, the product can
to back up this statement:
$146
launch in early 2025, which
be scaled for customers’ needs
expands upon our existing
and aligns with transit agencies
400-volt inverter business with
who are converting their fleets
$216
2020
$162
2021
our first major silicon-carbide-
that customer. Our inverter
to zero-emissions, with greater
based (SiC) inverter win for
offers superior operational
range to meet duty cycles.
the North American market.
characteristics such as
This project will be produced
We received an 800-volt
electric motor award with
a large global commercial
vehicle (CV) EV customer,
expected to launch in 2024.
enhanced driving performance
in our Hazel Park, Michigan
and longer range. Our
facility, which we expect will
technology delivers a lighter
have production capacity of
and smaller system at lower
2 GWh by the end of 2023.
cost with greater durability.
Investing in a
Sustainable Future
This multi-faceted platform will
We received multiple iDM
support the manufacturer’s
awards during 2021, including
goal of a common electric
with Hyundai for its upcoming
Together, the BorgWarner
drivetrain. These products are
global A-segment EV
team embraces our vision of a
available in multiple variants
production, planned to start
clean, energy-efficient world.
to serve our expanding
in mid-2023, as well as an iDM
Our people are making our
commercial vehicle EV market
with a leading luxury new-
mission – “to deliver innovative
and will allow customers to
energy vehicle maker in China.
and sustainable mobility
significantly reduce charging
time while achieving a
higher power density.
We were recently awarded a
market” – a reality through
third generation battery system
their efforts every single day.
with GILLIG, a leading North
solutions for the vehicle
2021 STOCKHOLDERS LETTER AND ANNUAL REPORT ON FORM 10–K 6
7
We were proud to be recognized
by Newsweek as one of America’s
Most Responsible Companies
for the third consecutive year.
First, we are investing in
a new plant in Viana do
Castelo, Portugal, to produce
electrification products such
as electric motors, inverters
and battery management
systems for a wide range of
global automakers in Europe.
The building is underway with
production slated to begin
later this year and eventually
operating at full capacity in
2024. The plant is strategically
located to serve our customers
with localized production
and to meet growing demand
for electrification products.
In October, one of our
longest-standing partners,
Ford Motor Company,
awarded BorgWarner with
a World Excellence Award
for the battery electric
vehicle iDM. This award
recognizes companies that
exceed expectations and
achieve the highest levels of
excellence in quality, cost,
performance and delivery.
In November, we were proud to
join the Clean Energy Buyers
Alliance (CEBA), the largest
group of clean energy buyers
in the United States, to further
support our commitment to
environmental sustainability.
The alliance of large clean
energy buyers, developers
and service providers seeks
to unlock the marketplace for
energy consumers to lead a
rapid transition to a cleaner,
prosperous and zero-carbon
energy future. The expansive
knowledge base of the CEBA
network will be a great asset
to tap into as we explore the
array of existing clean energy
options and actively work
to become carbon neutral
in our operations by 2035.
At the end of the year, we
were proud to be recognized
by Newsweek as one of
America’s Most Responsible
Companies for the third
consecutive year. Our global
team of responsible and
collaborative employees is truly
the driver of our success. The
winners were selected based
on key performance indicators
related to corporate social
responsibility, sustainability
reports and more, with
BorgWarner ranking 82 out of
500 recognized companies.
Prioritizing People
I have been both humbled and
inspired by the dedication I
have seen from our people
around the world as we execute
our Charging Forward strategy.
Our people have shown passion
and an unshakable commitment
to achieving our goals.
We constantly strive to
be an employer of choice
where we operate around
the world by cultivating a
workplace environment that
is collaborative, transparent,
responsible and inclusive, and
promotes continuous learning
and excellence. We are proud
of our ongoing commitment
Equality Index (GEI), which tracks
We have made great strides
to diversifying our talent pool
the financial performance of
in creating an environment
and expanding our inclusive
public companies committed
that empowers and supports
culture wherever possible.
to supporting gender equality
women and are honored to be an
through policy development,
organization where women feel
The highlights below are
representation and transparency.
valued and truly want to work.
a snapshot of some of the
We also won a coveted Brandon
awards and recognition
Hall Group gold award in the
BorgWarner’s top leadership
we received in 2021.
category of Excellence in
team puts a heavy emphasis on
Diversity, Equity and Inclusion
the importance of DEI across the
We earned the designation of
and a silver award in the
company, globally. As reported in
being a Great Place to Work-
Excellence in Learning category.
the company’s 2021 Sustainability
Certified™ company for the
second consecutive year.
We were recognized on
To certify companies, Great
Forbes’ list of “World’s Top
Report, women in the company
earned compensation equal
to 98.7% of that received by
Place to Work uses validated
Female- Friendly Companies”
their male counterparts while
employee feedback gathered
for our efforts in supporting
22.2% of board members are
through its rigorous, data-
women inside and outside the
women, 23.1% of strategy board
driven For All methodology.
workplace, ranking 103 out of
members are women and 14.6%
We were honored to be included
300 industry-leading honorees in
of company leaders are women.
in the 2021 Bloomberg Gender-
the inaugural year of the award.
Customer
Diversity Worldwide
2021 Sales
11% REST OF WORLD
6% Hyundai/Kia
1%
4%
Subaru
Other ROW
30%
AM ERICAS
35% EUROPE
24% CHI NA
8% Ford
4% Stellantis
4% GM
7% VW/Audi
4% Daimler PC
3%
Volvo
2% Asian OEMs
3% Commercial Vehicle
3% Stellantis
2% Renault/Nissan
4% Aftermarket
5% Other Americas
2%
BMW
4% Commercial Vehicle
1%
9%
Aftermarket
Other Europe
3% Great Wall
3%
SGM
3% Chang’an
3%
Geely/Volvo
1%
VW/Audi
1%
FAW
1% Ford
9% Other China
2021 STOCKHOLDERS LETTER AND ANNUAL REPORT ON FORM 10–K
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of our ongoing commitment
to diversifying our talent pool
and expanding our inclusive
culture wherever possible.
The highlights below are
a snapshot of some of the
awards and recognition
we received in 2021.
We earned the designation of
being a Great Place to Work-
Certified™ company for the
second consecutive year.
To certify companies, Great
Place to Work uses validated
employee feedback gathered
through its rigorous, data-
driven For All methodology.
We were honored to be included
in the 2021 Bloomberg Gender-
Equality Index (GEI), which tracks
the financial performance of
public companies committed
to supporting gender equality
through policy development,
representation and transparency.
We also won a coveted Brandon
Hall Group gold award in the
category of Excellence in
Diversity, Equity and Inclusion
and a silver award in the
Excellence in Learning category.
We were recognized on
Forbes’ list of “World’s Top
Female- Friendly Companies”
for our efforts in supporting
women inside and outside the
workplace, ranking 103 out of
300 industry-leading honorees in
the inaugural year of the award.
We have made great strides
in creating an environment
that empowers and supports
women and are honored to be an
organization where women feel
valued and truly want to work.
BorgWarner’s top leadership
team puts a heavy emphasis on
the importance of DEI across the
company, globally. As reported in
the company’s 2021 Sustainability
Report, women in the company
earned compensation equal
to 98.7% of that received by
their male counterparts while
22.2% of board members are
women, 23.1% of strategy board
members are women and 14.6%
of company leaders are women.
Customer
Diversity Worldwide
2021 Sales
11% REST OF WORLD
6% Hyundai/Kia
Subaru
1%
4%
Other ROW
30%
AMERI CAS
35% EUROPE
24% CHINA
We were proud to be recognized
by Newsweek as one of America’s
Most Responsible Companies
for the third consecutive year.
First, we are investing in
a new plant in Viana do
In November, we were proud to
collaborative employees is truly
join the Clean Energy Buyers
the driver of our success. The
Castelo, Portugal, to produce
Alliance (CEBA), the largest
winners were selected based
electrification products such
group of clean energy buyers
on key performance indicators
as electric motors, inverters
in the United States, to further
related to corporate social
and battery management
support our commitment to
responsibility, sustainability
systems for a wide range of
environmental sustainability.
reports and more, with
global automakers in Europe.
The alliance of large clean
BorgWarner ranking 82 out of
The building is underway with
energy buyers, developers
500 recognized companies.
production slated to begin
and service providers seeks
later this year and eventually
to unlock the marketplace for
Prioritizing People
operating at full capacity in
energy consumers to lead a
2024. The plant is strategically
rapid transition to a cleaner,
I have been both humbled and
located to serve our customers
prosperous and zero-carbon
inspired by the dedication I
with localized production
energy future. The expansive
have seen from our people
and to meet growing demand
knowledge base of the CEBA
around the world as we execute
for electrification products.
network will be a great asset
our Charging Forward strategy.
to tap into as we explore the
Our people have shown passion
In October, one of our
array of existing clean energy
and an unshakable commitment
longest-standing partners,
options and actively work
to achieving our goals.
Ford Motor Company,
to become carbon neutral
awarded BorgWarner with
in our operations by 2035.
We constantly strive to
a World Excellence Award
for the battery electric
vehicle iDM. This award
At the end of the year, we
were proud to be recognized
the world by cultivating a
be an employer of choice
where we operate around
recognizes companies that
by Newsweek as one of
workplace environment that
exceed expectations and
America’s Most Responsible
is collaborative, transparent,
achieve the highest levels of
Companies for the third
responsible and inclusive, and
excellence in quality, cost,
consecutive year. Our global
promotes continuous learning
performance and delivery.
team of responsible and
and excellence. We are proud
8% Ford
4% Stellantis
4% GM
2% Asian OEMs
3% Commercial Vehicle
4% Aftermarket
5% Other Americas
3% Great Wall
SGM
3%
3% Chang’an
3%
1%
1%
FAW
1% Ford
Geely/Volvo
VW/Audi
9% Other China
7% VW/Audi
4% Daimler PC
Volvo
3%
3% Stellantis
2% Renault/Nissan
2%
4% Commercial Vehicle
Aftermarket
Other Europe
1%
9%
BMW
2021 STOCKHOLDERS LETTER AND ANNUAL REPORT ON FORM 10–K
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To all our stakeholders, I’d like
to express my sincere gratitude
for your ongoing support of
BorgWarner as we continue to
evolve and expand our future
horizons. We are proud of our
track record of decades of
evolution, and we look forward
to continued progress and
success in 2022 and beyond.
Best regards,
Frédéric B. Lissalde
President and Chief Executive Officer
Thank You!
The past two years have
taught us that the world can
be unpredictable and that
we must plan ahead but still
remain flexible, adjusting our
approach as needed to the
changing environment. Our
company’s 100-plus-year history
is a story of adaptation and
evolution, built on superior
product leadership, an agile,
decentralized operating model
and disciplined financial and
operational management.
Today, we believe we are even
better positioned through
our product breadth and
technological leadership and
continue to take significant
steps to secure our profitable
growth long into the future.
Although we have made
tremendous progress over the
last year, we know that there
is still work to be done, and
we are moving aggressively to
continue to deliver value. We
are winning important new EV
programs with our customers,
for both components and
latest generation systems,
and are delivering disciplined
inorganic investments, adding
great technology to our
portfolio while supplementing
our growth profile.
BorgWarner will provide its full financial report electronically as part of its environmental initiative to conserve
resources and reduce costs. For more information on the company’s financial performance and sustainability
initiatives, please visit our website at borgwarner.com.
Today, we believe we are
even better positioned
through our product
breadth and technological
leadership and continue
to take significant steps to
secure our profitable
growth long into the future.
2021 STOCKHOLDERS LETTER AND ANNUAL REPORT ON FORM 10–K 8
9
Thank You!
To all our stakeholders, I’d like
to express my sincere gratitude
The past two years have
for your ongoing support of
taught us that the world can
BorgWarner as we continue to
be unpredictable and that
evolve and expand our future
we must plan ahead but still
horizons. We are proud of our
remain flexible, adjusting our
track record of decades of
approach as needed to the
evolution, and we look forward
changing environment. Our
to continued progress and
company’s 100-plus-year history
success in 2022 and beyond.
is a story of adaptation and
evolution, built on superior
Best regards,
Today, we believe we are even
Frédéric B. Lissalde
President and Chief Executive Officer
product leadership, an agile,
decentralized operating model
and disciplined financial and
operational management.
better positioned through
our product breadth and
technological leadership and
continue to take significant
steps to secure our profitable
growth long into the future.
Although we have made
tremendous progress over the
last year, we know that there
is still work to be done, and
we are moving aggressively to
continue to deliver value. We
are winning important new EV
programs with our customers,
for both components and
latest generation systems,
and are delivering disciplined
inorganic investments, adding
great technology to our
portfolio while supplementing
our growth profile.
BorgWarner will provide its full financial report electronically as part of its environmental initiative to conserve
resources and reduce costs. For more information on the company’s financial performance and sustainability
initiatives, please visit our website at borgwarner.com.
Today, we believe we are
even better positioned
through our product
breadth and technological
leadership and continue
to take significant steps to
secure our profitable
growth long into the future.
2021 STOCKHOLDERS LETTER AND ANNUAL REPORT ON FORM 10–K Forward-Looking Statements: This document may contain forward-looking statements
as contemplated by the 1995 Private Securities Litigation Reform Act that are based on
management’s current outlook, expectations, estimates and projections. Words such
as “anticipates,” “believes,” “continues,” “could,” “designed,” “effect,” “estimates,” “eval-
uates,” “expects,” “forecasts,” “goal,” “guidance,” “initiative,” “intends,” “may,” “outlook,”
“plans,” “potential,” “predicts,” “project,” “pursue,” “seek,” “should,” “target,” “when,”
“will,” “would,” and variations of such words and similar expressions are intended to
identify such forward-looking statements. Further, all statements, other than statements
Adjusted Earnings Per Share to US GAAP Reconciliation
The Company defines adjusted earnings per diluted share as earnings per diluted
share adjusted to eliminate the impact of restructuring expense, merger, acquisition
and divestiture expense, other net expenses, discontinued operations, other gains and
losses not reflective of the Company’s ongoing operations, and related tax effects.
Year Ended December 31,
2021 2020 2019 2018 2017
of historical fact contained or incorporated by reference in this document that we expect
Earnings per diluted share
$2.24 $2.34 $3.61 $4.44 $2.08
or anticipate will or may occur in the future regarding our financial position, business
strategy and measures to implement that strategy, including changes to operations,
Non-comparable items:
competitive strengths, goals, expansion and growth of our business and operations,
Restructuring expense
0.58 0.86 0.26 0.24 0.23
plans, references to future success and other such matters, are forward-looking
Customer warranty settlement
0.26 - - - -
statements. Accounting estimates, such as those described under the heading “Critical
Merger, acquisition and divestiture expense
0.19 0.38 0.05 0.03 0.05
Accounting Policies and Estimates” in Item 7 of our most recently-filed Annual Report on
Loss on sales of businesses
0.13 - 0.03 - -
Form 10-K (“Form 10-K”), are inherently forward-looking. All forward-looking statements
Asset impairments and lease modifications 0.05 0.08 - 0.09 0.25
are based on assumptions and analyses made by us in light of our experience and our
Net gain on insurance recovery for property damage (0.01) (0.04) - - -
perception of historical trends, current conditions and expected future developments,
Unrealized loss (gain) on equity securities
1.15 (1.36) - - -
as well as other factors we believe are appropriate under the circumstances. For-
Loss on debt extinguishment
0.06 - - - -
ward-looking statements are not guarantees of performance, and the Company’s actual
Intangible asset accelerated amortization - 0.14 - - -
results may differ materially from those expressed, projected or implied in or by the
Amortization of inventory fair value adjustment
- 0.10 - - -
forward-looking statements.
Delayed-draw term loan cancellation
- 0.01 - - -
Pension settlement loss
- 0.02 0.10 - -
You should not place undue reliance on these forward-looking statements, which speak
Unfavorable arbitration loss
- - 0.07 - -
only as of the date of this document. Forward-looking statements are subject to risks
Officer stock awards modifications
- - 0.01 0.04 -
and uncertainties, many of which are difficult to predict and generally beyond our con-
Gain on derecognition of subsidy
- - (0.02) - -
trol, that could cause actual results to differ materially from those expressed, projected
Asbestos-related adjustments
or implied in or by the forward-looking statements. These risks and uncertainties, among
Gain on sale of building
- - - 0.08 -
- - - (0.07) -
others, include: supply disruptions impacting us or our customers, such as the current
Gain on commercial settlement
- - - (0.01) -
shortage of semiconductor chips that has impacted original equipment manufacturer
Tax reform adjustments
- - - (0.06) 1.29
(“OEM”) customers and their suppliers, including us; commodities availability and pric-
Tax adjustments
(0.50) 0.23 0.02 (0.30) (0.01)
ing; competitive challenges from existing and new competitors including OEM custom-
ers; the challenges associated with rapidly-changing technologies, particularly as relates
Adjusted earnings per diluted share $4.15 $2.76 $4.13 $4.48 $3.89
Free Cash Flow Reconciliation to US GAAP ($ in millions)
The Company defines free cash flow as net cash provided by operating activities
minus capital expenditures, including tooling outlays. The measure is useful to both
management and investors in evaluating the Company’s ability to service and repay
its debt.
Total Years Ended December 31,
Net cash provided by operating activities
Capital expenditures, including tooling outlays
Free cash flow
Estimated 2021-2025
$8,800
(4,300)
$4,500
to electric vehicles, and our ability to innovate in response; uncertainties regarding the
extent and duration of impacts of matters associated with the COVID-19 pandemic,
including additional production disruptions; the difficulty in forecasting demand for
electric vehicles and our electric vehicles revenue growth; the ability to identify targets
and consummate acquisitions on acceptable terms; failure to realize the expected
benefits of acquisitions on a timely basis including our recent acquisition of AKASOL AG
and our 2020 acquisition of Delphi Technologies PLC; the ability to identify appropriate
combustion portfolio businesses for disposition and consummate planned dispositions
on acceptable terms; the failure to promptly and effectively integrate acquired business-
es; the potential for unknown or inestimable liabilities relating to the acquired businesses;
our dependence on automotive and truck production, both of which are highly cyclical
and subject to disruptions; our reliance on major OEM customers; fluctuations in interest
rates and foreign currency exchange rates; our dependence on information systems; the
uncertainty of the global economic environment; the outcome of existing or any future
legal proceedings, including litigation with respect to various claims; future changes in
laws and regulations, including, by way of example, taxes and tariffs, in the countries in
which we operate; impacts from any potential future acquisition or disposition transac-
tions; and the other risks noted in reports that we file with the Securities and Exchange
Commission, including Item 1A, “Risk Factors” in our most recently-filed Form 10-K and/
or Quarterly Report on Form 10-Q. We do not undertake any obligation to update or
announce publicly any updates to or revisions to any of the forward-looking statements
in this document to reflect any change in our expectations or any change in events,
conditions, circumstances, or assumptions underlying the statements.
Full Year 2021 Organic Net Sales (Unaudited)
The Company defines organic net sales changes as net sales change year over year excluding the estimated impact of foreign exchange (FX) and net M&A.
$ in millions
Air Management
2020
Net Sales
$5,678
e-Propulsion & Drivetrain
3,989
Fuel Injection
Aftermarket
Inter-segment eliminations
479
194
(175)
Delphi Technologies
Pro Forma Impact*
$658
AKASOL
Market Impact,
Impact
$67
Pricing & Other
$710
552
1,071
498
(152)
-
-
-
-
684
201
156
(190)
FX
$185
153
75
5
-
2021
Net Sales
$7,298
5,378
1,826
853
(517)
Total
$10,165
$418
$2,627
$67
$1,561
$14,838
Organic Net
Sales Change
11.2%
15.1%
13.0%
22.5%
-
12.2%
*From January to September 2020 only
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 10-K
(Mark One)
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-12162
BorgWarner Inc.
(Exact name of registrant as specified in its charter)
Delaware
13-3404508
(State or other jurisdiction of Incorporation or organization)
(I.R.S. Employer Identification No.)
3850 Hamlin Road,
Auburn Hills, Michigan 48326
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (248) 754-9200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
1.00% Senior Notes due 2031
BWA
BWA31
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
_________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Emerging growth company
☑
☐
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate market value of the voting common stock of the registrant held by stockholders (not including voting common stock held by directors and
executive officers of the registrant) on June 30, 2021 (the last business day of the most recently completed second fiscal quarter) was approximately $11.6
billion.
As of February 11, 2022, the registrant had 239,971,469 shares of voting common stock outstanding.
Portions of the following documents are incorporated herein by reference into the Part of the Form 10-K indicated.
DOCUMENTS INCORPORATED BY REFERENCE
Document
Portions of the BorgWarner Inc. Proxy Statement for the 2022 Annual Meeting of Stockholders ...........
Part of Form 10-K into which incorporated
Part III
BORGWARNER INC.
FORM 10-K
YEAR ENDED DECEMBER 31, 2021
INDEX
PART I.
Page No.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Business .............................................................................................................................
Risk Factors .......................................................................................................................
Unresolved Staff Comments ...........................................................................................
Properties ...........................................................................................................................
Legal Proceedings ............................................................................................................
Mine Safety Disclosures ..................................................................................................
PART II.
Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities ...........................................................................
[Reserved] .........................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of
Operations .........................................................................................................................
Quantitative and Qualitative Disclosures About Market Risk ....................................
Financial Statements and Supplementary Data ..........................................................
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure ..........................................................................................................................
Controls and Procedures .................................................................................................
Other Information ..............................................................................................................
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections .....................
PART III.
Directors, Executive Officers and Corporate Governance .........................................
Executive Compensation .................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters .........................................................................................................
Certain Relationships and Related Transactions and Director Independence .......
Principal Accountant Fees and Services ......................................................................
Item 15.
Item 16.
Exhibits and Financial Statement Schedules ...............................................................
Form 10-K Summary ........................................................................................................
PART IV.
5
17
29
30
30
30
31
33
34
56
57
127
127
128
128
129
129
129
129
130
130
130
CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION
Statements contained in this Annual Report on Form 10-K (“Form 10-K”) (including Management’s
Discussion and Analysis of Financial Condition and Results of Operations) may contain forward-looking
statements as contemplated by the 1995 Private Securities Litigation Reform Act (the “Act”) that are
based on management’s current outlook, expectations, estimates and projections. Words such as
“anticipates,” “believes,” “continues,” “could,” “designed,” “effect,” “estimates,” “evaluates,” “expects,”
“forecasts,” “goal,” “initiative,” “intends,” “may,” “outlook,” “plans,” “potential,” “predicts,” “project,”
“pursue,” “seek,” “should,” “target,” “when,” “will,” “would,” and variations of such words and similar
expressions are intended to identify such forward-looking statements. Further, all statements, other than
statements of historical fact contained or incorporated by reference in this Form 10-K, that we expect or
anticipate will or may occur in the future regarding our financial position, business strategy and measures
to implement that strategy, including changes to operations, competitive strengths, goals, expansion and
growth of our business and operations, plans, references to future success and other such matters, are
forward-looking statements. Accounting estimates, such as those described under the heading “Critical
Accounting Policies and Estimates” in Item 7 of this Annual Report on Form 10-K, are inherently forward-
looking. All forward looking statements are based on assumptions and analyses made by us in light of our
experience and our perception of historical trends, current conditions and expected future developments,
as well as other factors we believe are appropriate in the circumstances. Forward-looking statements are
not guarantees of performance and the Company’s actual results may differ materially from those
expressed, projected or implied in or by the forward-looking statements.
You should not place undue reliance on these forward-looking statements, which speak only as of the
date of this Annual Report. Forward-looking statements are subject to risks and uncertainties, many of
which are difficult to predict and generally beyond our control, that could cause actual results to differ
materially from those expressed, projected or implied in or by the forward-looking statements. These risks
and uncertainties, among others, include supply disruptions impacting us or our customers, such as the
current shortage of semiconductor chips that has impacted original equipment manufacturer (“OEM”)
customers and their suppliers, including us; commodities availability and pricing; competitive challenges
from existing and new competitors including OEM customers; the challenges associated with rapidly-
changing technologies, particularly as relates to electric vehicles, and our ability to innovate in response;
uncertainties regarding the extent and duration of impacts of matters associated with the COVID-19/
coronavirus pandemic (“COVID-19”), including additional production disruptions; the difficulty in
forecasting demand for electric vehicles and our electric vehicles revenue growth; the ability to identify
targets and consummate acquisitions on acceptable terms; failure to realize the expected benefits of
acquisitions on a timely basis including our recent acquisition of AKASOL AG (“AKASOL”) and our 2020
acquisition of Delphi Technologies PLC (“Delphi Technologies”); the ability to identify appropriate
combustion portfolio businesses for disposition and consummate planned dispositions on acceptable
terms; the failure to promptly and effectively integrate acquired businesses; the potential for unknown or
inestimable liabilities relating to the acquired businesses; our dependence on automotive and truck
production, both of which are highly cyclical and subject to disruptions; our reliance on major OEM
customers; fluctuations in interest rates and foreign currency exchange rates; our dependence on
information systems; the uncertainty of the global economic environment; the outcome of existing or any
future legal proceedings, including litigation with respect to various claims; future changes in laws and
regulations, including, by way of example, taxes and tariffs, in the countries in which we operate; impacts
from any potential future acquisition or disposition transactions; and the other risks noted under Item 1A,
“Risk Factors,” and in other reports that we file with the Securities and Exchange Commission. We do not
undertake any obligation to update or announce publicly any updates to or revisions to any of the
forward-looking statements in this Form 10-K to reflect any change in our expectations or any change in
events, conditions, circumstances, or assumptions underlying the statements.
This section and the discussions contained in Item 1A, “Risk Factors,” and in Item 7, subheading “Critical
Accounting Policies and Estimates” in this report, are intended to provide meaningful cautionary
statements for purposes of the safe harbor provisions of the Act. This should not be construed as a
2
3
BORGWARNER INC.
FORM 10-K
YEAR ENDED DECEMBER 31, 2021
INDEX
PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business .............................................................................................................................
Risk Factors .......................................................................................................................
Unresolved Staff Comments ...........................................................................................
Properties ...........................................................................................................................
Legal Proceedings ............................................................................................................
Mine Safety Disclosures ..................................................................................................
PART II.
Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities ...........................................................................
[Reserved] .........................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of
Operations .........................................................................................................................
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk ....................................
Financial Statements and Supplementary Data ..........................................................
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure ..........................................................................................................................
Controls and Procedures .................................................................................................
Other Information ..............................................................................................................
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections .....................
Directors, Executive Officers and Corporate Governance .........................................
Executive Compensation .................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters .........................................................................................................
Certain Relationships and Related Transactions and Director Independence .......
Principal Accountant Fees and Services ......................................................................
PART III.
PART IV.
Exhibits and Financial Statement Schedules ...............................................................
Form 10-K Summary ........................................................................................................
Item 5.
Item 6.
Item 7.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Page No.
5
17
29
30
30
30
31
33
34
56
57
127
127
128
128
129
129
129
129
130
130
130
CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION
Statements contained in this Annual Report on Form 10-K (“Form 10-K”) (including Management’s
Discussion and Analysis of Financial Condition and Results of Operations) may contain forward-looking
statements as contemplated by the 1995 Private Securities Litigation Reform Act (the “Act”) that are
based on management’s current outlook, expectations, estimates and projections. Words such as
“anticipates,” “believes,” “continues,” “could,” “designed,” “effect,” “estimates,” “evaluates,” “expects,”
“forecasts,” “goal,” “initiative,” “intends,” “may,” “outlook,” “plans,” “potential,” “predicts,” “project,”
“pursue,” “seek,” “should,” “target,” “when,” “will,” “would,” and variations of such words and similar
expressions are intended to identify such forward-looking statements. Further, all statements, other than
statements of historical fact contained or incorporated by reference in this Form 10-K, that we expect or
anticipate will or may occur in the future regarding our financial position, business strategy and measures
to implement that strategy, including changes to operations, competitive strengths, goals, expansion and
growth of our business and operations, plans, references to future success and other such matters, are
forward-looking statements. Accounting estimates, such as those described under the heading “Critical
Accounting Policies and Estimates” in Item 7 of this Annual Report on Form 10-K, are inherently forward-
looking. All forward looking statements are based on assumptions and analyses made by us in light of our
experience and our perception of historical trends, current conditions and expected future developments,
as well as other factors we believe are appropriate in the circumstances. Forward-looking statements are
not guarantees of performance and the Company’s actual results may differ materially from those
expressed, projected or implied in or by the forward-looking statements.
You should not place undue reliance on these forward-looking statements, which speak only as of the
date of this Annual Report. Forward-looking statements are subject to risks and uncertainties, many of
which are difficult to predict and generally beyond our control, that could cause actual results to differ
materially from those expressed, projected or implied in or by the forward-looking statements. These risks
and uncertainties, among others, include supply disruptions impacting us or our customers, such as the
current shortage of semiconductor chips that has impacted original equipment manufacturer (“OEM”)
customers and their suppliers, including us; commodities availability and pricing; competitive challenges
from existing and new competitors including OEM customers; the challenges associated with rapidly-
changing technologies, particularly as relates to electric vehicles, and our ability to innovate in response;
uncertainties regarding the extent and duration of impacts of matters associated with the COVID-19/
coronavirus pandemic (“COVID-19”), including additional production disruptions; the difficulty in
forecasting demand for electric vehicles and our electric vehicles revenue growth; the ability to identify
targets and consummate acquisitions on acceptable terms; failure to realize the expected benefits of
acquisitions on a timely basis including our recent acquisition of AKASOL AG (“AKASOL”) and our 2020
acquisition of Delphi Technologies PLC (“Delphi Technologies”); the ability to identify appropriate
combustion portfolio businesses for disposition and consummate planned dispositions on acceptable
terms; the failure to promptly and effectively integrate acquired businesses; the potential for unknown or
inestimable liabilities relating to the acquired businesses; our dependence on automotive and truck
production, both of which are highly cyclical and subject to disruptions; our reliance on major OEM
customers; fluctuations in interest rates and foreign currency exchange rates; our dependence on
information systems; the uncertainty of the global economic environment; the outcome of existing or any
future legal proceedings, including litigation with respect to various claims; future changes in laws and
regulations, including, by way of example, taxes and tariffs, in the countries in which we operate; impacts
from any potential future acquisition or disposition transactions; and the other risks noted under Item 1A,
“Risk Factors,” and in other reports that we file with the Securities and Exchange Commission. We do not
undertake any obligation to update or announce publicly any updates to or revisions to any of the
forward-looking statements in this Form 10-K to reflect any change in our expectations or any change in
events, conditions, circumstances, or assumptions underlying the statements.
This section and the discussions contained in Item 1A, “Risk Factors,” and in Item 7, subheading “Critical
Accounting Policies and Estimates” in this report, are intended to provide meaningful cautionary
statements for purposes of the safe harbor provisions of the Act. This should not be construed as a
2
3
complete list of all of the economic, competitive, governmental, technological and other factors that could
adversely affect our expected consolidated financial position, results of operations or liquidity. Additional
risks and uncertainties, including without limitation those not currently known to us or that we currently
believe are immaterial, also may impair our business, operations, liquidity, financial condition and
prospects.
Use of Non-GAAP Financial Measures
In addition to results presented in accordance with accounting principles generally accepted in the United
States of America (“GAAP”), this report includes non-GAAP financial measures. The Company believes
these non-GAAP financial measures provide additional information that is useful to investors in
understanding the underlying performance and trends of the Company. Readers should be aware that
non-GAAP financial measures have inherent limitations and should be cautious with respect to the use of
such measures. To compensate for these limitations, we use non-GAAP measures as comparative tools,
together with GAAP measures, to assist in the evaluation of our operating performance or financial
condition. We calculate these measures using the appropriate GAAP components in their entirety and
compute them in a manner intended to facilitate consistent period-to-period comparisons. The Company’s
method of calculating these non-GAAP measures may differ from methods used by other companies.
These non-GAAP measures should not be considered in isolation or as a substitute for those financial
measures prepared in accordance with GAAP. Where non-GAAP financial measures are used, the most
directly comparable GAAP financial measure, as well as the reconciliation to the most directly
comparable GAAP financial measure, can be found in this report.
Item 1. Business
PART I
BorgWarner Inc. (together with its Consolidated Subsidiaries, the “Company” or “BorgWarner”) is a
Delaware corporation incorporated in 1987. The Company is a global product leader in clean and efficient
technology solutions for combustion, hybrid and electric vehicles. Its products help improve vehicle
performance, propulsion efficiency, stability and air quality. The Company manufactures and sells these
products worldwide, primarily to original equipment manufacturers (“OEMs”) of light vehicles (passenger
cars, sport-utility vehicles (“SUVs”), vans and light trucks). The Company’s products are also sold to
OEMs of commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway
vehicles (agricultural and construction machinery and marine applications). The Company also
manufactures and sells its products to certain Tier One vehicle systems suppliers and into the aftermarket
for light, commercial and off-highway vehicles. The Company operates manufacturing facilities serving
customers in Europe, the Americas and Asia and is an original equipment supplier to nearly every major
automotive OEM in the world.
Charging Forward - Electrification Portfolio Strategy
In 2021, the Company announced its strategy to aggressively grow its electrification portfolio over time
through organic investments and technology-focused acquisitions, most recently through the 2021
acquisition of AKASOL AG (“AKASOL”) as well as the 2020 purchase of Delphi Technologies PLC
(“Delphi Technologies”). The Company believes it is well positioned for the industry’s anticipated
migration to electric vehicles. Additionally, the Company announced a plan to dispose of certain internal
combustion assets, targeting dispositions of assets generating approximately $1 billion in annual revenue
in the succeeding 12 to 18 months and approximately $3 to $4 billion in annual revenue by 2025. The
Company is targeting its revenue from products for pure electric vehicles to be over 25% of its total
revenue by 2025 and approximately 45% of its total revenue by 2030.
Acquisitions are an integral component of the Company’s growth and value creation strategy. Below are
summaries of recent acquisitions. Refer to Note 2, “Acquisitions and Dispositions,” to the Consolidated
Financial Statements in Item 8 of this report for more information.
Recent Acquisitions
AKASOL AG
On June 4, 2021, the Company completed its voluntary public takeover offer for shares of AKASOL AG
(“AKASOL”), resulting in ownership of 89% of AKASOL’s outstanding shares. The Company paid
approximately €648 million ($788 million) to settle the offer from current cash balances, which included
proceeds received from its public offering of 1.00% Senior Notes due 2031 completed on May 19, 2021.
Following the settlement of the offer, AKASOL became a consolidated majority-owned subsidiary of the
Company. The Company also consolidated approximately €64 million ($77 million) of gross debt of
AKASOL. Subsequent to the completion of the voluntary public takeover offer, the Company purchased
additional shares of AKASOL for €28 million ($33 million) increasing its ownership to 93% as of
December 31, 2021. The acquisition further strengthens BorgWarner’s commercial vehicle and industrial
electrification capabilities, which positions the Company to capitalize on what it believes to be a fast-
growing battery module and pack market.
On August 2, 2021, the Company initiated a merger squeeze out process under German law for the
purpose of acquiring 100% of AKASOL (“Squeeze Out”). On February 10, 2022, the Company completed
the registration of the Squeeze Out resulting in 100% ownership.
4
5
complete list of all of the economic, competitive, governmental, technological and other factors that could
adversely affect our expected consolidated financial position, results of operations or liquidity. Additional
risks and uncertainties, including without limitation those not currently known to us or that we currently
believe are immaterial, also may impair our business, operations, liquidity, financial condition and
Item 1. Business
PART I
prospects.
Use of Non-GAAP Financial Measures
In addition to results presented in accordance with accounting principles generally accepted in the United
States of America (“GAAP”), this report includes non-GAAP financial measures. The Company believes
these non-GAAP financial measures provide additional information that is useful to investors in
understanding the underlying performance and trends of the Company. Readers should be aware that
non-GAAP financial measures have inherent limitations and should be cautious with respect to the use of
such measures. To compensate for these limitations, we use non-GAAP measures as comparative tools,
together with GAAP measures, to assist in the evaluation of our operating performance or financial
condition. We calculate these measures using the appropriate GAAP components in their entirety and
compute them in a manner intended to facilitate consistent period-to-period comparisons. The Company’s
method of calculating these non-GAAP measures may differ from methods used by other companies.
These non-GAAP measures should not be considered in isolation or as a substitute for those financial
measures prepared in accordance with GAAP. Where non-GAAP financial measures are used, the most
directly comparable GAAP financial measure, as well as the reconciliation to the most directly
comparable GAAP financial measure, can be found in this report.
BorgWarner Inc. (together with its Consolidated Subsidiaries, the “Company” or “BorgWarner”) is a
Delaware corporation incorporated in 1987. The Company is a global product leader in clean and efficient
technology solutions for combustion, hybrid and electric vehicles. Its products help improve vehicle
performance, propulsion efficiency, stability and air quality. The Company manufactures and sells these
products worldwide, primarily to original equipment manufacturers (“OEMs”) of light vehicles (passenger
cars, sport-utility vehicles (“SUVs”), vans and light trucks). The Company’s products are also sold to
OEMs of commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway
vehicles (agricultural and construction machinery and marine applications). The Company also
manufactures and sells its products to certain Tier One vehicle systems suppliers and into the aftermarket
for light, commercial and off-highway vehicles. The Company operates manufacturing facilities serving
customers in Europe, the Americas and Asia and is an original equipment supplier to nearly every major
automotive OEM in the world.
Charging Forward - Electrification Portfolio Strategy
In 2021, the Company announced its strategy to aggressively grow its electrification portfolio over time
through organic investments and technology-focused acquisitions, most recently through the 2021
acquisition of AKASOL AG (“AKASOL”) as well as the 2020 purchase of Delphi Technologies PLC
(“Delphi Technologies”). The Company believes it is well positioned for the industry’s anticipated
migration to electric vehicles. Additionally, the Company announced a plan to dispose of certain internal
combustion assets, targeting dispositions of assets generating approximately $1 billion in annual revenue
in the succeeding 12 to 18 months and approximately $3 to $4 billion in annual revenue by 2025. The
Company is targeting its revenue from products for pure electric vehicles to be over 25% of its total
revenue by 2025 and approximately 45% of its total revenue by 2030.
Recent Acquisitions
Acquisitions are an integral component of the Company’s growth and value creation strategy. Below are
summaries of recent acquisitions. Refer to Note 2, “Acquisitions and Dispositions,” to the Consolidated
Financial Statements in Item 8 of this report for more information.
AKASOL AG
On June 4, 2021, the Company completed its voluntary public takeover offer for shares of AKASOL AG
(“AKASOL”), resulting in ownership of 89% of AKASOL’s outstanding shares. The Company paid
approximately €648 million ($788 million) to settle the offer from current cash balances, which included
proceeds received from its public offering of 1.00% Senior Notes due 2031 completed on May 19, 2021.
Following the settlement of the offer, AKASOL became a consolidated majority-owned subsidiary of the
Company. The Company also consolidated approximately €64 million ($77 million) of gross debt of
AKASOL. Subsequent to the completion of the voluntary public takeover offer, the Company purchased
additional shares of AKASOL for €28 million ($33 million) increasing its ownership to 93% as of
December 31, 2021. The acquisition further strengthens BorgWarner’s commercial vehicle and industrial
electrification capabilities, which positions the Company to capitalize on what it believes to be a fast-
growing battery module and pack market.
On August 2, 2021, the Company initiated a merger squeeze out process under German law for the
purpose of acquiring 100% of AKASOL (“Squeeze Out”). On February 10, 2022, the Company completed
the registration of the Squeeze Out resulting in 100% ownership.
4
5
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 and cash in lieu of any fractional share. In the
aggregate, the Company delivered consideration of approximately $2.4 billion, including approximately 37
million shares of common stock of the Company, valued at $1.5 billion, repayment of approximately $900
million of Delphi Technologies’ debt and stock-based compensation of approximately $15 million. Upon
closing, the Company also assumed approximately $800 million in senior notes as discussed in Item 7 of
this report under the caption “Acquisition of Delphi Technologies PLC.” The acquisition has strengthened
the Company’s electronics and power electronics products, strengthened its capabilities and scale,
enhanced key combustion, commercial vehicle and aftermarket product offerings, and positioned the
Company for greater growth as electrified propulsion systems gain momentum.
Financial Information About Reporting Segments
Refer to Note 24, “Reporting Segments and Related Information,” to the Consolidated Financial
Statements in Item 8 of this report for financial information about the Company's reporting segments.
Narrative Description of Reporting Segments
The Company reports its results under four reporting segments: Air Management, e-Propulsion &
Drivetrain, Fuel Injection and Aftermarket. Net sales by reporting segment were as follows:
(in millions)
Air Management
e-Propulsion & Drivetrain
Fuel Injection
Aftermarket
Inter-segment eliminations
Net sales
Year Ended December 31,
2021
2020
2019
$
7,298 $
5,678 $
5,378
1,826
853
3,989
479
194
(517)
(175)
6,214
4,015
—
—
(61)
$
14,838 $
10,165 $
10,168
The sales information presented above does not include the sales by the Company’s unconsolidated joint
ventures (see sub-heading “Joint Ventures” below). Such unconsolidated sales totaled approximately
$1,053 million, $721 million, and $827 million for the years ended December 31, 2021, 2020 and 2019,
respectively.
Air Management
The Air Management segment develops and manufactures products to improve fuel economy, reduce
emissions and enhance performance. The Air Management segment’s technologies include
turbochargers, eBoosters, eTurbos, timing systems, emissions systems, thermal systems, gasoline
ignition technology, smart remote actuators, powertrain sensors, canisters, cabin heaters, battery
modules and systems, battery packs, battery heaters and battery charging. The Company’s Air
Management segment includes AKASOL.
The Air Management segment’s emissions, thermal and turbocharger systems provide several benefits
including increased power for a given engine size, improved fuel economy, reduced emissions and
optimized temperatures in propulsion systems and vehicle cabins. Sales of turbochargers for light
vehicles represented approximately 19%, 24% and 28% of the Company’s net sales for the years ended
December 31, 2021, 2020 and 2019, respectively.
The Air Management segment’s timing systems enable precise control of air and exhaust flow through the
engine, improving fuel economy and emissions. The Air Management segment is a leading manufacturer
of timing systems for OEMs around the world.
The Air Management segment’s powertrain products include an array of highly engineered products that
complement and enhance the efficiency improvements delivered by many other air management and fuel
injection technologies.
The Air Management segment’s battery products include high-performance lithium-ion battery modules
and systems for electrified applications that provide long battery life with a high power output for safe,
reliable and durable operation.
e-Propulsion & Drivetrain
The Company’s e-Propulsion & Drivetrain segment’s technologies include rotating electrical components,
power electronics, control modules, software, friction and mechanical products for automatic
transmissions and torque-management products.
The e-Propulsion & Drivetrain segment’s rotating electrical components portfolio meets the demands of
increasing vehicle electrification, improved efficiency, reduced weight, and lowered electrical and
mechanical noise. Rotating electrical components include starter motors, alternators and electric motors
for hybrid and electric vehicles.
The e-Propulsion & Drivetrain segment’s electronics portfolio consists of power electronics and engine
and transmission control modules. As electrification of vehicles increases, its power electronics solutions,
including inverters, onboard chargers, DC/DC converters, battery management systems, and software
inverters, provide better efficiency, reduced weight and lower cost for its OEM customers. The control
modules, containing as much as one million lines of software code, are key components that enable the
integration and operation of powertrain products throughout the vehicle.
The e-Propulsion & Drivetrain segment’s friction and mechanical products for automatic transmissions
include dual clutch modules, friction clutch modules, friction and separator plates, transmission bands,
torque converter clutches, one-way clutches and torsional vibration dampers. Controls products for
automatic transmissions feature electro-hydraulic solenoids for standard and high pressure hydraulic
systems, transmission solenoid modules and dual clutch control modules.
The e-Propulsion & Drivetrain segment’s torque management products include rear-wheel drive (“RWD”)-
all-wheel drive (“AWD”) transfer case systems, front-wheel drive (“FWD”)-AWD coupling systems and
cross-axle coupling systems. The segment is developing electronically controlled torque management
devices and systems that will benefit vehicle energy efficiency and vehicle dynamics.
Fuel Injection
The Fuel Injection segment develops and manufactures gasoline and diesel fuel injection components
and systems. Its gasoline fuel injection portfolio includes a full suite of fuel injection technologies –
including pumps, injectors, fuel rail assemblies and complete systems – that deliver greater efficiency for
6
7
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 and cash in lieu of any fractional share. In the
aggregate, the Company delivered consideration of approximately $2.4 billion, including approximately 37
million shares of common stock of the Company, valued at $1.5 billion, repayment of approximately $900
million of Delphi Technologies’ debt and stock-based compensation of approximately $15 million. Upon
closing, the Company also assumed approximately $800 million in senior notes as discussed in Item 7 of
this report under the caption “Acquisition of Delphi Technologies PLC.” The acquisition has strengthened
the Company’s electronics and power electronics products, strengthened its capabilities and scale,
enhanced key combustion, commercial vehicle and aftermarket product offerings, and positioned the
Company for greater growth as electrified propulsion systems gain momentum.
Financial Information About Reporting Segments
The Air Management segment’s emissions, thermal and turbocharger systems provide several benefits
including increased power for a given engine size, improved fuel economy, reduced emissions and
optimized temperatures in propulsion systems and vehicle cabins. Sales of turbochargers for light
vehicles represented approximately 19%, 24% and 28% of the Company’s net sales for the years ended
December 31, 2021, 2020 and 2019, respectively.
The Air Management segment’s timing systems enable precise control of air and exhaust flow through the
engine, improving fuel economy and emissions. The Air Management segment is a leading manufacturer
of timing systems for OEMs around the world.
The Air Management segment’s powertrain products include an array of highly engineered products that
complement and enhance the efficiency improvements delivered by many other air management and fuel
injection technologies.
The Air Management segment’s battery products include high-performance lithium-ion battery modules
and systems for electrified applications that provide long battery life with a high power output for safe,
reliable and durable operation.
Refer to Note 24, “Reporting Segments and Related Information,” to the Consolidated Financial
Statements in Item 8 of this report for financial information about the Company's reporting segments.
e-Propulsion & Drivetrain
Narrative Description of Reporting Segments
The Company reports its results under four reporting segments: Air Management, e-Propulsion &
Drivetrain, Fuel Injection and Aftermarket. Net sales by reporting segment were as follows:
Year Ended December 31,
2021
2020
2019
$
7,298 $
5,678 $
5,378
1,826
853
3,989
479
194
(517)
(175)
6,214
4,015
—
—
(61)
$
14,838 $
10,165 $
10,168
(in millions)
Air Management
e-Propulsion & Drivetrain
Fuel Injection
Aftermarket
Inter-segment eliminations
Net sales
respectively.
Air Management
The sales information presented above does not include the sales by the Company’s unconsolidated joint
ventures (see sub-heading “Joint Ventures” below). Such unconsolidated sales totaled approximately
$1,053 million, $721 million, and $827 million for the years ended December 31, 2021, 2020 and 2019,
The Air Management segment develops and manufactures products to improve fuel economy, reduce
emissions and enhance performance. The Air Management segment’s technologies include
turbochargers, eBoosters, eTurbos, timing systems, emissions systems, thermal systems, gasoline
ignition technology, smart remote actuators, powertrain sensors, canisters, cabin heaters, battery
modules and systems, battery packs, battery heaters and battery charging. The Company’s Air
Management segment includes AKASOL.
The Company’s e-Propulsion & Drivetrain segment’s technologies include rotating electrical components,
power electronics, control modules, software, friction and mechanical products for automatic
transmissions and torque-management products.
The e-Propulsion & Drivetrain segment’s rotating electrical components portfolio meets the demands of
increasing vehicle electrification, improved efficiency, reduced weight, and lowered electrical and
mechanical noise. Rotating electrical components include starter motors, alternators and electric motors
for hybrid and electric vehicles.
The e-Propulsion & Drivetrain segment’s electronics portfolio consists of power electronics and engine
and transmission control modules. As electrification of vehicles increases, its power electronics solutions,
including inverters, onboard chargers, DC/DC converters, battery management systems, and software
inverters, provide better efficiency, reduced weight and lower cost for its OEM customers. The control
modules, containing as much as one million lines of software code, are key components that enable the
integration and operation of powertrain products throughout the vehicle.
The e-Propulsion & Drivetrain segment’s friction and mechanical products for automatic transmissions
include dual clutch modules, friction clutch modules, friction and separator plates, transmission bands,
torque converter clutches, one-way clutches and torsional vibration dampers. Controls products for
automatic transmissions feature electro-hydraulic solenoids for standard and high pressure hydraulic
systems, transmission solenoid modules and dual clutch control modules.
The e-Propulsion & Drivetrain segment’s torque management products include rear-wheel drive (“RWD”)-
all-wheel drive (“AWD”) transfer case systems, front-wheel drive (“FWD”)-AWD coupling systems and
cross-axle coupling systems. The segment is developing electronically controlled torque management
devices and systems that will benefit vehicle energy efficiency and vehicle dynamics.
Fuel Injection
The Fuel Injection segment develops and manufactures gasoline and diesel fuel injection components
and systems. Its gasoline fuel injection portfolio includes a full suite of fuel injection technologies –
including pumps, injectors, fuel rail assemblies and complete systems – that deliver greater efficiency for
6
7
traditional and hybrid vehicles with gasoline combustion engines. The Company’s gasoline direct
injection, or GDi, technology provides high-precision fuel delivery for optimized combustion, which lowers
emissions and improves fuel economy. Its diesel fuel injection systems portfolio provides enhanced
engine performance at an attractive value. The Company’s common rail fuel injection system is the core
technology for both on and off-highway commercial and light vehicle applications.
Aftermarket
The Aftermarket segment sells products and services to independent aftermarket customers and original
equipment service customers. Its product portfolio includes a wide range of solutions covering the fuel
injection, electronics and engine management, maintenance, and test equipment and vehicle diagnostics
categories. The aftermarket segment’s business provides a recurring and stable revenue base, as
replacement of many of these products is non-discretionary in nature.
Joint Ventures
As of December 31, 2021, the Company had 13 joint ventures in which it had a less-than-100%
ownership interest. Results from the ten joint ventures in which the Company is the majority owner and
has a controlling financial interest are consolidated as part of the Company’s results. Results from the
three joint ventures in which the Company exercises significant influence but does not have a controlling
financial interest, were reported by the Company using the equity method of accounting pursuant to
which the Company records its proportionate share of each joint venture’s income or loss each period.
Management of the unconsolidated joint ventures is shared with the Company’s respective joint venture
partners. Certain information concerning the Company's joint ventures is set forth below:
Year
organized
Percentage
owned by the
Company
Location
of
operation
Joint venture partner
Joint venture
Unconsolidated:
Products
NSK-Warner K.K.
Transmission components
Turbo Energy Private Limited
Turbochargers
32.6 %
India
Sundaram Finance Limited; Brakes India
Delphi-TVS Diesel Systems Ltd
Fuel injection equipment
52.5 %
India
T.V. Sundram Iyengar & Sons PVT Ltd
50 %
Japan/
China
NSK Ltd.
Limited
Consolidated:
BorgWarner Transmission
Systems Korea Ltd.1
Beijing Delphi Wan Yuan Engine
Management Systems Co. Ltd.
Co. Ltd.
Ltd.
“Delphi Samara”
Systems Co. Ltd.
Delphi Powertrain Systems Korea
Valvetrain and fuel injection
70 %
Korea
BU RA DA Company Limited
Ltd.
equipment
Transmission components
60 %
Korea
NSK-Warner
Engine management systems
51 %
China
Beijing Wan Yuan Industry Corporation
Borg-Warner Shenglong (Ningbo)
Fans and fan drives
70 %
China
Ningbo Shenglong Automotive Powertrain
BorgWarner TorqTransfer
Systems Beijing Co. Ltd.
Transfer cases
80 %
China
Beijing Hainachuan Automotive Parts
Systems Co., Ltd.
Holding Co., Ltd.
SeohanWarner Turbo Systems
Turbochargers
71 %
Korea
Korea Flange Company
Closed Joint Stock Company
Aftermarket products
80 %
Russia
CJSC “Samara Cable Company”
BorgWarner United Transmission
Transmission components
66 %
China
China Automobile Development United
Investment Co., Ltd.
BorgWarner Romeo Power LLC2
Battery module and pack
60 %
U.S.
Romeo Power, Inc.
1964
1987
2001
1977
1987
1999
1999
2000
2003
2006
2009
2019
2021
93 % Germany
Traded on Frankfurt Stock Exchange
AKASOL AG3
__________________________
technology
Battery module and pack
technology
1 BorgWarner Inc. owns 50% of NSK-Warner, which has a 40% interest in BorgWarner Transmission Systems Korea Ltd. This
ownership gives the Company an additional indirect effective ownership percentage of 20% in BorgWarner Transmission
Systems Korea Ltd., resulting in a total effective ownership interest of 80%.
2 On February 4, 2022, the Company finalized the sale of its 60% interest in BorgWarner Romeo Power LLC. Refer to Note 2,
“Acquisitions and Dispositions,” to the Consolidated Financial Statements in item 8 of this report for further discussion.
3 On February 10, 2022, the Company completed the registration of the Squeeze Out. Refer to Note 2, “Acquisitions and
Dispositions,” to the Consolidated Financial Statements in item 8 of this report for further discussion.
Financial Information About Geographic Areas
The Company has a global presence. During the year ended December 31, 2021, approximately 17% of
the Company’s net sales were generated in the United States, and 83% were generated outside the
United States. Refer to Note 24, “Reporting Segments and Related Information,” to the Consolidated
Financial Statements in Item 8 of this report for additional financial information about geographic areas.
Product Lines and Customers
During the year ended December 31, 2021, approximately 76% of the Company’s net sales were for light-
vehicle applications; approximately 11% were for commercial-vehicle applications; approximately 4%
were for off-highway vehicle applications; and approximately 9% were to distributors of aftermarket
replacement parts.
8
9
traditional and hybrid vehicles with gasoline combustion engines. The Company’s gasoline direct
injection, or GDi, technology provides high-precision fuel delivery for optimized combustion, which lowers
emissions and improves fuel economy. Its diesel fuel injection systems portfolio provides enhanced
engine performance at an attractive value. The Company’s common rail fuel injection system is the core
technology for both on and off-highway commercial and light vehicle applications.
The Aftermarket segment sells products and services to independent aftermarket customers and original
equipment service customers. Its product portfolio includes a wide range of solutions covering the fuel
injection, electronics and engine management, maintenance, and test equipment and vehicle diagnostics
categories. The aftermarket segment’s business provides a recurring and stable revenue base, as
replacement of many of these products is non-discretionary in nature.
Aftermarket
Joint Ventures
As of December 31, 2021, the Company had 13 joint ventures in which it had a less-than-100%
ownership interest. Results from the ten joint ventures in which the Company is the majority owner and
has a controlling financial interest are consolidated as part of the Company’s results. Results from the
three joint ventures in which the Company exercises significant influence but does not have a controlling
financial interest, were reported by the Company using the equity method of accounting pursuant to
which the Company records its proportionate share of each joint venture’s income or loss each period.
Management of the unconsolidated joint ventures is shared with the Company’s respective joint venture
partners. Certain information concerning the Company's joint ventures is set forth below:
Joint venture
Unconsolidated:
Products
NSK-Warner K.K.
Transmission components
Turbo Energy Private Limited
Turbochargers
Delphi-TVS Diesel Systems Ltd
Fuel injection equipment
Consolidated:
Delphi Powertrain Systems Korea
Ltd.
Valvetrain and fuel injection
equipment
BorgWarner Transmission
Systems Korea Ltd.1
Transmission components
Beijing Delphi Wan Yuan Engine
Management Systems Co. Ltd.
Engine management systems
Borg-Warner Shenglong (Ningbo)
Co. Ltd.
Fans and fan drives
BorgWarner TorqTransfer
Systems Beijing Co. Ltd.
Transfer cases
SeohanWarner Turbo Systems
Ltd.
Turbochargers
Closed Joint Stock Company
“Delphi Samara”
Aftermarket products
BorgWarner United Transmission
Systems Co. Ltd.
BorgWarner Romeo Power LLC2
AKASOL AG3
Transmission components
Battery module and pack
technology
Battery module and pack
technology
Year
organized
Percentage
owned by the
Company
Location
of
operation
Joint venture partner
1964
1987
2001
1977
1987
1999
1999
2000
2003
2006
2009
2019
2021
50 %
Japan/
China
NSK Ltd.
32.6 %
India
Sundaram Finance Limited; Brakes India
Limited
52.5 %
India
T.V. Sundram Iyengar & Sons PVT Ltd
70 %
Korea
BU RA DA Company Limited
60 %
Korea
NSK-Warner
51 %
China
Beijing Wan Yuan Industry Corporation
70 %
China
Ningbo Shenglong Automotive Powertrain
Systems Co., Ltd.
80 %
China
Beijing Hainachuan Automotive Parts
Holding Co., Ltd.
71 %
Korea
Korea Flange Company
80 %
Russia
CJSC “Samara Cable Company”
66 %
China
China Automobile Development United
Investment Co., Ltd.
60 %
U.S.
Romeo Power, Inc.
93 % Germany
Traded on Frankfurt Stock Exchange
__________________________
1 BorgWarner Inc. owns 50% of NSK-Warner, which has a 40% interest in BorgWarner Transmission Systems Korea Ltd. This
ownership gives the Company an additional indirect effective ownership percentage of 20% in BorgWarner Transmission
Systems Korea Ltd., resulting in a total effective ownership interest of 80%.
2 On February 4, 2022, the Company finalized the sale of its 60% interest in BorgWarner Romeo Power LLC. Refer to Note 2,
“Acquisitions and Dispositions,” to the Consolidated Financial Statements in item 8 of this report for further discussion.
3 On February 10, 2022, the Company completed the registration of the Squeeze Out. Refer to Note 2, “Acquisitions and
Dispositions,” to the Consolidated Financial Statements in item 8 of this report for further discussion.
Financial Information About Geographic Areas
The Company has a global presence. During the year ended December 31, 2021, approximately 17% of
the Company’s net sales were generated in the United States, and 83% were generated outside the
United States. Refer to Note 24, “Reporting Segments and Related Information,” to the Consolidated
Financial Statements in Item 8 of this report for additional financial information about geographic areas.
Product Lines and Customers
During the year ended December 31, 2021, approximately 76% of the Company’s net sales were for light-
vehicle applications; approximately 11% were for commercial-vehicle applications; approximately 4%
were for off-highway vehicle applications; and approximately 9% were to distributors of aftermarket
replacement parts.
8
9
The Company’s worldwide net sales to the following customers (including their subsidiaries) were
approximately as follows:
also work to improve current products and production processes. The Company believes its commitment
to R&D will allow it to continue to obtain new orders from its OEM customers.
Customer
Ford
Volkswagen
Year Ended December 31,
2021
2020
2019
10 %
9 %
13 %
11 %
15 %
11 %
No other single customer accounted for more than 10% of the Company’s consolidated net sales in any
of the years presented. Sales to the Company’s top ten customers represented 57% of sales for the year
ended December 31, 2021.
The Company’s automotive products are generally sold directly to OEMs, substantially pursuant to
negotiated annual contracts, long-term supply agreements or terms and conditions as may be modified
by the parties. Deliveries are subject to periodic authorizations based upon OEM production schedules.
The Company typically ships its products directly from its plants to the OEMs.
Sales and Marketing
Each of the Company’s businesses within its reporting segments has its own sales function. Account
executives for each of the Company’s businesses are assigned to serve specific customers for one or
more businesses’ products. Account executives spend the majority of their time in direct contact with
customers’ purchasing and engineering employees and are responsible for servicing existing business
and for identifying and obtaining new business. Because of their close relationship with customers,
account executives are able to identify and meet customers’ needs based upon their knowledge of the
Company’s product design and manufacturing capabilities. Upon securing a new order, account
executives participate in product launch team activities and serve as a key interface with customers. In
addition, sales and marketing employees of the Company’s reporting segments often work together to
explore cross-development opportunities where appropriate.
Seasonality
The Company’s operations are directly related to the automotive and commercial-vehicle industry.
Consequently, the Company’s segments may experience seasonal fluctuations to the extent vehicle
production slows, such as in the summer months when many customer plants typically close for model
year changeovers or vacations. Historically, model changeovers or vacations have generally resulted in
lower sales volume in the Company’s third quarter.
Research and Development
The Company conducts advanced propulsion research. This advanced engineering function seeks to
leverage know-how and expertise across product lines to create new propulsion systems and modules
that can be commercialized. This function oversees the Company's investments in certain venture capital
funds that provide seed money for start-up businesses developing new technologies pertinent to the
automotive industry and the Company's propulsion strategies.
In addition, each of the Company's businesses within its Air Management, e-Propulsion & Drivetrain and
Fuel Injection reporting segments has its own research and development (“R&D”) organization, including
engineers and technicians, engaged in R&D activities at facilities worldwide. The Company also operates
testing facilities such as prototype, measurement and calibration, life-cycle testing and dynamometer
laboratories.
By working closely with OEMs and anticipating their future product needs, the Company’s R&D personnel
conceive, design, develop and manufacture new proprietary components and systems. R&D personnel
markets in which it operates.
10
11
The Company’s net R&D expenditures are primarily included in selling, general and administrative
expenses of the Consolidated Statements of Operations. Customer reimbursements are netted against
gross R&D expenditures as they are considered a recovery of cost. Customer reimbursements for
prototypes are recorded net of prototype costs based on customer contracts, typically either when the
prototype is shipped or when it is accepted by the customer. Customer reimbursements for engineering
services are recorded when performance obligations are satisfied in accordance with the contract.
Financial risks and rewards transfer upon shipment, acceptance of a prototype component by the
customer or upon completion of the performance obligation as stated in the respective customer
agreement.
(in millions)
Gross R&D expenditures
Customer reimbursements
Net R&D expenditures
Intellectual Property
Year Ended December 31,
2021
2020
2019
$
$
930 $
(223)
707 $
533 $
(57)
476 $
498
(85)
413
Net R&D expenditures as a percentage of net sales were 4.8%, 4.7% and 4.1% for the years ended
December 31, 2021, 2020 and 2019, respectively.
The Company has approximately 8,200 active domestic and foreign patents and patent applications
pending or under preparation and receives royalties from licensing patent rights to others. While it
considers its patents on the whole to be important, the Company does not consider any single patent,
any group of related patents or any single license essential to its operations in the aggregate or to the
operations of any of the Company’s business groups individually. The expiration of the patents
individually and in the aggregate is not expected to have a material effect on the Company’s financial
position or future operating results. The Company owns numerous trademarks, some of which are
valuable, but none of which are essential to its business in the aggregate.
The Company owns the “BorgWarner” trade name and numerous BORGWARNER trademarks, including
without limitation “BORGWARNER” and “BORGWARNER and Bug Design”, which are material to the
Company's business.
Competition
The Company’s reporting segments compete worldwide with a number of other manufacturers and
distributors that produce and sell similar products. Many of these competitors are larger and have greater
resources than the Company. Technological innovation, application engineering development, quality,
price, delivery and program launch support are the primary methods of competition.
The Company’s major non-OEM competitors are Robert Bosch GmbH, Denso Corporation, Hitachi, Ltd.,
Magna Powertrain (an operating unit of Magna International Inc.), Valeo, Schaeffler Group and Vitesco
Technologies. The Company also competes with certain start-ups in electrification.
In addition, a number of the Company’s major OEM customers manufacture, for their own use and for
others, products that compete with the Company's products. Other current OEM customers could elect to
manufacture products to meet their own requirements or to compete with the Company. There is no
assurance that the Company’s business will not be adversely affected by increased competition in the
The Company’s worldwide net sales to the following customers (including their subsidiaries) were
approximately as follows:
also work to improve current products and production processes. The Company believes its commitment
to R&D will allow it to continue to obtain new orders from its OEM customers.
Customer
Ford
Volkswagen
Year Ended December 31,
2021
2020
2019
10 %
9 %
13 %
11 %
15 %
11 %
No other single customer accounted for more than 10% of the Company’s consolidated net sales in any
of the years presented. Sales to the Company’s top ten customers represented 57% of sales for the year
ended December 31, 2021.
The Company’s automotive products are generally sold directly to OEMs, substantially pursuant to
negotiated annual contracts, long-term supply agreements or terms and conditions as may be modified
by the parties. Deliveries are subject to periodic authorizations based upon OEM production schedules.
The Company typically ships its products directly from its plants to the OEMs.
Sales and Marketing
Each of the Company’s businesses within its reporting segments has its own sales function. Account
executives for each of the Company’s businesses are assigned to serve specific customers for one or
more businesses’ products. Account executives spend the majority of their time in direct contact with
customers’ purchasing and engineering employees and are responsible for servicing existing business
and for identifying and obtaining new business. Because of their close relationship with customers,
account executives are able to identify and meet customers’ needs based upon their knowledge of the
Company’s product design and manufacturing capabilities. Upon securing a new order, account
executives participate in product launch team activities and serve as a key interface with customers. In
addition, sales and marketing employees of the Company’s reporting segments often work together to
explore cross-development opportunities where appropriate.
Seasonality
The Company’s operations are directly related to the automotive and commercial-vehicle industry.
Consequently, the Company’s segments may experience seasonal fluctuations to the extent vehicle
production slows, such as in the summer months when many customer plants typically close for model
year changeovers or vacations. Historically, model changeovers or vacations have generally resulted in
lower sales volume in the Company’s third quarter.
The Company’s net R&D expenditures are primarily included in selling, general and administrative
expenses of the Consolidated Statements of Operations. Customer reimbursements are netted against
gross R&D expenditures as they are considered a recovery of cost. Customer reimbursements for
prototypes are recorded net of prototype costs based on customer contracts, typically either when the
prototype is shipped or when it is accepted by the customer. Customer reimbursements for engineering
services are recorded when performance obligations are satisfied in accordance with the contract.
Financial risks and rewards transfer upon shipment, acceptance of a prototype component by the
customer or upon completion of the performance obligation as stated in the respective customer
agreement.
(in millions)
Gross R&D expenditures
Customer reimbursements
Net R&D expenditures
Year Ended December 31,
2021
2020
2019
$
$
930 $
(223)
707 $
533 $
(57)
476 $
498
(85)
413
Net R&D expenditures as a percentage of net sales were 4.8%, 4.7% and 4.1% for the years ended
December 31, 2021, 2020 and 2019, respectively.
Intellectual Property
The Company has approximately 8,200 active domestic and foreign patents and patent applications
pending or under preparation and receives royalties from licensing patent rights to others. While it
considers its patents on the whole to be important, the Company does not consider any single patent,
any group of related patents or any single license essential to its operations in the aggregate or to the
operations of any of the Company’s business groups individually. The expiration of the patents
individually and in the aggregate is not expected to have a material effect on the Company’s financial
position or future operating results. The Company owns numerous trademarks, some of which are
valuable, but none of which are essential to its business in the aggregate.
The Company owns the “BorgWarner” trade name and numerous BORGWARNER trademarks, including
without limitation “BORGWARNER” and “BORGWARNER and Bug Design”, which are material to the
Company's business.
Research and Development
Competition
The Company conducts advanced propulsion research. This advanced engineering function seeks to
leverage know-how and expertise across product lines to create new propulsion systems and modules
that can be commercialized. This function oversees the Company's investments in certain venture capital
funds that provide seed money for start-up businesses developing new technologies pertinent to the
automotive industry and the Company's propulsion strategies.
In addition, each of the Company's businesses within its Air Management, e-Propulsion & Drivetrain and
Fuel Injection reporting segments has its own research and development (“R&D”) organization, including
engineers and technicians, engaged in R&D activities at facilities worldwide. The Company also operates
testing facilities such as prototype, measurement and calibration, life-cycle testing and dynamometer
laboratories.
By working closely with OEMs and anticipating their future product needs, the Company’s R&D personnel
conceive, design, develop and manufacture new proprietary components and systems. R&D personnel
The Company’s reporting segments compete worldwide with a number of other manufacturers and
distributors that produce and sell similar products. Many of these competitors are larger and have greater
resources than the Company. Technological innovation, application engineering development, quality,
price, delivery and program launch support are the primary methods of competition.
The Company’s major non-OEM competitors are Robert Bosch GmbH, Denso Corporation, Hitachi, Ltd.,
Magna Powertrain (an operating unit of Magna International Inc.), Valeo, Schaeffler Group and Vitesco
Technologies. The Company also competes with certain start-ups in electrification.
In addition, a number of the Company’s major OEM customers manufacture, for their own use and for
others, products that compete with the Company's products. Other current OEM customers could elect to
manufacture products to meet their own requirements or to compete with the Company. There is no
assurance that the Company’s business will not be adversely affected by increased competition in the
markets in which it operates.
10
11
For many of its products, the Company’s competitors include suppliers in parts of the world that enjoy
economic advantages such as lower labor costs, lower health care costs, lower tax rates and, in some
cases, export subsidies and/or raw materials subsidies. Also, see Item 1A, “Risk Factors.”
Human Capital Management
To deliver the Company’s vision of a clean, energy-efficient world, the Company embodies its beliefs in
every aspect of its operations. These are values that the Company lives by, instills in its employees and
upholds in partnership with all its stakeholders. The Company is committed to promoting and nurturing a
diverse and inclusive environment, honoring integrity, striving for excellence, committing to responsibility
for its communities and the environment, and building on the power of collaboration. The Company’s
ability to sustain and grow its business requires it to hire, retain and develop a highly skilled and diverse
management team and workforce worldwide. The Company believes the skills, experience, and industry
knowledge of its employees significantly benefit its operations and performance.
The Company’s Compensation Committee oversees human capital management, including diversity,
equity, and inclusion, and assesses whether environmental, social and governance (“ESG”) goals and
milestones, if appropriate, are effectively reflected in executive compensation. The full Board of Directors
oversees talent reviews and succession planning for the Company.
As of December 31, 2021, the Company had a worldwide salaried and hourly workforce as follows:
Americas
Asia
Europe
Total Employees
Salaried
Hourly
Total Employees
16,600
12,600
20,100
49,300
15,900
33,400
49,300
The Company uses an array of practices to attract, develop and retain highly qualified talent, including
the following:
•
Diversity, Equity & Inclusion (“DE&I”). The Company cultivates a culture where employees are
treated with respect and their differences are valued. It provides opportunities that inspire them to
thrive in every area they pursue. The Company is continually reviewing its policies, programs and
processes to ensure alignment with its DE&I strategy. The Company undertakes targeted
recruitment that serves as a strategic opportunity to build a diverse leadership pipeline. In 2021,
the Company continued the rollout of Unconscious Bias Awareness training to its workforce, and
also promoted the continued development of Employee Belonging Groups, which are aimed at
celebrating diversity, ensuring equity and promoting inclusion. As of December 31, 2021:
Four of 10 board members are women and/or minorities.
◦
◦
Three of 12 executive management team members are women and/or minorities.
◦ Women make up 15% of the Company’s leadership (those who participate in the
management incentive plan), 24% of the Company’s salaried workforce, 40% of the
Company’s new hires and 30% of the Company’s total workforce.
Minorities make up 17% of the Company’s U.S. leadership (those who participate in the
management incentive plan), 19% of the Company’s U.S. salaried workforce, 27% of the
Company’s U.S. new hires and 25% of the Company’s total U.S. workforce.
The Company’s latest pay equity analysis identified that, on average, women received
compensation 98.7% of that received by men across the Company’s global workforce. In
◦
◦
the U.S., minorities received compensation of at least 99.8% or greater of that received by
non-minorities.1 The Company is committed to the principle of equal pay for equal work
and seeks to ensure employees are paid equitably for substantially similar work. An annual
salary review process is in place to evaluate and address discrepancies in pay, if
identified.
•
Engagement & Sentiment. The Company actively deploys strategies to attract the brightest and
best talent and to engage and retain its talent. It recognizes and rewards employee contributions
with competitive pay and benefits. The Company closely monitors employee turnover as part of its
efforts to improve retention and to spot any potential opportunities for improvement. In the year
ended December 31, 2021, annual voluntary employee turnover was 15%.
•
Education & Development. The Company is committed to preparing its workforce for the
transition from combustion to electrification. In 2022, the Company will deliver training programs
created by elite universities to increase knowledge, skills and improve time-to-productivity for
engineers in new roles, in an electrification environment. The Company provides formal
development opportunities at all levels and stages of the career journey of its employees. These
opportunities are delivered in a variety of formats to make its portfolio of solutions agile,
sustainable and scalable. The Company provided more than 84,100 hours of training to 95% of
the Company’s salaried employees in the year ended December 31, 2021. The number of training
hours was an increase of 48% from 2020 hours of training for salaried employees. The high
percentage of salaried employees who have completed training this year reflects employee
commitment to develop within current and future roles, taking advantage of adaptive learning
solutions. On average, each salaried employee completed 5.3 hours of training in 2021.
•
Health & Safety. The Company’s employees’ safety is vitally important. It is dedicated to
continuously improving safety performance. Evidence of the Company’s dedication is in its results:
The Company’s global workforce accident total recordable incident rate through December 31,
2021 was 0.4, while, in comparison, the top quartile for motor vehicle parts manufacturing was
lower than or equal to 1.2, and the mean was 2.5 according to the U.S. Bureau of Labor Statistics
(the “BLS”). The Company’s global workforce accident lost time incident rate through
December 31, 2021 was 0.24, while in comparison the top quartile for motor vehicle parts
manufacturing was lower than or equal to 0.1 and the mean was 0.6 according to the BLS.
Additionally, the Company has a formal audited health and safety management system in place at
all of its manufacturing and technical centers.
In continued response to the global COVID-19 pandemic, the Company’s Critical Event
Management Team closely monitored and provided global guidance on industry and regulatory
health and safety recommendations. Safe work procedures implemented globally during 2020
consisted of, but were not limited to, temporary travel bans, temperature screenings, enhanced
sanitation and facility access procedures, suspected and/or positive case response, social
distancing guidelines and remote work arrangements.
Approximately 13% of the Company’s U.S. workforce is unionized. These employees, located at one
facility in the state of New York, are covered by a collective bargaining agreement that expires in
September 2024. Employees at certain international facilities are also unionized. The Company believes
the present relations with its workforce to be satisfactory. The Company recognizes that, in many of the
locations where it operates, employees have freedom of association rights with third-party organizations
such as labor unions. The Company respects and supports those rights, including the right to collective
bargaining, in accordance with local laws.
1 The Company’s latest pay equity study was conducted in 2020 based on compensation as of December 31, 2019.
The analysis included employees from salaried early-in-career through vice president roles. The Company
anticipates releasing results of its latest study in its next Sustainability Report.
12
13
For many of its products, the Company’s competitors include suppliers in parts of the world that enjoy
economic advantages such as lower labor costs, lower health care costs, lower tax rates and, in some
cases, export subsidies and/or raw materials subsidies. Also, see Item 1A, “Risk Factors.”
Human Capital Management
To deliver the Company’s vision of a clean, energy-efficient world, the Company embodies its beliefs in
every aspect of its operations. These are values that the Company lives by, instills in its employees and
upholds in partnership with all its stakeholders. The Company is committed to promoting and nurturing a
diverse and inclusive environment, honoring integrity, striving for excellence, committing to responsibility
for its communities and the environment, and building on the power of collaboration. The Company’s
ability to sustain and grow its business requires it to hire, retain and develop a highly skilled and diverse
management team and workforce worldwide. The Company believes the skills, experience, and industry
knowledge of its employees significantly benefit its operations and performance.
The Company’s Compensation Committee oversees human capital management, including diversity,
equity, and inclusion, and assesses whether environmental, social and governance (“ESG”) goals and
milestones, if appropriate, are effectively reflected in executive compensation. The full Board of Directors
oversees talent reviews and succession planning for the Company.
As of December 31, 2021, the Company had a worldwide salaried and hourly workforce as follows:
16,600
12,600
20,100
49,300
15,900
33,400
49,300
Americas
Asia
Europe
Salaried
Hourly
Total Employees
Total Employees
the following:
The Company uses an array of practices to attract, develop and retain highly qualified talent, including
•
Diversity, Equity & Inclusion (“DE&I”). The Company cultivates a culture where employees are
treated with respect and their differences are valued. It provides opportunities that inspire them to
thrive in every area they pursue. The Company is continually reviewing its policies, programs and
processes to ensure alignment with its DE&I strategy. The Company undertakes targeted
recruitment that serves as a strategic opportunity to build a diverse leadership pipeline. In 2021,
the Company continued the rollout of Unconscious Bias Awareness training to its workforce, and
also promoted the continued development of Employee Belonging Groups, which are aimed at
celebrating diversity, ensuring equity and promoting inclusion. As of December 31, 2021:
◦
◦
◦
◦
Four of 10 board members are women and/or minorities.
Three of 12 executive management team members are women and/or minorities.
◦ Women make up 15% of the Company’s leadership (those who participate in the
management incentive plan), 24% of the Company’s salaried workforce, 40% of the
Company’s new hires and 30% of the Company’s total workforce.
Minorities make up 17% of the Company’s U.S. leadership (those who participate in the
management incentive plan), 19% of the Company’s U.S. salaried workforce, 27% of the
Company’s U.S. new hires and 25% of the Company’s total U.S. workforce.
The Company’s latest pay equity analysis identified that, on average, women received
compensation 98.7% of that received by men across the Company’s global workforce. In
the U.S., minorities received compensation of at least 99.8% or greater of that received by
non-minorities.1 The Company is committed to the principle of equal pay for equal work
and seeks to ensure employees are paid equitably for substantially similar work. An annual
salary review process is in place to evaluate and address discrepancies in pay, if
identified.
•
•
•
Engagement & Sentiment. The Company actively deploys strategies to attract the brightest and
best talent and to engage and retain its talent. It recognizes and rewards employee contributions
with competitive pay and benefits. The Company closely monitors employee turnover as part of its
efforts to improve retention and to spot any potential opportunities for improvement. In the year
ended December 31, 2021, annual voluntary employee turnover was 15%.
Education & Development. The Company is committed to preparing its workforce for the
transition from combustion to electrification. In 2022, the Company will deliver training programs
created by elite universities to increase knowledge, skills and improve time-to-productivity for
engineers in new roles, in an electrification environment. The Company provides formal
development opportunities at all levels and stages of the career journey of its employees. These
opportunities are delivered in a variety of formats to make its portfolio of solutions agile,
sustainable and scalable. The Company provided more than 84,100 hours of training to 95% of
the Company’s salaried employees in the year ended December 31, 2021. The number of training
hours was an increase of 48% from 2020 hours of training for salaried employees. The high
percentage of salaried employees who have completed training this year reflects employee
commitment to develop within current and future roles, taking advantage of adaptive learning
solutions. On average, each salaried employee completed 5.3 hours of training in 2021.
Health & Safety. The Company’s employees’ safety is vitally important. It is dedicated to
continuously improving safety performance. Evidence of the Company’s dedication is in its results:
The Company’s global workforce accident total recordable incident rate through December 31,
2021 was 0.4, while, in comparison, the top quartile for motor vehicle parts manufacturing was
lower than or equal to 1.2, and the mean was 2.5 according to the U.S. Bureau of Labor Statistics
(the “BLS”). The Company’s global workforce accident lost time incident rate through
December 31, 2021 was 0.24, while in comparison the top quartile for motor vehicle parts
manufacturing was lower than or equal to 0.1 and the mean was 0.6 according to the BLS.
Additionally, the Company has a formal audited health and safety management system in place at
all of its manufacturing and technical centers.
In continued response to the global COVID-19 pandemic, the Company’s Critical Event
Management Team closely monitored and provided global guidance on industry and regulatory
health and safety recommendations. Safe work procedures implemented globally during 2020
consisted of, but were not limited to, temporary travel bans, temperature screenings, enhanced
sanitation and facility access procedures, suspected and/or positive case response, social
distancing guidelines and remote work arrangements.
Approximately 13% of the Company’s U.S. workforce is unionized. These employees, located at one
facility in the state of New York, are covered by a collective bargaining agreement that expires in
September 2024. Employees at certain international facilities are also unionized. The Company believes
the present relations with its workforce to be satisfactory. The Company recognizes that, in many of the
locations where it operates, employees have freedom of association rights with third-party organizations
such as labor unions. The Company respects and supports those rights, including the right to collective
bargaining, in accordance with local laws.
12
13
1 The Company’s latest pay equity study was conducted in 2020 based on compensation as of December 31, 2019.
The analysis included employees from salaried early-in-career through vice president roles. The Company
anticipates releasing results of its latest study in its next Sustainability Report.
Through its Internet website (www.borgwarner.com), the Company makes available, free of charge, its
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all
amendments to those reports, and other filings with the Securities and Exchange Commission as soon as
reasonably practicable after they are filed or furnished. The Company also makes the following
documents available on its Internet website: the Audit Committee Charter; the Compensation Committee
Charter; the Corporate Governance Committee Charter; the Company’s Corporate Governance
Guidelines; the Company’s Code of Ethical Conduct; and the Company’s Code of Ethics for CEO and
Senior Financial Officers. You may also obtain a copy of any of the foregoing documents, free of charge,
if you submit a written request to Investor Relations, 3850 Hamlin Road, Auburn Hills, Michigan 48326.
The public may read and copy materials filed by the Company with the SEC at the SEC’s Public
Reference Room at 100 F Street, NE, Washington, DC, 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC at http://www.sec.gov.
Raw Materials
Available Information
The Company uses a variety of raw materials in the production of its products including aluminum,
copper, nickel, plastic resins, steel, certain alloy elements and semiconductor chips. Manufacturing
operations for each of the Company’s operating segments are dependent upon natural gas, fuel oil and
electricity.
The Company uses a variety of tactics in an attempt to limit the impact of supply shortages and
inflationary pressures. The Company’s global procurement organization works to accelerate cost
reductions, purchase from lower cost regions, optimize the supply base, mitigate risk and collaborate on
its buying activities. In addition, the Company uses long-term contracts, cost sharing arrangements,
design changes, customer buy programs and limited financial instruments to help control costs. The
Company intends to use similar measures in 2022 and beyond. Refer to Note 17, “Financial Instruments,”
to the Consolidated Financial Statements in Item 8 of this report for information related to the Company’s
hedging activities.
For 2022, the Company believes there will continue to be supply constraints related to semiconductor
chips. Supplies of other raw materials are adequate and available from multiple sources to support its
manufacturing requirements.
Regulations
The Company operates in a constantly evolving global regulatory environment and is subject to
numerous and varying regulatory requirements for its product performance and material content. The
Company’s practice is to identify potential regulatory and quality risks early in the design and
development process and proactively manage them throughout the product lifecycle through the use of
routine assessments, protocols, standards, performance measures and audits. New regulations and
changes to existing regulations are managed in collaboration with the Company’s OEM customers and
implemented through its global systems and procedures designed to ensure compliance with existing
laws and regulations. The Company demonstrates material content compliance through the International
Material Data System (“IMDS”), which is the automotive industry material data system. In the IMDS, all
materials used for automobile manufacturing are archived and maintained to meet the obligations placed
on the automobile manufacturers, and thus on their suppliers, by national and international standards,
laws and regulations.
The Company works collaboratively with a number of stakeholder groups including government agencies,
such as the National Highway Traffic Safety Administration, its customers and its suppliers to proactively
engage in federal, state and international public policy processes.
Refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” for a discussion of the impact of environmental regulations on the Company’s business.
Also, see Item 1A, “Risk Factors.”
14
15
Available Information
Through its Internet website (www.borgwarner.com), the Company makes available, free of charge, its
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all
amendments to those reports, and other filings with the Securities and Exchange Commission as soon as
reasonably practicable after they are filed or furnished. The Company also makes the following
documents available on its Internet website: the Audit Committee Charter; the Compensation Committee
Charter; the Corporate Governance Committee Charter; the Company’s Corporate Governance
Guidelines; the Company’s Code of Ethical Conduct; and the Company’s Code of Ethics for CEO and
Senior Financial Officers. You may also obtain a copy of any of the foregoing documents, free of charge,
if you submit a written request to Investor Relations, 3850 Hamlin Road, Auburn Hills, Michigan 48326.
The public may read and copy materials filed by the Company with the SEC at the SEC’s Public
Reference Room at 100 F Street, NE, Washington, DC, 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC at http://www.sec.gov.
Raw Materials
electricity.
The Company uses a variety of raw materials in the production of its products including aluminum,
copper, nickel, plastic resins, steel, certain alloy elements and semiconductor chips. Manufacturing
operations for each of the Company’s operating segments are dependent upon natural gas, fuel oil and
The Company uses a variety of tactics in an attempt to limit the impact of supply shortages and
inflationary pressures. The Company’s global procurement organization works to accelerate cost
reductions, purchase from lower cost regions, optimize the supply base, mitigate risk and collaborate on
its buying activities. In addition, the Company uses long-term contracts, cost sharing arrangements,
design changes, customer buy programs and limited financial instruments to help control costs. The
Company intends to use similar measures in 2022 and beyond. Refer to Note 17, “Financial Instruments,”
to the Consolidated Financial Statements in Item 8 of this report for information related to the Company’s
hedging activities.
For 2022, the Company believes there will continue to be supply constraints related to semiconductor
chips. Supplies of other raw materials are adequate and available from multiple sources to support its
manufacturing requirements.
Regulations
The Company operates in a constantly evolving global regulatory environment and is subject to
numerous and varying regulatory requirements for its product performance and material content. The
Company’s practice is to identify potential regulatory and quality risks early in the design and
development process and proactively manage them throughout the product lifecycle through the use of
routine assessments, protocols, standards, performance measures and audits. New regulations and
changes to existing regulations are managed in collaboration with the Company’s OEM customers and
implemented through its global systems and procedures designed to ensure compliance with existing
laws and regulations. The Company demonstrates material content compliance through the International
Material Data System (“IMDS”), which is the automotive industry material data system. In the IMDS, all
materials used for automobile manufacturing are archived and maintained to meet the obligations placed
on the automobile manufacturers, and thus on their suppliers, by national and international standards,
laws and regulations.
The Company works collaboratively with a number of stakeholder groups including government agencies,
such as the National Highway Traffic Safety Administration, its customers and its suppliers to proactively
engage in federal, state and international public policy processes.
Refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” for a discussion of the impact of environmental regulations on the Company’s business.
Also, see Item 1A, “Risk Factors.”
14
15
Information About Executive Officers of the Company
Set forth below are the names, ages, positions and certain other information concerning the executive
officers of the Company as of February 15, 2022.
Name (Age)
Present Position
(Effective Date)
Positions Held During the Past Five Years
(Effective Date)
Frederic B. Lissalde (54) President and Chief Executive Officer
• Executive Vice President and Chief Operating Officer
(2018)
Kevin A. Nowlan (50)
Executive Vice President, Chief
Financial Officer (2019)
of the Company (2018)
• Vice President of the Company and President and
General Manager of BorgWarner Turbo Systems LLC
(2013 – 2017)
• Autoliv, Inc., Member of Board of Directors (2020 –
Present)
• Meritor Inc., Senior Vice President, President, Trailer,
Components and Chief Financial Officer (2018 – 2019)
• Meritor Inc., Senior Vice President and Chief Financial
Officer (2013 – 2018)
• Federal Reserve Bank of Chicago – Detroit Branch,
Member of Board of Directors (2022)
Tonit M. Calaway (54)
Executive Vice President, Chief
Administrative Officer, General Counsel
and Secretary (2020)
• Executive Vice President, Chief Legal Officer and
Secretary of the Company (2018 - 2020)
• Chief Human Resources Officer of the Company (2016
Felecia J. Pryor (47)
Executive Vice President, Chief Human
Resources Officer (2019)
– 2018)
• Astronics Corporation, Member of Board of Directors
(2019 – Present)
• W.P. Carey Inc., Member of Board of Directors (2020 –
Present)
• Vice President of Human Resources of BorgWarner
Morse Systems (2018 – 2019)
• Ford Motor Company, Global Human Resources
Director - Global Personnel, Organization & Planning
(2018)
• Ford Motor Company, Vice President of Human
Resources - ASEAN Markets (2016 – 2018)
Craig D. Aaron (44)
Vice President and Treasurer (2019)
• Vice President of Finance of BorgWarner Morse
business and financial performance.
Stefan Demmerle (57)
Brady D. Ericson (50)
Systems (2016 – 2019)
Vice President and President and
General Manager, PowerDrive Systems
(2015)
• Vice President of the Company and President and
General Manager of BorgWarner PowerDrive Systems
(2015 – Present)
Vice President and President and
General Manager, Morse Systems
(2019)
• Executive Vice President and Chief Strategy Officer of
the Company (2017 – 2019)
• Vice President of the Company and President and
General Manager of BorgWarner Emissions Systems
LLC (2014 – 2017)
Daniel R. Etue (48)
Vice President and Controller (2020)
• Meritor, Inc., Vice President, Finance (2013 – 2020)
operations, and financial condition.
Joseph F. Fadool (55)
Vice President and President and
General Manager, Emissions, Thermal
and Turbo Systems (2019)
• Vice President of the Company and President and
General Manager of Turbo Systems LLC (2019)
• Vice President of the Company and President and
Paul A. Farrell (55)
Vice President and Chief Strategy
Officer (2020)
General Manager of BorgWarner Emissions Systems
LLC and BorgWarner Thermal Systems Inc. (2017 –
2019)
• Vice President of the Company and President and
General Manager of BorgWarner Morse Systems
(2015 – 2017)
• Delphi Technologies PLC, Senior Vice President
Strategy, Sales and Corporate Development (2020)
• Delphi Technologies PLC, Senior Vice President
Strategy and Corporate Development (2019 – 2020)
• Delphi Technologies PLC, Senior Vice President
Strategic Planning and Product Marketing (2017 –
2019)
• Delphi Powertrain Systems, LLC, Vice President
Strategy and Product Line Marketing (2016 – 2017)
16
17
Davide Girelli (50)
Vice President and President and
General Manager, Fuel Injection
Systems (2020)
Volker Weng (51)
Vice President and President and
• Vice President of the Company and President and
General Manager, Drivetrain Systems f/
General Manager of BorgWarner Emissions Systems
k/a Transmission Systems (2019)
• Vice President and General Manager Europe and
South America BorgWarner Emissions, Thermal and
Turbo Systems (2019 – 2020)
• Vice President and General Manager Europe and
South America of BorgWarner Turbo Systems (2018 –
2019)
• Vice President and General Manager Europe and Asia
of BorgWarner Morse Systems (2015 – 2018)
LLC and BorgWarner Thermal Systems Inc. (2019)
• Vice President and General Manager, Europe for
BorgWarner Emissions Systems LLC and BorgWarner
Thermal Systems Inc. (2017 – 2019)
• Vice President and General Manager, Asia for Turbo
Systems LLC (2015 – 2017)
Item 1A.
Risk Factors
The following risk factors and other information included in this Annual Report on Form 10-K should be
considered. The risks and uncertainties described below are not the only ones the Company faces.
Additional risks and uncertainties not presently known to the Company or that it currently deems
immaterial also may impact its business operations. If any of the following risks occur, the Company’s
business including its financial performance, financial condition, operating results and cash flows could
be adversely affected.
Risks related to COVID-19
The Company faces risks related to the COVID-19 pandemic that could adversely affect its
The COVID-19 pandemic has disrupted, and may continue to disrupt, global automotive industry
production volumes, and consumer purchases of light vehicles. In 2020, global vehicle production
decreased, and some vehicle manufacturers, at times, completely shut down manufacturing operations in
some countries and regions, including the United States and Europe. As a result, the Company has
experienced, and may continue to experience, delays in the production and distribution of its products
and the loss of sales. If the global economic effects caused by COVID-19 continue or increase, overall
customer demand may decrease, which could further adversely affect the Company’s business, results of
Throughout 2020, and to a lesser extent in 2021, global government directives and initiatives to reduce
the transmission of COVID-19, such as the imposition of travel restrictions, closing of borders, stay-at-
home orders, plant shutdowns, and lockdowns of cities and countries, materially impacted the Company’s
operations. Furthermore, COVID-19 has impacted and may further impact the broader economies of
affected countries, including negatively impacting economic growth, traditional functioning of financial and
capital markets, foreign currency exchange rates, and interest rates.
During 2021, trailing impacts of the shutdowns and production declines related, in part, to COVID-19
created supply constraints of certain components, particularly semiconductor chips. These supply
constraints have had and are expected to continue to have significant impacts on global industry
production levels. Due to the uncertainty of its duration and the timing of recovery, at this time, the
Company is unable to predict the extent to which COVID-19, including its existing and future variants that
may emerge, may have an adverse effect on the Company’s business, financial condition, operating
results or cash flows. The extent of the impact of COVID-19 on the Company’s operational and financial
performance, including its ability to execute its business strategies and initiatives in the expected time
frames, will depend on future developments, including, but not limited to, the duration and spread of
Information About Executive Officers of the Company
Set forth below are the names, ages, positions and certain other information concerning the executive
officers of the Company as of February 15, 2022.
Name (Age)
Present Position
(Effective Date)
Positions Held During the Past Five Years
(Effective Date)
Frederic B. Lissalde (54) President and Chief Executive Officer
• Executive Vice President and Chief Operating Officer
(2018)
Kevin A. Nowlan (50)
Executive Vice President, Chief
Financial Officer (2019)
Tonit M. Calaway (54)
Executive Vice President, Chief
• Executive Vice President, Chief Legal Officer and
Administrative Officer, General Counsel
Secretary of the Company (2018 - 2020)
and Secretary (2020)
• Chief Human Resources Officer of the Company (2016
of the Company (2018)
• Vice President of the Company and President and
General Manager of BorgWarner Turbo Systems LLC
• Autoliv, Inc., Member of Board of Directors (2020 –
(2013 – 2017)
Present)
• Meritor Inc., Senior Vice President, President, Trailer,
Components and Chief Financial Officer (2018 – 2019)
• Meritor Inc., Senior Vice President and Chief Financial
Officer (2013 – 2018)
• Federal Reserve Bank of Chicago – Detroit Branch,
Member of Board of Directors (2022)
• Astronics Corporation, Member of Board of Directors
• W.P. Carey Inc., Member of Board of Directors (2020 –
– 2018)
(2019 – Present)
Present)
Morse Systems (2018 – 2019)
• Ford Motor Company, Global Human Resources
Director - Global Personnel, Organization & Planning
(2018)
• Ford Motor Company, Vice President of Human
Resources - ASEAN Markets (2016 – 2018)
Felecia J. Pryor (47)
Executive Vice President, Chief Human
• Vice President of Human Resources of BorgWarner
Resources Officer (2019)
Craig D. Aaron (44)
Vice President and Treasurer (2019)
• Vice President of Finance of BorgWarner Morse
Stefan Demmerle (57)
Vice President and President and
• Vice President of the Company and President and
General Manager, PowerDrive Systems
General Manager of BorgWarner PowerDrive Systems
Brady D. Ericson (50)
Vice President and President and
• Executive Vice President and Chief Strategy Officer of
General Manager, Morse Systems
the Company (2017 – 2019)
Systems (2016 – 2019)
(2015 – Present)
(2015)
(2019)
• Vice President of the Company and President and
General Manager of BorgWarner Emissions Systems
LLC (2014 – 2017)
Daniel R. Etue (48)
Vice President and Controller (2020)
• Meritor, Inc., Vice President, Finance (2013 – 2020)
Joseph F. Fadool (55)
Vice President and President and
• Vice President of the Company and President and
General Manager, Emissions, Thermal
General Manager of Turbo Systems LLC (2019)
and Turbo Systems (2019)
Paul A. Farrell (55)
Vice President and Chief Strategy
• Delphi Technologies PLC, Senior Vice President
Officer (2020)
• Vice President of the Company and President and
General Manager of BorgWarner Emissions Systems
LLC and BorgWarner Thermal Systems Inc. (2017 –
• Vice President of the Company and President and
General Manager of BorgWarner Morse Systems
2019)
(2015 – 2017)
Strategy, Sales and Corporate Development (2020)
• Delphi Technologies PLC, Senior Vice President
Strategy and Corporate Development (2019 – 2020)
• Delphi Technologies PLC, Senior Vice President
Strategic Planning and Product Marketing (2017 –
2019)
• Delphi Powertrain Systems, LLC, Vice President
Strategy and Product Line Marketing (2016 – 2017)
Davide Girelli (50)
Vice President and President and
General Manager, Fuel Injection
Systems (2020)
Volker Weng (51)
Vice President and President and
General Manager, Drivetrain Systems f/
k/a Transmission Systems (2019)
• Vice President and General Manager Europe and
South America BorgWarner Emissions, Thermal and
Turbo Systems (2019 – 2020)
• Vice President and General Manager Europe and
South America of BorgWarner Turbo Systems (2018 –
2019)
• Vice President and General Manager Europe and Asia
of BorgWarner Morse Systems (2015 – 2018)
• Vice President of the Company and President and
General Manager of BorgWarner Emissions Systems
LLC and BorgWarner Thermal Systems Inc. (2019)
• Vice President and General Manager, Europe for
BorgWarner Emissions Systems LLC and BorgWarner
Thermal Systems Inc. (2017 – 2019)
• Vice President and General Manager, Asia for Turbo
Systems LLC (2015 – 2017)
Item 1A.
Risk Factors
The following risk factors and other information included in this Annual Report on Form 10-K should be
considered. The risks and uncertainties described below are not the only ones the Company faces.
Additional risks and uncertainties not presently known to the Company or that it currently deems
immaterial also may impact its business operations. If any of the following risks occur, the Company’s
business including its financial performance, financial condition, operating results and cash flows could
be adversely affected.
Risks related to COVID-19
The Company faces risks related to the COVID-19 pandemic that could adversely affect its
business and financial performance.
The COVID-19 pandemic has disrupted, and may continue to disrupt, global automotive industry
production volumes, and consumer purchases of light vehicles. In 2020, global vehicle production
decreased, and some vehicle manufacturers, at times, completely shut down manufacturing operations in
some countries and regions, including the United States and Europe. As a result, the Company has
experienced, and may continue to experience, delays in the production and distribution of its products
and the loss of sales. If the global economic effects caused by COVID-19 continue or increase, overall
customer demand may decrease, which could further adversely affect the Company’s business, results of
operations, and financial condition.
Throughout 2020, and to a lesser extent in 2021, global government directives and initiatives to reduce
the transmission of COVID-19, such as the imposition of travel restrictions, closing of borders, stay-at-
home orders, plant shutdowns, and lockdowns of cities and countries, materially impacted the Company’s
operations. Furthermore, COVID-19 has impacted and may further impact the broader economies of
affected countries, including negatively impacting economic growth, traditional functioning of financial and
capital markets, foreign currency exchange rates, and interest rates.
During 2021, trailing impacts of the shutdowns and production declines related, in part, to COVID-19
created supply constraints of certain components, particularly semiconductor chips. These supply
constraints have had and are expected to continue to have significant impacts on global industry
production levels. Due to the uncertainty of its duration and the timing of recovery, at this time, the
Company is unable to predict the extent to which COVID-19, including its existing and future variants that
may emerge, may have an adverse effect on the Company’s business, financial condition, operating
results or cash flows. The extent of the impact of COVID-19 on the Company’s operational and financial
performance, including its ability to execute its business strategies and initiatives in the expected time
frames, will depend on future developments, including, but not limited to, the duration and spread of
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COVID-19, including variants, its severity, COVID-19 containment and treatment efforts, including the
availability, efficacy, and acceptance of the vaccines and any related restrictions on travel. Furthermore,
the duration, timing and severity of the impact on customer production, including any recession resulting
from COVID-19, are uncertain and unpredictable. An extended period of global supply chain and
economic disruption as a result of COVID-19 would have a further material negative impact on the
Company’s business, results of operations, access to sources of liquidity and financial condition, although
the full extent and duration are uncertain.
Risks related to the Company’s strategy
The Company’s Charging Forward strategy may prove unsuccessful.
In 2021, the Company announced its strategy to aggressively grow its electrification portfolio over time
through organic investments and technology-focused acquisitions, most recently through the 2021
acquisition of AKASOL as well as the 2020 purchase of Delphi Technologies. The Company believes it is
well positioned for the industry’s anticipated migration to electric vehicles. Outlined in this strategy is a
target to dispose of $3 to $4 billion in annual revenue from the Company’s combustion portfolio by 2025
with approximately $1 billion of that target to be delivered by the end of 2022. The Company is targeting
revenue from products for pure electric vehicles to be over 25% of its total revenue by 2025 and
approximately 45% of its total revenue by 2030.
The Company may not meet its goals due to many factors, including any of the risks identified in the
paragraph that follows, failure to develop new products that its customers will purchase, and technology
changes that could render its products obsolete, or the introduction of new technology to which it does
not have access, among other things. Additionally, there is no certainty that the Company will be able to
dispose of certain internal combustion assets on favorable terms, if at all, and the disposition process is
expected to consume significant management resources.
The Company expects to continue to pursue business ventures, acquisitions, and strategic alliances that
leverage its technology capabilities and enhance its customer base, geographic representation, and scale
to complement its current businesses. The Company regularly evaluates potential growth opportunities,
some of which could be material. While it believes that such transactions are an integral part of its long-
term strategy, there are risks and uncertainties related to these activities. Assessing a potential growth
opportunity involves extensive due diligence. However, the amount of information the Company can
obtain about a potential growth opportunity can be limited, and it can give no assurance that past or
future business ventures, acquisitions, and strategic alliances will positively affect its financial
performance or will perform as planned. Assessing a price for potential transactions is inexact,
particularly in a market that generally favors sellers and attaches a high multiple or premium on
technology. The Company may not be able to successfully assimilate or integrate companies that it has
acquired or will acquire in the future, including their personnel, financial systems, distribution, operations
and general operating procedures. Failure to execute the Company’s growth strategy could adversely
affect its business.
The failure to realize the expected benefits of acquisitions and other risks associated with
acquisitions could adversely affect the Company’s business.
The success of the Company’s acquisitions is dependent, in part, on its ability to realize the expected
benefits from combining the businesses of the Company and businesses that it acquires. To realize these
anticipated benefits, both companies must be successfully combined, which is subject to the Company’s
ability to consolidate operations, corporate cultures and systems and to eliminate redundancies and
costs. If the Company is unsuccessful in combining companies, the anticipated benefits of the
acquisitions may not be realized fully or at all or may take longer to realize than expected. Further, there
is potential for unknown or inestimable liabilities relating to the acquired businesses. In addition, the
actual integration may result in additional and unforeseen expenses, which could reduce the anticipated
benefits of the acquisitions.
The combination of independent businesses is a complex, costly and time-consuming process that
requires significant management attention and resources. It is possible that the integration process could
result in the loss of key employees, the disruption of the Company’s operations, the inability to maintain
or increase its competitive presence, inconsistencies in standards, controls, procedures and policies,
difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects
from the acquisition, the diversion of management’s attention to integration matters and/or difficulties in
the assimilation of employees and corporate cultures. Any or all of these factors could adversely affect
the Company’s ability to maintain relationships with customers and employees or to achieve the
anticipated benefits of the acquisition and could have an adverse effect on the combined company. In
addition, many of these factors are outside of the Company’s control, and any one of these factors could
result in increased costs, decreases in the amount of expected revenues and additional diversion of
management’s time and energy, which could materially adversely impact its business, financial condition
and results of operations.
The Company may not be able to execute dispositions of assets or businesses successfully.
When the Company decides to dispose of assets or a business, it may have difficulty finding buyers or
alternative exit strategies on acceptable terms in a timely manner, which could delay the ability of the
Company to achieve its strategic objectives. It may also dispose of a business at a price or on terms that
are less desirable than it had anticipated. Buyers of the assets or business may from time to time agree
to indemnify the Company for operations of such businesses after the closing. The Company cannot be
assured that any of these indemnification provisions will fully protect it, and as a result may face
unexpected liabilities that adversely affect its business, financial condition and results of operations. In
addition, the Company may experience fewer synergies than expected, and the impact of the disposition
on its financial results may be larger than projected.
After reaching an agreement for the disposition of a business, the Company is subject to satisfaction of
pre-closing conditions as well as necessary regulatory and governmental approvals on acceptable terms,
which, if not satisfied or obtained, may prevent it from completing the transaction. Such regulatory and
governmental approvals may be required in jurisdictions around the world, and any delays in the timing of
such approvals could materially delay or prevent the transaction.
Goodwill and indefinite-lived intangible assets, which are subject to periodic impairment
evaluations, represent a significant portion of the Company’s total assets. An impairment charge
on these assets could have a material adverse impact on its financial condition and results of
operations.
The Company has recorded goodwill and indefinite-lived intangible assets related to acquisitions. It
periodically assesses these assets to determine if they are impaired. Significant negative industry or
macro-economic trends, disruptions to its business, inability to effectively integrate acquired businesses,
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COVID-19, including variants, its severity, COVID-19 containment and treatment efforts, including the
availability, efficacy, and acceptance of the vaccines and any related restrictions on travel. Furthermore,
the duration, timing and severity of the impact on customer production, including any recession resulting
from COVID-19, are uncertain and unpredictable. An extended period of global supply chain and
economic disruption as a result of COVID-19 would have a further material negative impact on the
Company’s business, results of operations, access to sources of liquidity and financial condition, although
the full extent and duration are uncertain.
Risks related to the Company’s strategy
The Company’s Charging Forward strategy may prove unsuccessful.
In 2021, the Company announced its strategy to aggressively grow its electrification portfolio over time
through organic investments and technology-focused acquisitions, most recently through the 2021
acquisition of AKASOL as well as the 2020 purchase of Delphi Technologies. The Company believes it is
well positioned for the industry’s anticipated migration to electric vehicles. Outlined in this strategy is a
target to dispose of $3 to $4 billion in annual revenue from the Company’s combustion portfolio by 2025
with approximately $1 billion of that target to be delivered by the end of 2022. The Company is targeting
revenue from products for pure electric vehicles to be over 25% of its total revenue by 2025 and
approximately 45% of its total revenue by 2030.
The Company may not meet its goals due to many factors, including any of the risks identified in the
paragraph that follows, failure to develop new products that its customers will purchase, and technology
changes that could render its products obsolete, or the introduction of new technology to which it does
not have access, among other things. Additionally, there is no certainty that the Company will be able to
dispose of certain internal combustion assets on favorable terms, if at all, and the disposition process is
expected to consume significant management resources.
The Company expects to continue to pursue business ventures, acquisitions, and strategic alliances that
leverage its technology capabilities and enhance its customer base, geographic representation, and scale
to complement its current businesses. The Company regularly evaluates potential growth opportunities,
some of which could be material. While it believes that such transactions are an integral part of its long-
term strategy, there are risks and uncertainties related to these activities. Assessing a potential growth
opportunity involves extensive due diligence. However, the amount of information the Company can
obtain about a potential growth opportunity can be limited, and it can give no assurance that past or
future business ventures, acquisitions, and strategic alliances will positively affect its financial
performance or will perform as planned. Assessing a price for potential transactions is inexact,
particularly in a market that generally favors sellers and attaches a high multiple or premium on
technology. The Company may not be able to successfully assimilate or integrate companies that it has
acquired or will acquire in the future, including their personnel, financial systems, distribution, operations
and general operating procedures. Failure to execute the Company’s growth strategy could adversely
affect its business.
The failure to realize the expected benefits of acquisitions and other risks associated with
acquisitions could adversely affect the Company’s business.
The success of the Company’s acquisitions is dependent, in part, on its ability to realize the expected
benefits from combining the businesses of the Company and businesses that it acquires. To realize these
anticipated benefits, both companies must be successfully combined, which is subject to the Company’s
ability to consolidate operations, corporate cultures and systems and to eliminate redundancies and
costs. If the Company is unsuccessful in combining companies, the anticipated benefits of the
acquisitions may not be realized fully or at all or may take longer to realize than expected. Further, there
is potential for unknown or inestimable liabilities relating to the acquired businesses. In addition, the
actual integration may result in additional and unforeseen expenses, which could reduce the anticipated
benefits of the acquisitions.
The combination of independent businesses is a complex, costly and time-consuming process that
requires significant management attention and resources. It is possible that the integration process could
result in the loss of key employees, the disruption of the Company’s operations, the inability to maintain
or increase its competitive presence, inconsistencies in standards, controls, procedures and policies,
difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects
from the acquisition, the diversion of management’s attention to integration matters and/or difficulties in
the assimilation of employees and corporate cultures. Any or all of these factors could adversely affect
the Company’s ability to maintain relationships with customers and employees or to achieve the
anticipated benefits of the acquisition and could have an adverse effect on the combined company. In
addition, many of these factors are outside of the Company’s control, and any one of these factors could
result in increased costs, decreases in the amount of expected revenues and additional diversion of
management’s time and energy, which could materially adversely impact its business, financial condition
and results of operations.
The Company may not be able to execute dispositions of assets or businesses successfully.
When the Company decides to dispose of assets or a business, it may have difficulty finding buyers or
alternative exit strategies on acceptable terms in a timely manner, which could delay the ability of the
Company to achieve its strategic objectives. It may also dispose of a business at a price or on terms that
are less desirable than it had anticipated. Buyers of the assets or business may from time to time agree
to indemnify the Company for operations of such businesses after the closing. The Company cannot be
assured that any of these indemnification provisions will fully protect it, and as a result may face
unexpected liabilities that adversely affect its business, financial condition and results of operations. In
addition, the Company may experience fewer synergies than expected, and the impact of the disposition
on its financial results may be larger than projected.
After reaching an agreement for the disposition of a business, the Company is subject to satisfaction of
pre-closing conditions as well as necessary regulatory and governmental approvals on acceptable terms,
which, if not satisfied or obtained, may prevent it from completing the transaction. Such regulatory and
governmental approvals may be required in jurisdictions around the world, and any delays in the timing of
such approvals could materially delay or prevent the transaction.
Goodwill and indefinite-lived intangible assets, which are subject to periodic impairment
evaluations, represent a significant portion of the Company’s total assets. An impairment charge
on these assets could have a material adverse impact on its financial condition and results of
operations.
The Company has recorded goodwill and indefinite-lived intangible assets related to acquisitions. It
periodically assesses these assets to determine if they are impaired. Significant negative industry or
macro-economic trends, disruptions to its business, inability to effectively integrate acquired businesses,
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unexpected significant changes or planned changes in use of the assets, dispositions, and market
capitalization declines may impair these assets, and any of these factors may be increasingly present
during the ongoing COVID-19 pandemic.
The Company reviews goodwill and indefinite-lived intangible assets for impairment either annually or
whenever changes in circumstances indicate that the carrying value may not be recoverable. The risk of
impairment to goodwill and indefinite-lived intangible assets is higher during the early years following an
acquisition. This is because the fair values of these assets align very closely with what was paid to
acquire the reporting units to which these assets are assigned. As a result, the difference between the
carrying value of the reporting unit and its fair value (typically referred to as “headroom”) is smaller at the
time of acquisition. Until this headroom grows over time, due to business growth or lower carrying value
of the reporting unit, a relatively small decrease in reporting unit fair value can trigger impairment
charges. When impairment charges are triggered, they tend to be material due to the size of the assets
involved. Future acquisitions could present similar risks. Any charges relating to such impairments could
adversely affect the Company’s results of operations in the periods recognized.
Risks related to the Company’s industry
Conditions in the automotive industry may adversely affect the Company’s business.
The Company’s financial performance depends on conditions in the global automotive industry.
Automotive and truck production and sales are cyclical and sensitive to general economic conditions and
other factors including interest rates, consumer credit, and consumer spending and preferences.
Economic declines that result in significant reduction in automotive or truck production would have an
adverse effect on the Company’s sales to OEMs.
The Company faces strong competition.
products.
The Company competes worldwide with a number of other manufacturers and distributors that produce
and sell similar products. Price, quality, delivery, technological innovation, engineering development and
program launch support are the primary elements of competition. The Company’s competitors include
vertically integrated units of its major OEM customers, as well as a large number of independent
domestic and international suppliers. Additionally, its competitors include start-ups that may be well
funded, with the result that they could have more operational and financial flexibility than it has. A number
of the Company’s competitors are larger than it is, and some competitors have greater financial and other
resources than it does. Although OEMs have indicated that they will continue to rely on outside suppliers,
a number of major OEM customers manufacture products for their own uses that directly compete with
the Company’s products. These OEMs could elect to manufacture such products for their own uses in
place of the products the Company currently supplies. The Company’s traditional OEM customers, faced
with intense international competition, have continued to expand their worldwide sourcing of components.
As a result, the Company has experienced competition from suppliers in other parts of the world that
enjoy economic advantages, such as lower labor costs, lower health care costs, lower tax rates and, in
some cases, export or raw materials subsidies. Increased competition could adversely affect the
Company’s business. In addition, any of its competitors may foresee the course of market development
more accurately than it does, develop products that are superior to its products, produce similar products
at a cost that is lower than its cost, or adapt more quickly than it does to new technologies or evolving
customer requirements. As a result, the Company’s products may not be able to compete successfully
with its competitors' products, and it may not be able to meet the growing demands of customers. These
trends may adversely affect the Company’s sales as well as the profit margins on its products.
If the Company does not respond appropriately, the evolution of the automotive industry could
adversely affect its business.
The automotive industry is increasingly focused on the development of hybrid and electric vehicles and of
advanced driver assistance technologies, with the goal of developing and introducing a commercially
viable, fully automated driving experience. There has also been an increase in consumer preferences for
mobility on demand services, such as car and ride sharing, as opposed to automobile ownership, which
may result in a long-term reduction in the number of vehicles per capita. In addition, some industry
participants are exploring transportation through alternatives to automobiles. These evolving areas have
also attracted increased competition from entrants outside the traditional automotive industry. If the
Company does not continue to innovate and develop, or acquire, new and compelling products that
capitalize upon new technologies in response to OEM and consumer preferences, this could have an
adverse impact on its results of operations.
Risks related to the Company’s business
The Company is under substantial pressure from OEMs to reduce the prices of its products.
There is substantial and continuing pressure on OEMs to reduce costs, including costs of products the
Company supplies. OEM customers expect annual price reductions in its business. To maintain its profit
margins, the Company seeks price reductions from its suppliers, improved production processes to
increase manufacturing efficiency, and streamlined product designs to reduce costs, and it attempts to
develop new products, the benefits of which support stable or increased prices. The Company’s ability to
pass through increased raw material costs to its OEM customers is limited, with cost recovery often less
than 100% and often on a delayed basis. Inability to reduce costs in an amount equal to annual price
reductions, increases in raw material costs, and increases in employee wages and benefits could have
an adverse effect on its business.
The Company continues to face volatile costs of commodities used in the production of its
The Company uses a variety of commodities (including aluminum, copper, nickel, plastic resins, steel,
other raw materials and energy) and materials purchased in various forms such as castings, powder
metal, forgings, stampings and bar stock. Increasing commodity costs will have an impact on its results.
The Company has sought to alleviate the impact of increasing costs by including a material pass-through
provision in its customer contracts wherever possible and by selectively hedging certain commodity
exposures. Customers frequently challenge these contractual provisions and rarely pay the full cost of
any increases in the cost of materials. The discontinuation or lessening of the Company’s ability to pass
through or hedge increasing commodity costs could adversely affect its business.
From time to time, commodity prices may also fall rapidly. If this happens, suppliers may withdraw
capacity from the market until prices improve which may cause periodic supply interruptions. The same
may be true of transportation carriers and energy providers. If these supply interruptions occur, it could
adversely affect the Company’s business.
Changes in U.S. administrative policy, including changes to existing trade agreements and any
resulting changes in international trade relations, may have an adverse effect on the Company.
The United States has maintained tariffs on certain imported steel, aluminum and items originating from
China. These tariffs have increased the cost of raw materials and components the Company purchases.
The imposition of tariffs by the United States has resulted in retaliatory tariffs from a number of countries,
including China, which increase the cost of products the Company sells. If the U.S. or other countries
impose additional tariffs, that will have a further adverse impact on its business.
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unexpected significant changes or planned changes in use of the assets, dispositions, and market
capitalization declines may impair these assets, and any of these factors may be increasingly present
during the ongoing COVID-19 pandemic.
The Company reviews goodwill and indefinite-lived intangible assets for impairment either annually or
whenever changes in circumstances indicate that the carrying value may not be recoverable. The risk of
impairment to goodwill and indefinite-lived intangible assets is higher during the early years following an
acquisition. This is because the fair values of these assets align very closely with what was paid to
acquire the reporting units to which these assets are assigned. As a result, the difference between the
carrying value of the reporting unit and its fair value (typically referred to as “headroom”) is smaller at the
time of acquisition. Until this headroom grows over time, due to business growth or lower carrying value
of the reporting unit, a relatively small decrease in reporting unit fair value can trigger impairment
charges. When impairment charges are triggered, they tend to be material due to the size of the assets
involved. Future acquisitions could present similar risks. Any charges relating to such impairments could
adversely affect the Company’s results of operations in the periods recognized.
Risks related to the Company’s industry
Conditions in the automotive industry may adversely affect the Company’s business.
The Company’s financial performance depends on conditions in the global automotive industry.
Automotive and truck production and sales are cyclical and sensitive to general economic conditions and
other factors including interest rates, consumer credit, and consumer spending and preferences.
Economic declines that result in significant reduction in automotive or truck production would have an
adverse effect on the Company’s sales to OEMs.
The Company faces strong competition.
The Company competes worldwide with a number of other manufacturers and distributors that produce
and sell similar products. Price, quality, delivery, technological innovation, engineering development and
program launch support are the primary elements of competition. The Company’s competitors include
vertically integrated units of its major OEM customers, as well as a large number of independent
domestic and international suppliers. Additionally, its competitors include start-ups that may be well
funded, with the result that they could have more operational and financial flexibility than it has. A number
of the Company’s competitors are larger than it is, and some competitors have greater financial and other
resources than it does. Although OEMs have indicated that they will continue to rely on outside suppliers,
a number of major OEM customers manufacture products for their own uses that directly compete with
the Company’s products. These OEMs could elect to manufacture such products for their own uses in
place of the products the Company currently supplies. The Company’s traditional OEM customers, faced
with intense international competition, have continued to expand their worldwide sourcing of components.
As a result, the Company has experienced competition from suppliers in other parts of the world that
enjoy economic advantages, such as lower labor costs, lower health care costs, lower tax rates and, in
some cases, export or raw materials subsidies. Increased competition could adversely affect the
Company’s business. In addition, any of its competitors may foresee the course of market development
more accurately than it does, develop products that are superior to its products, produce similar products
at a cost that is lower than its cost, or adapt more quickly than it does to new technologies or evolving
customer requirements. As a result, the Company’s products may not be able to compete successfully
with its competitors' products, and it may not be able to meet the growing demands of customers. These
trends may adversely affect the Company’s sales as well as the profit margins on its products.
If the Company does not respond appropriately, the evolution of the automotive industry could
adversely affect its business.
The automotive industry is increasingly focused on the development of hybrid and electric vehicles and of
advanced driver assistance technologies, with the goal of developing and introducing a commercially
viable, fully automated driving experience. There has also been an increase in consumer preferences for
mobility on demand services, such as car and ride sharing, as opposed to automobile ownership, which
may result in a long-term reduction in the number of vehicles per capita. In addition, some industry
participants are exploring transportation through alternatives to automobiles. These evolving areas have
also attracted increased competition from entrants outside the traditional automotive industry. If the
Company does not continue to innovate and develop, or acquire, new and compelling products that
capitalize upon new technologies in response to OEM and consumer preferences, this could have an
adverse impact on its results of operations.
Risks related to the Company’s business
The Company is under substantial pressure from OEMs to reduce the prices of its products.
There is substantial and continuing pressure on OEMs to reduce costs, including costs of products the
Company supplies. OEM customers expect annual price reductions in its business. To maintain its profit
margins, the Company seeks price reductions from its suppliers, improved production processes to
increase manufacturing efficiency, and streamlined product designs to reduce costs, and it attempts to
develop new products, the benefits of which support stable or increased prices. The Company’s ability to
pass through increased raw material costs to its OEM customers is limited, with cost recovery often less
than 100% and often on a delayed basis. Inability to reduce costs in an amount equal to annual price
reductions, increases in raw material costs, and increases in employee wages and benefits could have
an adverse effect on its business.
The Company continues to face volatile costs of commodities used in the production of its
products.
The Company uses a variety of commodities (including aluminum, copper, nickel, plastic resins, steel,
other raw materials and energy) and materials purchased in various forms such as castings, powder
metal, forgings, stampings and bar stock. Increasing commodity costs will have an impact on its results.
The Company has sought to alleviate the impact of increasing costs by including a material pass-through
provision in its customer contracts wherever possible and by selectively hedging certain commodity
exposures. Customers frequently challenge these contractual provisions and rarely pay the full cost of
any increases in the cost of materials. The discontinuation or lessening of the Company’s ability to pass
through or hedge increasing commodity costs could adversely affect its business.
From time to time, commodity prices may also fall rapidly. If this happens, suppliers may withdraw
capacity from the market until prices improve which may cause periodic supply interruptions. The same
may be true of transportation carriers and energy providers. If these supply interruptions occur, it could
adversely affect the Company’s business.
Changes in U.S. administrative policy, including changes to existing trade agreements and any
resulting changes in international trade relations, may have an adverse effect on the Company.
The United States has maintained tariffs on certain imported steel, aluminum and items originating from
China. These tariffs have increased the cost of raw materials and components the Company purchases.
The imposition of tariffs by the United States has resulted in retaliatory tariffs from a number of countries,
including China, which increase the cost of products the Company sells. If the U.S. or other countries
impose additional tariffs, that will have a further adverse impact on its business.
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The Company uses important intellectual property in its business. If it is unable to protect its
intellectual property or if a third party makes assertions against it or its customers relating to
intellectual property rights, the Company’s business could be adversely affected.
The Company owns important intellectual property, including patents, trademarks, copyrights, and trade
secrets, and is involved in numerous licensing arrangements. Its intellectual property plays an important
role in maintaining its competitive position in a number of the markets that it serves. The Company’s
competitors may develop technologies that are similar or superior to its proprietary technologies or design
around the patents it owns or licenses. Further, as it expands its operations in jurisdictions where the
enforcement of intellectual property rights is less robust, the risk of others duplicating the Company’s
proprietary technologies increases, despite efforts it undertakes to protect them. The Company’s inability
to protect or enforce its intellectual property rights or claims that it is infringing intellectual property rights
of others could adversely affect its business and its competitive position.
The Company is subject to business continuity risks associated with increasing centralization of
its information technology (IT) systems.
To improve efficiency and reduce costs, the Company has regionally centralized the information systems
that support its business processes such as invoicing, payroll, and general management operations. If
the centralized systems are disrupted or disabled, key business processes could be interrupted, which
could adversely affect its business.
A failure of or disruption in the Company’s information technology infrastructure, including a
disruption related to cybersecurity, could adversely impact its business and operations.
The Company relies on the capacity, reliability and security of its IT systems and infrastructure. IT
systems are vulnerable to disruptions, including those resulting from natural disasters, cyber-attacks or
failures in third-party provided services. Disruptions and attacks on the Company’s IT systems pose a risk
to the security of its systems and its ability to protect its networks and the confidentiality, availability and
integrity of information and data and that of third parties, including its employees. Some cyber-attacks
depend on human error or manipulation, including phishing attacks or schemes that use social
engineering to gain access to systems or carry out disbursement of funds or other frauds, which raise the
risks from such events and the costs associated with protecting against such attacks. Although it has
implemented security policies, processes, and layers of defense designed to help identify and protect
against intentional and unintentional misappropriation or corruption of its systems and information, and
disruptions of its operations, the Company has been, and likely will continue to be, subjected to such
attacks or disruptions. Future attacks or disruptions could potentially lead to the inappropriate disclosure
of confidential information, including the Company’s intellectual property, improper use of its systems and
networks, access to and manipulation and destruction of Company or third-party data, production
downtimes, lost revenues, inappropriate disbursement of funds and both internal and external supply
shortages. In addition, the Company may be required to incur significant costs to protect against damage
caused by such attacks or disruptions in the future. These consequences could cause significant damage
to the Company’s reputation, affect its relationships with its customers and suppliers, lead to claims
against the Company and ultimately adversely affect its business.
The Company’s business success depends on attracting and retaining qualified personnel.
The Company’s ability to sustain and grow its business requires it to hire, retain and develop a highly
skilled and diverse management team and workforce worldwide. In particular, any unplanned turnover or
inability to attract and retain key employees and employees with engineering, technical and software
capabilities in numbers sufficient for its needs could adversely affect its business.
The Company’s profitability and results of operations may be adversely affected by program
launch difficulties.
The launch of new business is a complex process, the success of which depends on a wide range of
factors, including the production readiness of the Company’s manufacturing facilities and manufacturing
processes and those of its suppliers, as well as factors related to tooling, equipment, employees, initial
product quality and other factors. The Company’s failure to successfully launch new business, or its
inability to accurately estimate the cost to design, develop and launch new business, could have an
adverse effect on its profitability and results of operations.
To the extent the Company is not able to successfully launch new business, vehicle production at its
customers could be significantly delayed or shut down. Such situations could result in significant financial
penalties to the Company or a diversion of personnel and financial resources to improving launches
rather than investment in continuous process improvement or other growth initiatives and could result in
its customers shifting work away from it to a competitor, all of which could result in loss of revenue or loss
of market share and could have an adverse effect on its profitability and cash flows.
Part of the Company’s workforce is unionized which could subject it to work stoppages.
As of December 31, 2021, approximately 13% of the Company’s U.S. workforce was unionized. The
Company has a domestic collective bargaining agreement for one facility in New York, which expires in
September 2024. The workforce at certain of its international facilities is also unionized. A prolonged
dispute with its employees could have an adverse effect on the Company’s business.
Work stoppages, production shutdowns and similar events could significantly disrupt the
Company’s business.
Because the automotive industry relies heavily on just-in-time delivery of components during the
assembly and manufacture of vehicles, a work stoppage or production shutdown at one or more of the
Company’s manufacturing and assembly facilities could have adverse effects on its business. Similarly, if
one or more of its customers were to experience a work stoppage or production shutdown, that customer
would likely halt or limit purchases of the Company’s products, which could result in the shutdown of the
related manufacturing facilities. A significant disruption in the supply of a key component due to supply
constraints, such as the constraints experienced in 2021 related to semiconductor chips, or due to a work
stoppage or production shutdown at one of the Company’s suppliers or any other supplier could have the
same consequences and, accordingly, have an adverse effect on its financial results.
Changes in interest rates and asset returns could increase the Company’s pension funding
obligations and reduce its profitability.
The Company has unfunded obligations under certain of its defined benefit pension and other
postretirement benefit plans. The valuation of its future payment obligations under the plans and the
related plan assets is subject to significant adverse changes if the credit and capital markets cause
interest rates and projected rates of return to decline. Such declines could also require the Company to
make significant additional contributions to its pension plans in the future. Additionally, a material
deterioration in the funded status of the plans could significantly increase the Company’s pension
expenses and reduce profitability in the future.
The Company also sponsors post-employment medical benefit plans in the U.S. that are unfunded. If
medical costs continue to increase or actuarial assumptions are modified, this could have an adverse
effect on its business.
The Company is subject to extensive environmental regulations.
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The Company uses important intellectual property in its business. If it is unable to protect its
intellectual property or if a third party makes assertions against it or its customers relating to
intellectual property rights, the Company’s business could be adversely affected.
The Company owns important intellectual property, including patents, trademarks, copyrights, and trade
secrets, and is involved in numerous licensing arrangements. Its intellectual property plays an important
role in maintaining its competitive position in a number of the markets that it serves. The Company’s
competitors may develop technologies that are similar or superior to its proprietary technologies or design
around the patents it owns or licenses. Further, as it expands its operations in jurisdictions where the
enforcement of intellectual property rights is less robust, the risk of others duplicating the Company’s
proprietary technologies increases, despite efforts it undertakes to protect them. The Company’s inability
to protect or enforce its intellectual property rights or claims that it is infringing intellectual property rights
of others could adversely affect its business and its competitive position.
The Company is subject to business continuity risks associated with increasing centralization of
its information technology (IT) systems.
To improve efficiency and reduce costs, the Company has regionally centralized the information systems
that support its business processes such as invoicing, payroll, and general management operations. If
the centralized systems are disrupted or disabled, key business processes could be interrupted, which
could adversely affect its business.
A failure of or disruption in the Company’s information technology infrastructure, including a
disruption related to cybersecurity, could adversely impact its business and operations.
The Company relies on the capacity, reliability and security of its IT systems and infrastructure. IT
systems are vulnerable to disruptions, including those resulting from natural disasters, cyber-attacks or
failures in third-party provided services. Disruptions and attacks on the Company’s IT systems pose a risk
to the security of its systems and its ability to protect its networks and the confidentiality, availability and
integrity of information and data and that of third parties, including its employees. Some cyber-attacks
depend on human error or manipulation, including phishing attacks or schemes that use social
engineering to gain access to systems or carry out disbursement of funds or other frauds, which raise the
risks from such events and the costs associated with protecting against such attacks. Although it has
implemented security policies, processes, and layers of defense designed to help identify and protect
against intentional and unintentional misappropriation or corruption of its systems and information, and
disruptions of its operations, the Company has been, and likely will continue to be, subjected to such
attacks or disruptions. Future attacks or disruptions could potentially lead to the inappropriate disclosure
of confidential information, including the Company’s intellectual property, improper use of its systems and
networks, access to and manipulation and destruction of Company or third-party data, production
downtimes, lost revenues, inappropriate disbursement of funds and both internal and external supply
shortages. In addition, the Company may be required to incur significant costs to protect against damage
caused by such attacks or disruptions in the future. These consequences could cause significant damage
to the Company’s reputation, affect its relationships with its customers and suppliers, lead to claims
against the Company and ultimately adversely affect its business.
The Company’s business success depends on attracting and retaining qualified personnel.
The Company’s ability to sustain and grow its business requires it to hire, retain and develop a highly
skilled and diverse management team and workforce worldwide. In particular, any unplanned turnover or
inability to attract and retain key employees and employees with engineering, technical and software
capabilities in numbers sufficient for its needs could adversely affect its business.
The Company’s profitability and results of operations may be adversely affected by program
launch difficulties.
The launch of new business is a complex process, the success of which depends on a wide range of
factors, including the production readiness of the Company’s manufacturing facilities and manufacturing
processes and those of its suppliers, as well as factors related to tooling, equipment, employees, initial
product quality and other factors. The Company’s failure to successfully launch new business, or its
inability to accurately estimate the cost to design, develop and launch new business, could have an
adverse effect on its profitability and results of operations.
To the extent the Company is not able to successfully launch new business, vehicle production at its
customers could be significantly delayed or shut down. Such situations could result in significant financial
penalties to the Company or a diversion of personnel and financial resources to improving launches
rather than investment in continuous process improvement or other growth initiatives and could result in
its customers shifting work away from it to a competitor, all of which could result in loss of revenue or loss
of market share and could have an adverse effect on its profitability and cash flows.
Part of the Company’s workforce is unionized which could subject it to work stoppages.
As of December 31, 2021, approximately 13% of the Company’s U.S. workforce was unionized. The
Company has a domestic collective bargaining agreement for one facility in New York, which expires in
September 2024. The workforce at certain of its international facilities is also unionized. A prolonged
dispute with its employees could have an adverse effect on the Company’s business.
Work stoppages, production shutdowns and similar events could significantly disrupt the
Company’s business.
Because the automotive industry relies heavily on just-in-time delivery of components during the
assembly and manufacture of vehicles, a work stoppage or production shutdown at one or more of the
Company’s manufacturing and assembly facilities could have adverse effects on its business. Similarly, if
one or more of its customers were to experience a work stoppage or production shutdown, that customer
would likely halt or limit purchases of the Company’s products, which could result in the shutdown of the
related manufacturing facilities. A significant disruption in the supply of a key component due to supply
constraints, such as the constraints experienced in 2021 related to semiconductor chips, or due to a work
stoppage or production shutdown at one of the Company’s suppliers or any other supplier could have the
same consequences and, accordingly, have an adverse effect on its financial results.
Changes in interest rates and asset returns could increase the Company’s pension funding
obligations and reduce its profitability.
The Company has unfunded obligations under certain of its defined benefit pension and other
postretirement benefit plans. The valuation of its future payment obligations under the plans and the
related plan assets is subject to significant adverse changes if the credit and capital markets cause
interest rates and projected rates of return to decline. Such declines could also require the Company to
make significant additional contributions to its pension plans in the future. Additionally, a material
deterioration in the funded status of the plans could significantly increase the Company’s pension
expenses and reduce profitability in the future.
The Company also sponsors post-employment medical benefit plans in the U.S. that are unfunded. If
medical costs continue to increase or actuarial assumptions are modified, this could have an adverse
effect on its business.
The Company is subject to extensive environmental regulations.
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23
The Company’s operations are subject to laws governing, among other things, emissions to air,
discharges to waters, and the generation, management, transportation and disposal of waste and other
materials. The operation of automotive parts manufacturing plants entails risks in these areas, and the
Company cannot assure that it will not incur material costs or liabilities as a result. Through various
acquisitions over the years, the Company has acquired a number of manufacturing facilities, and it
cannot assure that it will not incur material costs and liabilities relating to activities that predate its
ownership. In addition, potentially significant expenditures could be required to comply with evolving
interpretations of existing environmental, health and safety laws and regulations or any new such laws
and regulations (including concerns about global climate change and its impact) that may be adopted in
the future. Costs associated with failure to comply with such laws and regulations could have an adverse
effect on the Company’s business.
The Company has liabilities related to environmental, product warranties, litigation and other
claims.
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 at various
hazardous waste disposal sites under the Comprehensive Environmental Response, Compensation and
Liability Act and equivalent state laws, and, as such, may be liable for the cost of clean-up and other
remedial activities at such sites. While responsibility for clean-up and other remedial activities at such
sites is typically shared among potentially responsible parties based on an allocation formula, the
Company could have greater liability under applicable statutes. Refer to Note 21, “Contingencies,” to the
Consolidated Financial Statements in item 8 of this report for further discussion.
The Company provides product warranties to its customers for some of its products. Under these product
warranties, the Company may be required to bear costs and expenses for the repair or replacement of
these products. As suppliers become more integrally involved in the vehicle design process and assume
more of the vehicle assembly functions, auto manufacturers are increasingly looking to their suppliers for
contribution when faced with recalls and product warranty claims. A recall claim brought against the
Company, or a product warranty claim brought against it, could adversely impact its results of operations.
In addition, a recall claim could require it to review its entire product portfolio to assess whether similar
issues are present in other product lines, which could result in significant disruption to its business and
could have an adverse impact on its results of operations. The Company cannot assure that costs and
expenses associated with these product warranties will not be material or that those costs will not exceed
any amounts accrued for such product warranties in its financial statements.
The Company is currently, and may in the future become, subject to legal proceedings and commercial or
contractual disputes. These claims typically arise in the normal course of business and may include, but
not be limited to, commercial or contractual disputes with the Company’s customers and suppliers,
intellectual property matters, personal injury, product liability, environmental and employment claims.
There is a possibility that such claims may have an adverse impact on the Company’s business that is
greater than it anticipates. While the Company maintains insurance for certain risks, the amount of
insurance may not be adequate to cover all insured claims and liabilities. The incurring of significant
liabilities for which there is no, or insufficient, insurance coverage could adversely affect the Company’s
business.
Compliance with and changes in laws could be costly and could affect operating results.
The Company has operations in multiple countries that can be impacted by expected and unexpected
changes in the legal and business environments in which it operates. Compliance-related issues in
certain countries associated with laws such as the Foreign Corrupt Practices Act and other anti-corruption
laws could adversely affect its business. The Company has internal policies and procedures relating to
compliance with such laws; however, there is a risk that such policies and procedures will not always
protect it from the improper acts of employees, agents, business partners, joint venture partners, or
representatives, particularly in the case of recently acquired operations that may not have significant
training in applicable compliance policies and procedures. Violations of these laws, which are complex,
may result in criminal penalties, sanctions and/or fines that could have an adverse effect on the
Company’s business, financial condition, and results of operations and reputation.
Changes that could impact the legal environment include new legislation, new regulations, new policies,
investigations and legal proceedings, and new interpretations of existing legal rules and regulations, in
particular, changes in import and export control laws or exchange control laws, additional restrictions on
doing business in countries subject to sanctions, and changes in laws in countries where the Company
operates or intends to operate.
the Company’s business.
Changes in tax laws or tax rates taken by taxing authorities and tax audits could adversely affect
Changes in tax laws or tax rates, the resolution of tax assessments or audits by various tax authorities,
and the inability to fully utilize its tax loss carryforwards and tax credits could adversely affect the
Company’s operating results. In addition, the Company may periodically restructure its legal entity
organization.
If taxing authorities were to disagree with the Company’s tax positions in connection with any such
restructurings, its effective tax rate could be materially affected. The Company’s tax filings for various
periods are subject to audit by the tax authorities in most jurisdictions where it conducts business. The
Company has received tax assessments from various taxing authorities and is currently at varying stages
of appeals and/or litigation regarding these matters. These audits may result in assessment of additional
taxes that are resolved with the authorities or through the courts. The Company believes these
assessments may occasionally be based on erroneous and even arbitrary interpretations of local tax law.
Resolution of any tax matters involves uncertainties, and there are no assurances that the outcomes will
be favorable.
There could be significant liability if the previous Delphi Technologies separation from its former
parent fails to qualify as a tax-free transaction for U.S. federal income tax purposes.
On December 4, 2017, Delphi Technologies became an independent publicly traded company, following
its separation from Aptiv PLC, formerly known as Delphi Automotive PLC. The separation was completed
in the form of a pro-rata distribution of 100% of Delphi Technologies ordinary shares to Aptiv’s
shareholders. Aptiv received an opinion from its tax counsel substantially to the effect that, for U.S.
federal income tax purposes, the distribution qualified as a distribution under Section 355(a) of the
Internal Revenue Code, subject to certain qualifications and limitations. Based on this tax treatment, for
U.S. federal income tax purposes, except with respect to cash received in lieu of a fractional Delphi
Technologies ordinary share, Aptiv shareholders did not recognize a gain or loss or include any amount in
their income upon the receipt of Delphi Technologies ordinary shares in the distribution. The opinion was
based on and relied on, among other things, certain facts, assumptions, representations and
undertakings from Aptiv and Delphi Technologies, including those regarding the past and future conduct
of the companies’ respective businesses and other matters. If any of these facts, assumptions,
representations or undertakings are incorrect or not satisfied, Aptiv may not be able to rely on the opinion,
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25
The Company’s operations are subject to laws governing, among other things, emissions to air,
discharges to waters, and the generation, management, transportation and disposal of waste and other
materials. The operation of automotive parts manufacturing plants entails risks in these areas, and the
Company cannot assure that it will not incur material costs or liabilities as a result. Through various
acquisitions over the years, the Company has acquired a number of manufacturing facilities, and it
cannot assure that it will not incur material costs and liabilities relating to activities that predate its
ownership. In addition, potentially significant expenditures could be required to comply with evolving
interpretations of existing environmental, health and safety laws and regulations or any new such laws
and regulations (including concerns about global climate change and its impact) that may be adopted in
the future. Costs associated with failure to comply with such laws and regulations could have an adverse
effect on the Company’s business.
The Company has liabilities related to environmental, product warranties, litigation and other
claims.
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 at various
hazardous waste disposal sites under the Comprehensive Environmental Response, Compensation and
Liability Act and equivalent state laws, and, as such, may be liable for the cost of clean-up and other
remedial activities at such sites. While responsibility for clean-up and other remedial activities at such
sites is typically shared among potentially responsible parties based on an allocation formula, the
Company could have greater liability under applicable statutes. Refer to Note 21, “Contingencies,” to the
Consolidated Financial Statements in item 8 of this report for further discussion.
The Company provides product warranties to its customers for some of its products. Under these product
warranties, the Company may be required to bear costs and expenses for the repair or replacement of
these products. As suppliers become more integrally involved in the vehicle design process and assume
more of the vehicle assembly functions, auto manufacturers are increasingly looking to their suppliers for
contribution when faced with recalls and product warranty claims. A recall claim brought against the
Company, or a product warranty claim brought against it, could adversely impact its results of operations.
In addition, a recall claim could require it to review its entire product portfolio to assess whether similar
issues are present in other product lines, which could result in significant disruption to its business and
could have an adverse impact on its results of operations. The Company cannot assure that costs and
expenses associated with these product warranties will not be material or that those costs will not exceed
any amounts accrued for such product warranties in its financial statements.
The Company is currently, and may in the future become, subject to legal proceedings and commercial or
contractual disputes. These claims typically arise in the normal course of business and may include, but
not be limited to, commercial or contractual disputes with the Company’s customers and suppliers,
intellectual property matters, personal injury, product liability, environmental and employment claims.
There is a possibility that such claims may have an adverse impact on the Company’s business that is
greater than it anticipates. While the Company maintains insurance for certain risks, the amount of
insurance may not be adequate to cover all insured claims and liabilities. The incurring of significant
liabilities for which there is no, or insufficient, insurance coverage could adversely affect the Company’s
business.
Compliance with and changes in laws could be costly and could affect operating results.
The Company has operations in multiple countries that can be impacted by expected and unexpected
changes in the legal and business environments in which it operates. Compliance-related issues in
certain countries associated with laws such as the Foreign Corrupt Practices Act and other anti-corruption
laws could adversely affect its business. The Company has internal policies and procedures relating to
compliance with such laws; however, there is a risk that such policies and procedures will not always
protect it from the improper acts of employees, agents, business partners, joint venture partners, or
representatives, particularly in the case of recently acquired operations that may not have significant
training in applicable compliance policies and procedures. Violations of these laws, which are complex,
may result in criminal penalties, sanctions and/or fines that could have an adverse effect on the
Company’s business, financial condition, and results of operations and reputation.
Changes that could impact the legal environment include new legislation, new regulations, new policies,
investigations and legal proceedings, and new interpretations of existing legal rules and regulations, in
particular, changes in import and export control laws or exchange control laws, additional restrictions on
doing business in countries subject to sanctions, and changes in laws in countries where the Company
operates or intends to operate.
Changes in tax laws or tax rates taken by taxing authorities and tax audits could adversely affect
the Company’s business.
Changes in tax laws or tax rates, the resolution of tax assessments or audits by various tax authorities,
and the inability to fully utilize its tax loss carryforwards and tax credits could adversely affect the
Company’s operating results. In addition, the Company may periodically restructure its legal entity
organization.
If taxing authorities were to disagree with the Company’s tax positions in connection with any such
restructurings, its effective tax rate could be materially affected. The Company’s tax filings for various
periods are subject to audit by the tax authorities in most jurisdictions where it conducts business. The
Company has received tax assessments from various taxing authorities and is currently at varying stages
of appeals and/or litigation regarding these matters. These audits may result in assessment of additional
taxes that are resolved with the authorities or through the courts. The Company believes these
assessments may occasionally be based on erroneous and even arbitrary interpretations of local tax law.
Resolution of any tax matters involves uncertainties, and there are no assurances that the outcomes will
be favorable.
There could be significant liability if the previous Delphi Technologies separation from its former
parent fails to qualify as a tax-free transaction for U.S. federal income tax purposes.
On December 4, 2017, Delphi Technologies became an independent publicly traded company, following
its separation from Aptiv PLC, formerly known as Delphi Automotive PLC. The separation was completed
in the form of a pro-rata distribution of 100% of Delphi Technologies ordinary shares to Aptiv’s
shareholders. Aptiv received an opinion from its tax counsel substantially to the effect that, for U.S.
federal income tax purposes, the distribution qualified as a distribution under Section 355(a) of the
Internal Revenue Code, subject to certain qualifications and limitations. Based on this tax treatment, for
U.S. federal income tax purposes, except with respect to cash received in lieu of a fractional Delphi
Technologies ordinary share, Aptiv shareholders did not recognize a gain or loss or include any amount in
their income upon the receipt of Delphi Technologies ordinary shares in the distribution. The opinion was
based on and relied on, among other things, certain facts, assumptions, representations and
undertakings from Aptiv and Delphi Technologies, including those regarding the past and future conduct
of the companies’ respective businesses and other matters. If any of these facts, assumptions,
representations or undertakings are incorrect or not satisfied, Aptiv may not be able to rely on the opinion,
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25
and Aptiv’s shareholders could be subject to significant U.S. federal income tax liabilities. Notwithstanding
the opinion of tax counsel, the Internal Revenue Service could determine on audit that the distribution is
taxable to Aptiv’s shareholders if it determines that any of these facts, assumptions, representations or
undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinion.
In addition, Aptiv expects that restructuring transactions that it undertook in connection with the
distribution will be taxed in a certain manner. If, contrary to Aptiv’s expectations, such transactions are
taxed in a different manner, Aptiv and/or Delphi Technologies may incur additional tax liabilities that may
be substantial. If the Company is required to pay any such liabilities, the payments could materially
adversely affect the Company’s financial position.
As a result of the acquisition of Delphi Technologies, the Company is required to indemnify Aptiv against
taxes that Aptiv incurs that arise as a result of the Company taking or failing to take, as the case may be,
certain actions that result in the distribution failing to meet the requirements of a distribution under
Section 355(a) of the Code or that result in certain restructuring transactions in connection with the
distribution failing to meet the requirements for tax-free treatment for U.S. federal income tax purposes.
The Company is subject to risks related to its international operations.
The Company has manufacturing and technical facilities in many regions including Europe, Asia, and the
Americas. For 2021, approximately 83% of its consolidated net sales were outside the U.S.
Consequently, the Company’s results could be affected by changes in trade, monetary and fiscal policies,
trade restrictions or prohibitions, import or other charges or taxes, fluctuations in foreign currency
exchange rates, limitations on the repatriation of funds, changing economic conditions, unreliable
intellectual property protection and legal systems, insufficient infrastructures, social unrest, political
instability and disputes, international terrorism and other factors that may be discrete to a particular
country or geography. Compliance with multiple and potentially conflicting laws and regulations of various
countries is challenging, burdensome and expensive.
The financial statements of foreign subsidiaries are translated to U.S. Dollars using the period-end
exchange rate for assets and liabilities and an average exchange rate for each period for revenues,
expenses and capital expenditures. The local currency is typically the functional currency for the
Company's foreign subsidiaries. Significant foreign currency fluctuations and the associated translation of
those foreign currencies could adversely affect the Company’s business. Additionally, significant changes
in currency exchange rates, particularly the Euro, Korean Won and Chinese Renminbi, could cause
fluctuations in the reported results of the Company’s businesses’ operations that could negatively affect
its results of operations.
Because the Company is a U.S. holding company, one significant source of its funds is distributions from
its non-U.S. subsidiaries. Certain countries in which the Company operates have adopted or could
institute currency exchange controls that limit or prohibit the Company’s local subsidiaries' ability to
convert local currency into U.S. Dollars or to make payments outside the country. This could subject the
Company to the risks of local currency devaluation and business disruption.
The Company’s business in China is subject to aggressive competition and is sensitive to
economic, political, and market conditions.
Maintaining a strong position in the Chinese market is a key component of the Company’s global growth
strategy. The automotive supply market in China is highly competitive, with competition from many of the
largest global manufacturers and numerous smaller domestic manufacturers. As the Chinese market
evolves, the Company anticipates that market participants will act aggressively to increase or maintain
their market share. Increased competition may result in price reductions, reduced margins and its inability
to gain or hold market share. In addition, the Company’s business in China is sensitive to economic,
political, social and market conditions that drive sales volumes in China. Economic growth has slowed in
China. If it is unable to maintain its position in the Chinese market or if vehicle sales in China decrease,
the Company’s business and financial results could be adversely affected.
A downgrade in the ratings of the Company’s debt could restrict its ability to access the debt
capital markets.
Changes in the ratings that rating agencies assign to the Company’s debt may ultimately impact its
access to the debt capital markets and the costs it incurs to borrow funds. If ratings for its debt fall below
investment grade, the Company’s access to the debt capital markets could become restricted and its cost
of borrowing or the interest rate for any subsequently issued debt would likely increase.
The Company’s revolving credit agreement includes an increase in interest rates if the ratings for its debt
are downgraded. The interest costs on its revolving credit agreement are based on a rating grid agreed
to in its credit agreement. Further, an increase in the level of its indebtedness and related interest costs
may increase the Company’s vulnerability to adverse general economic and industry conditions and may
affect its ability to obtain additional financing.
The Company could incur additional restructuring charges as it continues to execute actions in
an effort to improve future profitability and competitiveness and to optimize its product portfolio
and may not achieve the anticipated savings and benefits from these actions.
The Company has initiated and may continue to initiate restructuring actions designed to improve the
competitiveness of its business and sustain its margin profile, optimize its product portfolio or create an
optimal legal entity structure. The Company may not realize anticipated savings or benefits from past or
future actions in full or in part or within the time periods it expects. It is also subject to the risks of labor
unrest, negative publicity and business disruption in connection with its actions. Failure to realize
anticipated savings or benefits from its actions could have an adverse effect on the Company’s business.
Risks related to the Company’s customers
The Company relies on sales to major customers.
The Company relies on sales to OEMs around the world of varying credit quality and manufacturing
demands. Supply to several of these customers requires significant investment by the Company. The
Company bases its growth projections, in part, on commitments made by its customers. These
commitments generally renew yearly during a program life cycle. Among other things, the level of
production orders the Company receives is dependent on the ability of its OEM customers to design and
sell products that consumers desire to purchase. If actual production orders from its customers do not
approximate such commitments due to a variety of factors including non-renewal of purchase orders, a
customer's financial hardship or other unforeseen reasons, it could adversely affect the Company’s
business.
Some of the Company’s sales are concentrated. The Company’s worldwide sales in 2021 to Ford and
Volkswagen constituted approximately 10% and 9% of its 2021 consolidated net sales, respectively.
26
27
and Aptiv’s shareholders could be subject to significant U.S. federal income tax liabilities. Notwithstanding
the opinion of tax counsel, the Internal Revenue Service could determine on audit that the distribution is
taxable to Aptiv’s shareholders if it determines that any of these facts, assumptions, representations or
undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinion.
In addition, Aptiv expects that restructuring transactions that it undertook in connection with the
distribution will be taxed in a certain manner. If, contrary to Aptiv’s expectations, such transactions are
taxed in a different manner, Aptiv and/or Delphi Technologies may incur additional tax liabilities that may
be substantial. If the Company is required to pay any such liabilities, the payments could materially
adversely affect the Company’s financial position.
As a result of the acquisition of Delphi Technologies, the Company is required to indemnify Aptiv against
taxes that Aptiv incurs that arise as a result of the Company taking or failing to take, as the case may be,
certain actions that result in the distribution failing to meet the requirements of a distribution under
Section 355(a) of the Code or that result in certain restructuring transactions in connection with the
distribution failing to meet the requirements for tax-free treatment for U.S. federal income tax purposes.
The Company is subject to risks related to its international operations.
The Company has manufacturing and technical facilities in many regions including Europe, Asia, and the
Americas. For 2021, approximately 83% of its consolidated net sales were outside the U.S.
Consequently, the Company’s results could be affected by changes in trade, monetary and fiscal policies,
trade restrictions or prohibitions, import or other charges or taxes, fluctuations in foreign currency
exchange rates, limitations on the repatriation of funds, changing economic conditions, unreliable
intellectual property protection and legal systems, insufficient infrastructures, social unrest, political
instability and disputes, international terrorism and other factors that may be discrete to a particular
country or geography. Compliance with multiple and potentially conflicting laws and regulations of various
countries is challenging, burdensome and expensive.
The financial statements of foreign subsidiaries are translated to U.S. Dollars using the period-end
exchange rate for assets and liabilities and an average exchange rate for each period for revenues,
expenses and capital expenditures. The local currency is typically the functional currency for the
Company's foreign subsidiaries. Significant foreign currency fluctuations and the associated translation of
those foreign currencies could adversely affect the Company’s business. Additionally, significant changes
in currency exchange rates, particularly the Euro, Korean Won and Chinese Renminbi, could cause
fluctuations in the reported results of the Company’s businesses’ operations that could negatively affect
its results of operations.
Because the Company is a U.S. holding company, one significant source of its funds is distributions from
its non-U.S. subsidiaries. Certain countries in which the Company operates have adopted or could
institute currency exchange controls that limit or prohibit the Company’s local subsidiaries' ability to
convert local currency into U.S. Dollars or to make payments outside the country. This could subject the
Company to the risks of local currency devaluation and business disruption.
The Company’s business in China is subject to aggressive competition and is sensitive to
economic, political, and market conditions.
Maintaining a strong position in the Chinese market is a key component of the Company’s global growth
strategy. The automotive supply market in China is highly competitive, with competition from many of the
largest global manufacturers and numerous smaller domestic manufacturers. As the Chinese market
evolves, the Company anticipates that market participants will act aggressively to increase or maintain
their market share. Increased competition may result in price reductions, reduced margins and its inability
to gain or hold market share. In addition, the Company’s business in China is sensitive to economic,
political, social and market conditions that drive sales volumes in China. Economic growth has slowed in
China. If it is unable to maintain its position in the Chinese market or if vehicle sales in China decrease,
the Company’s business and financial results could be adversely affected.
A downgrade in the ratings of the Company’s debt could restrict its ability to access the debt
capital markets.
Changes in the ratings that rating agencies assign to the Company’s debt may ultimately impact its
access to the debt capital markets and the costs it incurs to borrow funds. If ratings for its debt fall below
investment grade, the Company’s access to the debt capital markets could become restricted and its cost
of borrowing or the interest rate for any subsequently issued debt would likely increase.
The Company’s revolving credit agreement includes an increase in interest rates if the ratings for its debt
are downgraded. The interest costs on its revolving credit agreement are based on a rating grid agreed
to in its credit agreement. Further, an increase in the level of its indebtedness and related interest costs
may increase the Company’s vulnerability to adverse general economic and industry conditions and may
affect its ability to obtain additional financing.
The Company could incur additional restructuring charges as it continues to execute actions in
an effort to improve future profitability and competitiveness and to optimize its product portfolio
and may not achieve the anticipated savings and benefits from these actions.
The Company has initiated and may continue to initiate restructuring actions designed to improve the
competitiveness of its business and sustain its margin profile, optimize its product portfolio or create an
optimal legal entity structure. The Company may not realize anticipated savings or benefits from past or
future actions in full or in part or within the time periods it expects. It is also subject to the risks of labor
unrest, negative publicity and business disruption in connection with its actions. Failure to realize
anticipated savings or benefits from its actions could have an adverse effect on the Company’s business.
Risks related to the Company’s customers
The Company relies on sales to major customers.
The Company relies on sales to OEMs around the world of varying credit quality and manufacturing
demands. Supply to several of these customers requires significant investment by the Company. The
Company bases its growth projections, in part, on commitments made by its customers. These
commitments generally renew yearly during a program life cycle. Among other things, the level of
production orders the Company receives is dependent on the ability of its OEM customers to design and
sell products that consumers desire to purchase. If actual production orders from its customers do not
approximate such commitments due to a variety of factors including non-renewal of purchase orders, a
customer's financial hardship or other unforeseen reasons, it could adversely affect the Company’s
business.
Some of the Company’s sales are concentrated. The Company’s worldwide sales in 2021 to Ford and
Volkswagen constituted approximately 10% and 9% of its 2021 consolidated net sales, respectively.
26
27
The Company is sensitive to the effects of its major customers’ labor relations.
The Company is subject to possible insolvency of financial counterparties.
The Company engages in numerous financial transactions and contracts including insurance policies,
letters of credit, credit line agreements, financial derivatives, and investment management agreements
involving various counterparties. The Company is subject to the risk that one or more of these
counterparties may become insolvent and, therefore, be unable to meet its obligations under such
contracts.
Other risks
A variety of other factors could adversely affect the Company’s business.
Any of the following could materially and adversely affect the Company’s business: the loss of or changes
in supply contracts or sourcing strategies of the Company’s major customers or suppliers; start-up
expenses associated with new vehicle programs or delays or cancellation of such programs; low levels of
utilization of the Company’s manufacturing facilities, which can be dependent on a single product line or
customer; inability to recover engineering and tooling costs; market and financial consequences of recalls
that may be required on products the Company supplied; delays or difficulties in new product
development; the possible introduction of similar or superior technologies by others; global excess
capacity and vehicle platform proliferation; and the impact of fire, flood, or other natural disasters
including pandemics and quarantines.
Item 1B. Unresolved Staff Comments
The Company has received no written comments regarding its periodic or current reports from the staff of
the Securities and Exchange Commission that were issued 180 days or more preceding the end of its
2021 fiscal year that remain unresolved.
All three of the Company’s primary North American customers, Ford, Stellantis, and General Motors,
have major union contracts with the United Automobile, Aerospace and Agricultural Implement Workers of
America. Because of domestic OEMs’ dependence on a single union, the Company is affected by labor
difficulties and work stoppages at OEMs’ facilities. Similarly, a majority of the Company’s global
customers' operations outside of North America are also represented by various unions. Any extended
work stoppage at one or more of its customers could have an adverse effect on the Company’s business.
Risks related to the Company’s suppliers
The Company could be adversely affected by supply shortages of components from its suppliers.
In an effort to manage and reduce the cost of purchased goods and services, the Company has been
rationalizing its supply base. As a result, it remains dependent on fewer sources of supply for certain
components used in the manufacture of its products. The Company selects suppliers based on total value
(including total landed price, quality, delivery, and technology), taking into consideration their production
capacities and financial condition. The Company expects that they will deliver to the Company’s stated
written expectations.
However, there can be no assurance that capacity limitations, industry shortages, labor or social unrest,
weather emergencies, commercial disputes, government actions, riots, wars, sabotage, cyber-attacks,
non-conforming parts, acts of terrorism, “Acts of God,” or other problems that the Company’s suppliers
experience will not result in occasional shortages or delays in their supply of components to it. During
2021, trailing impacts of the shutdowns and production declines related, in part, to COVID-19, created
supply constraints of certain components, particularly semiconductor chips. These supply constraints
have had, and are expected to continue to have, significant impacts on global industry production levels.
If the Company is to experience a prolonged shortage of critical components from any of its suppliers and
cannot procure the components from other sources, it may be unable to meet the production schedules
for some of its key products and could miss customer delivery expectations. In addition, with fewer
sources of supply for certain components, each supplier may perceive that it has greater leverage and,
therefore, some ability to seek higher prices from the Company at a time that it faces substantial pressure
from OEMs to reduce the prices of its products. This could adversely affect the Company’s customer
relations and business.
Suppliers’ economic distress could result in the disruption of the Company’s operations and
could adversely affect its business.
Rapidly changing industry conditions such as volatile production volumes; the Company’s need to seek
price reductions from its suppliers as a result of the substantial pressure it faces from OEMs to reduce the
prices of its products; credit tightness; changes in foreign currencies; raw material, commodity, tariffs,
transportation, and energy price escalation; drastic changes in consumer preferences; and other factors
could adversely affect the Company’s supply chain, and sometimes with little advance notice. These
conditions could also result in increased commercial disputes and supply interruption risks. In certain
instances, it would be difficult and expensive for the Company to change suppliers that are critical to its
business. On occasion, the Company must provide financial support to distressed suppliers or take other
measures to protect its supply lines. The Company cannot predict with certainty the potential adverse
effects these costs might have on its business.
28
29
The Company is sensitive to the effects of its major customers’ labor relations.
The Company is subject to possible insolvency of financial counterparties.
The Company engages in numerous financial transactions and contracts including insurance policies,
letters of credit, credit line agreements, financial derivatives, and investment management agreements
involving various counterparties. The Company is subject to the risk that one or more of these
counterparties may become insolvent and, therefore, be unable to meet its obligations under such
contracts.
Other risks
A variety of other factors could adversely affect the Company’s business.
Any of the following could materially and adversely affect the Company’s business: the loss of or changes
in supply contracts or sourcing strategies of the Company’s major customers or suppliers; start-up
expenses associated with new vehicle programs or delays or cancellation of such programs; low levels of
utilization of the Company’s manufacturing facilities, which can be dependent on a single product line or
customer; inability to recover engineering and tooling costs; market and financial consequences of recalls
that may be required on products the Company supplied; delays or difficulties in new product
development; the possible introduction of similar or superior technologies by others; global excess
capacity and vehicle platform proliferation; and the impact of fire, flood, or other natural disasters
including pandemics and quarantines.
Item 1B. Unresolved Staff Comments
The Company has received no written comments regarding its periodic or current reports from the staff of
the Securities and Exchange Commission that were issued 180 days or more preceding the end of its
2021 fiscal year that remain unresolved.
All three of the Company’s primary North American customers, Ford, Stellantis, and General Motors,
have major union contracts with the United Automobile, Aerospace and Agricultural Implement Workers of
America. Because of domestic OEMs’ dependence on a single union, the Company is affected by labor
difficulties and work stoppages at OEMs’ facilities. Similarly, a majority of the Company’s global
customers' operations outside of North America are also represented by various unions. Any extended
work stoppage at one or more of its customers could have an adverse effect on the Company’s business.
Risks related to the Company’s suppliers
The Company could be adversely affected by supply shortages of components from its suppliers.
In an effort to manage and reduce the cost of purchased goods and services, the Company has been
rationalizing its supply base. As a result, it remains dependent on fewer sources of supply for certain
components used in the manufacture of its products. The Company selects suppliers based on total value
(including total landed price, quality, delivery, and technology), taking into consideration their production
capacities and financial condition. The Company expects that they will deliver to the Company’s stated
written expectations.
However, there can be no assurance that capacity limitations, industry shortages, labor or social unrest,
weather emergencies, commercial disputes, government actions, riots, wars, sabotage, cyber-attacks,
non-conforming parts, acts of terrorism, “Acts of God,” or other problems that the Company’s suppliers
experience will not result in occasional shortages or delays in their supply of components to it. During
2021, trailing impacts of the shutdowns and production declines related, in part, to COVID-19, created
supply constraints of certain components, particularly semiconductor chips. These supply constraints
have had, and are expected to continue to have, significant impacts on global industry production levels.
If the Company is to experience a prolonged shortage of critical components from any of its suppliers and
cannot procure the components from other sources, it may be unable to meet the production schedules
for some of its key products and could miss customer delivery expectations. In addition, with fewer
sources of supply for certain components, each supplier may perceive that it has greater leverage and,
therefore, some ability to seek higher prices from the Company at a time that it faces substantial pressure
from OEMs to reduce the prices of its products. This could adversely affect the Company’s customer
relations and business.
Suppliers’ economic distress could result in the disruption of the Company’s operations and
could adversely affect its business.
Rapidly changing industry conditions such as volatile production volumes; the Company’s need to seek
price reductions from its suppliers as a result of the substantial pressure it faces from OEMs to reduce the
prices of its products; credit tightness; changes in foreign currencies; raw material, commodity, tariffs,
transportation, and energy price escalation; drastic changes in consumer preferences; and other factors
could adversely affect the Company’s supply chain, and sometimes with little advance notice. These
conditions could also result in increased commercial disputes and supply interruption risks. In certain
instances, it would be difficult and expensive for the Company to change suppliers that are critical to its
business. On occasion, the Company must provide financial support to distressed suppliers or take other
measures to protect its supply lines. The Company cannot predict with certainty the potential adverse
effects these costs might have on its business.
28
29
Item 2. Properties
As of December 31, 2021, the Company had 93 manufacturing, assembly and technical
locations worldwide. The Company’s worldwide headquarters are located in a leased facility in Auburn
Hills, Michigan. In general, the Company believes its facilities to be suitable and adequate to meet its
current and reasonably anticipated needs.
The following is additional information concerning principal manufacturing, assembly and technical
facilities operated by the Company, its subsidiaries, and affiliates.
Segments
Americas
Europe
Asia
Total
Air Management
e-Propulsion & Drivetrain
Fuel Injection
Aftermarket
13
14
2
1
15
7
6
1
17
11
6
—
45
32
14
2
The table above excludes unconsolidated joint ventures as of December 31, 2021 and administrative
offices. Of the facilities noted above, 38 have leased land rights or a leased facility.
Item 3. Legal Proceedings
The Company is subject to a number of claims and judicial and administrative proceedings (some of
which involve substantial amounts) arising out of the Company’s business or relating to matters for which
the Company may have a contractual indemnity obligation.
Purported Derivative Lawsuit
On December 15, 2020, a putative derivative lawsuit captioned Nyiradi, et al. v. Michas, et al., Case 1:20-
cv-01700, was filed in the United States District Court for the District of Delaware against certain current
and former directors and former officers of BorgWarner. The lawsuit, which was purportedly brought on
the Company’s behalf, named BorgWarner as a nominal defendant. Plaintiffs alleged, among other
things, violations of the federal securities laws and breaches of fiduciary duty relating to the Company’s
past accounting for incurred but not yet asserted asbestos liabilities and its public disclosures. As a
nominal defendant, the Company had no direct exposure in connection with the lawsuit. On April 14,
2021, BorgWarner and the plaintiffs agreed in principle to dismiss the case without prejudice, without any
payment by BorgWarner, and the dismissal occurred on April 22, 2021. By letter dated June 9, 2021, a
different stockholder delivered a litigation demand to the Board of Directors under Delaware law that
included similar allegations relating to certain current and former directors and officers. The letter
demanded that the Board conduct an investigation and commence a civil action against appropriate
directors and officers. The parties have agreed to a memorandum of understanding (“MOU”) detailing
mutually agreed upon corporate governance reforms. The MOU has been approved by the Board and
now awaits court approval.
See Note 21, “Contingencies,” to the Consolidated Financial Statements in Item 8 of this report for a
discussion of environmental, product liability, derivative and other litigation, which is incorporated herein
by reference.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
30
$260
$240
$220
$200
$180
$160
$140
$120
$100
$80
$60
$40
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
The Company’s common stock is listed for trading on the New York Stock Exchange under the symbol
BWA. As of February 11, 2022, there were 1,530 holders of record of common stock.
While the Company currently expects that quarterly cash dividends will continue to be paid in the future at
levels comparable to recent historical levels, the dividend policy is subject to review and change at the
discretion of the Board of Directors.
The line graph below compares the cumulative total shareholder return on the Company’s Common
Stock with the cumulative total return of companies on the Standard & Poor’s (S&P’s) 500 Stock Index,
and companies within Standard Industrial Code (“SIC”) 3714 - Motor Vehicle Parts.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among BorgWarner Inc., the S&P 500 Index, and SIC 374 Motor Vehicle Parts
2016
2017
2018
2019
2020
2021
BorgWarner Inc.
S&P 500
SIC 3714 Motor Vehicle Parts
___________
*$100 invested on 12/31/2016 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
Copyright© 2022 S&P, a division of S&P Global. All rights reserved.
BWA and S&P 500 data are from Capital IQ; SIC Code Index data is from Research Data Group
BorgWarner Inc.1
S&P 5002
SIC Code Index3
December 31,
2016
2017
2018
2019
2020
2021
$ 100.00 $ 131.20 $
90.57 $ 115.17 $ 104.58 $ 123.82
$ 100.00 $ 121.83 $ 116.49 $ 153.17 $ 181.35 $ 233.41
$ 100.00 $ 126.31 $
92.52 $ 116.68 $ 138.83 $ 146.18
31
Item 2. Properties
As of December 31, 2021, the Company had 93 manufacturing, assembly and technical
locations worldwide. The Company’s worldwide headquarters are located in a leased facility in Auburn
Hills, Michigan. In general, the Company believes its facilities to be suitable and adequate to meet its
current and reasonably anticipated needs.
The following is additional information concerning principal manufacturing, assembly and technical
facilities operated by the Company, its subsidiaries, and affiliates.
Segments
Americas
Europe
Asia
Total
Air Management
e-Propulsion & Drivetrain
Fuel Injection
Aftermarket
13
14
2
1
15
7
6
1
17
11
6
—
45
32
14
2
The table above excludes unconsolidated joint ventures as of December 31, 2021 and administrative
offices. Of the facilities noted above, 38 have leased land rights or a leased facility.
The Company is subject to a number of claims and judicial and administrative proceedings (some of
which involve substantial amounts) arising out of the Company’s business or relating to matters for which
the Company may have a contractual indemnity obligation.
Item 3. Legal Proceedings
Purported Derivative Lawsuit
On December 15, 2020, a putative derivative lawsuit captioned Nyiradi, et al. v. Michas, et al., Case 1:20-
cv-01700, was filed in the United States District Court for the District of Delaware against certain current
and former directors and former officers of BorgWarner. The lawsuit, which was purportedly brought on
the Company’s behalf, named BorgWarner as a nominal defendant. Plaintiffs alleged, among other
things, violations of the federal securities laws and breaches of fiduciary duty relating to the Company’s
past accounting for incurred but not yet asserted asbestos liabilities and its public disclosures. As a
nominal defendant, the Company had no direct exposure in connection with the lawsuit. On April 14,
2021, BorgWarner and the plaintiffs agreed in principle to dismiss the case without prejudice, without any
payment by BorgWarner, and the dismissal occurred on April 22, 2021. By letter dated June 9, 2021, a
different stockholder delivered a litigation demand to the Board of Directors under Delaware law that
included similar allegations relating to certain current and former directors and officers. The letter
demanded that the Board conduct an investigation and commence a civil action against appropriate
directors and officers. The parties have agreed to a memorandum of understanding (“MOU”) detailing
mutually agreed upon corporate governance reforms. The MOU has been approved by the Board and
now awaits court approval.
See Note 21, “Contingencies,” to the Consolidated Financial Statements in Item 8 of this report for a
discussion of environmental, product liability, derivative and other litigation, which is incorporated herein
by reference.
Not applicable.
Item 4. Mine Safety Disclosures
PART II
30
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
The Company’s common stock is listed for trading on the New York Stock Exchange under the symbol
BWA. As of February 11, 2022, there were 1,530 holders of record of common stock.
While the Company currently expects that quarterly cash dividends will continue to be paid in the future at
levels comparable to recent historical levels, the dividend policy is subject to review and change at the
discretion of the Board of Directors.
The line graph below compares the cumulative total shareholder return on the Company’s Common
Stock with the cumulative total return of companies on the Standard & Poor’s (S&P’s) 500 Stock Index,
and companies within Standard Industrial Code (“SIC”) 3714 - Motor Vehicle Parts.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among BorgWarner Inc., the S&P 500 Index, and SIC 374 Motor Vehicle Parts
$260
$240
$220
$200
$180
$160
$140
$120
$100
$80
$60
$40
2016
2017
2018
2019
2020
2021
BorgWarner Inc.
S&P 500
SIC 3714 Motor Vehicle Parts
___________
*$100 invested on 12/31/2016 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
Copyright© 2022 S&P, a division of S&P Global. All rights reserved.
BWA and S&P 500 data are from Capital IQ; SIC Code Index data is from Research Data Group
BorgWarner Inc.1
S&P 5002
SIC Code Index3
December 31,
2016
2017
2018
2019
2020
2021
$ 100.00 $ 131.20 $
90.57 $ 115.17 $ 104.58 $ 123.82
$ 100.00 $ 121.83 $ 116.49 $ 153.17 $ 181.35 $ 233.41
$ 100.00 $ 126.31 $
92.52 $ 116.68 $ 138.83 $ 146.18
31
Equity Compensation Plan Information
As of December 31, 2021, the number of shares of options, restricted common stock, warrants and rights
outstanding under the Company’s equity compensation plans, the weighted average exercise price of
outstanding options, restricted common stock, warrants and rights and the number of securities
remaining available for issuance were as follows:
Number of securities to be issued
upon exercise of outstanding
options, restricted common stock,
warrants and rights
Weighted average exercise
price of outstanding options,
restricted common stock,
warrants and rights
Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
Plan category
(a)
(b)
(c)
2,377,228 $
— $
2,377,228 $
40.26
—
40.26
3,595,400
—
3,595,400
Equity compensation plans approved
by security holders
Equity compensation plans not
approved by security holders
Total
Item 6. [Reserved]
________________
1 BorgWarner Inc.
2 S&P 500 — Standard & Poor’s 500 Total Return Index
3 Standard Industrial Code (“SIC”) 3714-Motor Vehicle Parts
Purchase of Equity Securities
In January 2020, the Company’s Board of Directors authorized the purchase of up to $1 billion of the
Company's common stock, which replaced the previous share repurchase program. As of December 31,
2021, the Company has repurchased $216 million of common stock under this repurchase program.
Shares purchased under this authorization may be repurchased in the open market at prevailing prices
and at times and in amounts to be determined by management as market conditions and the Company's
capital position warrant. The Company may use Rule 10b5-1 and 10b-18 plans to facilitate share
repurchases. Repurchased shares will be deemed common stock held in treasury and may subsequently
be reissued.
Employee transactions include restricted stock withheld to offset statutory minimum tax withholding that
occurs upon vesting of restricted stock. The BorgWarner Inc. 2018 Stock Incentive Plan provides that the
withholding obligations be settled by the Company retaining stock that is part of the award. Withheld
shares will be deemed common stock held in treasury and may subsequently be reissued for general
corporate purposes.
The following table provides information about the Company’s purchases of its equity securities that are
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) during the quarter ended December 31, 2021:
Issuer Purchases of Equity Securities
Period
Total number of
shares purchased
Average price per
share
Total number of shares
purchased as part of
publicly announced
plans or programs
Approximate dollar
value of shares that
may yet be purchased
under plans or
programs (in millions)
October 1, 2021 - October 31, 2021
Common Stock Repurchase Program
Employee transactions
November 1, 2021 - November 30, 2021
Common Stock Repurchase Program
Employee transactions
December 1, 2021 - December 31, 2021
Common Stock Repurchase Program
Employee transactions
— $
6,024 $
— $
894 $
— $
562 $
—
44.94
—
48.40
—
42.84
— $
—
— $
—
— $
—
784
784
784
32
33
Equity Compensation Plan Information
As of December 31, 2021, the number of shares of options, restricted common stock, warrants and rights
outstanding under the Company’s equity compensation plans, the weighted average exercise price of
outstanding options, restricted common stock, warrants and rights and the number of securities
remaining available for issuance were as follows:
Number of securities to be issued
upon exercise of outstanding
options, restricted common stock,
warrants and rights
Weighted average exercise
price of outstanding options,
restricted common stock,
warrants and rights
Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
Plan category
(a)
(b)
(c)
Equity compensation plans approved
by security holders
Equity compensation plans not
approved by security holders
Total
Item 6. [Reserved]
2,377,228 $
— $
2,377,228 $
40.26
—
40.26
3,595,400
—
3,595,400
________________
1 BorgWarner Inc.
2 S&P 500 — Standard & Poor’s 500 Total Return Index
3 Standard Industrial Code (“SIC”) 3714-Motor Vehicle Parts
Purchase of Equity Securities
In January 2020, the Company’s Board of Directors authorized the purchase of up to $1 billion of the
Company's common stock, which replaced the previous share repurchase program. As of December 31,
2021, the Company has repurchased $216 million of common stock under this repurchase program.
Shares purchased under this authorization may be repurchased in the open market at prevailing prices
and at times and in amounts to be determined by management as market conditions and the Company's
capital position warrant. The Company may use Rule 10b5-1 and 10b-18 plans to facilitate share
repurchases. Repurchased shares will be deemed common stock held in treasury and may subsequently
be reissued.
Employee transactions include restricted stock withheld to offset statutory minimum tax withholding that
occurs upon vesting of restricted stock. The BorgWarner Inc. 2018 Stock Incentive Plan provides that the
withholding obligations be settled by the Company retaining stock that is part of the award. Withheld
shares will be deemed common stock held in treasury and may subsequently be reissued for general
corporate purposes.
The following table provides information about the Company’s purchases of its equity securities that are
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) during the quarter ended December 31, 2021:
Issuer Purchases of Equity Securities
Period
Total number of
shares purchased
Average price per
share
Total number of shares
purchased as part of
publicly announced
plans or programs
Approximate dollar
value of shares that
may yet be purchased
under plans or
programs (in millions)
October 1, 2021 - October 31, 2021
Common Stock Repurchase Program
Employee transactions
November 1, 2021 - November 30, 2021
Common Stock Repurchase Program
Employee transactions
December 1, 2021 - December 31, 2021
Common Stock Repurchase Program
Employee transactions
— $
6,024 $
— $
894 $
— $
562 $
—
44.94
—
48.40
—
42.84
— $
—
— $
—
— $
—
784
784
784
32
33
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Acquisition of Delphi Technologies PLC
INTRODUCTION
BorgWarner Inc. and Consolidated Subsidiaries (the “Company” or “BorgWarner”) is a global product
leader in clean and efficient technology solutions for combustion, hybrid and electric vehicles.
BorgWarner’s products help improve vehicle performance, propulsion efficiency, stability and air quality.
These products are manufactured and sold worldwide, primarily to original equipment manufacturers
(“OEMs”) of light vehicles (passenger cars, sport-utility vehicles (“SUVs”), vans and light trucks). The
Company’s products are also sold to other OEMs of commercial vehicles (medium-duty trucks, heavy-
duty trucks and buses) and off-highway vehicles (agricultural and construction machinery and marine
applications). The Company also manufactures and sells its products to certain tier one vehicle systems
suppliers and into the aftermarket for light, commercial and off-highway vehicles. The Company operates
manufacturing facilities serving customers in Europe, the Americas and Asia and is an original equipment
supplier to nearly every major automotive OEM in the world.
Charging Forward - Electrification Portfolio Strategy
In 2021, the Company announced its strategy to aggressively grow its electrification portfolio over time
through organic investments and technology-focused acquisitions, most recently through the 2021
acquisition of AKASOL AG (“AKASOL”) as well as the 2020 purchase of Delphi Technologies PLC
(“Delphi Technologies”). The Company believes it is well positioned for the industry’s anticipated
migration to electric vehicles. Additionally, the Company announced a plan to dispose of certain internal
combustion assets, targeting dispositions of assets generating approximately $1 billion in annual revenue
in the succeeding 12 to 18 months and approximately $3 to $4 billion in annual revenue by 2025. The
Company is targeting its revenue from products for pure electric vehicles to be over 25% of its total
revenue by 2025 and approximately 45% of its total revenue by 2030.
Acquisition of AKASOL AG
On June 4, 2021, a wholly-owned subsidiary of the Company, ABBA BidCo AG (“ABBA BidCo”),
completed its voluntary public takeover offer for shares of AKASOL, resulting in ownership of 89% of
AKASOL’s outstanding shares. The Company paid approximately €648 million ($788 million) to settle the
offer from current cash balances, which included proceeds received from its public offering of 1.00%
Senior Notes due 2031 completed on May 19, 2021. Following the settlement of the offer, AKASOL
became a consolidated majority-owned subsidiary of the Company. The Company also consolidated
approximately €64 million ($77 million) of gross debt of AKASOL. Subsequent to the completion of the
voluntary public takeover offer, the Company purchased additional shares of AKASOL for €28 million ($33
million) increasing its ownership to 93% as of December 31, 2021. The acquisition further strengthens
BorgWarner’s commercial vehicle and industrial electrification capabilities, which positions the Company
to capitalize on what it believes to be a fast-growing battery module and pack market.
On August 2, 2021, the Company initiated a merger squeeze out process under German law for the
purpose of acquiring 100% of AKASOL. On December 17, 2021, the shareholders of AKASOL voted to
mandatorily transfer to ABBA BidCo. AG, a wholly owned indirect subsidiary of the Company, each issued
and outstanding share of AKASOL held by shareholders that did not tender their shares in the Company’s
previously completed exchange offer for AKASOL shares (the “Squeeze Out”). In exchange for the
AKASOL shares transferred in the Squeeze Out, the Company will pay appropriate cash compensation,
in the amount of €119.16 per share. On February 10, 2022, the Company completed the registration of
the Squeeze Out resulting in 100% ownership. The Company expects to settle the Squeeze Out with
AKASOL minority shareholders in the first quarter of 2022. Refer to Note 2, “Acquisitions and
Dispositions,” to the Consolidated Financial Statements in Item 8 of this report for more information.
On October 1, 2020, the Company completed its acquisition of 100% of the outstanding ordinary shares
of Delphi Technologies from its shareholders 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 acquisition has strengthened the Company’s electronics and power electronics products,
strengthened its capabilities and scale, enhanced key combustion, commercial vehicle and aftermarket
product offerings, and positioned the Company for greater growth as electrified propulsion systems gain
momentum.
Refer to Note 2, “Acquisitions and Dispositions,” to the Consolidated Financial Statements in Item 8 of
this report for more information. Results of operations for AKASOL and Delphi Technologies are included
in the Company’s financial information following their respective dates of acquisition.
COVID-19 Pandemic and Other Supply Disruptions
Throughout 2020, COVID-19 materially impacted the Company’s business and results of operations.
Following the declaration of COVID-19 as a global pandemic on March 11, 2020, government authorities
around the world began to impose shelter-in-place orders and other restrictions. As a result, many OEMs
began suspending manufacturing operations, particularly in North America and Europe. This led to
various temporary closures of, or reduced operations at, the Company’s manufacturing facilities, late in
the first quarter of 2020 and throughout the second quarter of 2020. During the second half of 2020, as
global management of COVID-19 evolved and government restrictions were removed or lessened,
production levels improved, and substantially all of the Company’s production facilities resumed closer to
normal operations by the end of the third quarter of 2020.
During 2021, trailing impacts of the shutdowns and production declines related, in part, to COVID-19
created supply constraints of certain components, particularly semiconductor chips. These supply
constraints have had, and are expected to continue to have, significant impacts on global industry
production levels. In addition, it is possible a resurgence of COVID-19 could result in adverse impacts in
the future. Management cannot reasonably estimate the full impact the ongoing supply constraints or the
COVID-19 pandemic could have on the Company’s financial condition, results of operations or cash flows
in the future.
Bond Offering
On May 19, 2021, in anticipation of the acquisition of AKASOL and to refinance the Company’s €500
million 1.8% senior notes due in November 2022, the Company issued €1.0 billion in 1.0% senior notes
due May 2031. Interest is payable annually in arrears on May 19 of each year. These senior notes are not
guaranteed by any of the Company’s subsidiaries. On June 18, 2021, the Company repaid its €500
million 1.8% senior notes due November 2022 and incurred a loss on debt extinguishment of $20 million,
which is reflected in Interest expense, net in the Consolidated Statement of Operations.
34
35
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Acquisition of Delphi Technologies PLC
INTRODUCTION
BorgWarner Inc. and Consolidated Subsidiaries (the “Company” or “BorgWarner”) is a global product
leader in clean and efficient technology solutions for combustion, hybrid and electric vehicles.
BorgWarner’s products help improve vehicle performance, propulsion efficiency, stability and air quality.
These products are manufactured and sold worldwide, primarily to original equipment manufacturers
(“OEMs”) of light vehicles (passenger cars, sport-utility vehicles (“SUVs”), vans and light trucks). The
Company’s products are also sold to other OEMs of commercial vehicles (medium-duty trucks, heavy-
duty trucks and buses) and off-highway vehicles (agricultural and construction machinery and marine
applications). The Company also manufactures and sells its products to certain tier one vehicle systems
suppliers and into the aftermarket for light, commercial and off-highway vehicles. The Company operates
manufacturing facilities serving customers in Europe, the Americas and Asia and is an original equipment
supplier to nearly every major automotive OEM in the world.
Charging Forward - Electrification Portfolio Strategy
In 2021, the Company announced its strategy to aggressively grow its electrification portfolio over time
through organic investments and technology-focused acquisitions, most recently through the 2021
acquisition of AKASOL AG (“AKASOL”) as well as the 2020 purchase of Delphi Technologies PLC
(“Delphi Technologies”). The Company believes it is well positioned for the industry’s anticipated
migration to electric vehicles. Additionally, the Company announced a plan to dispose of certain internal
combustion assets, targeting dispositions of assets generating approximately $1 billion in annual revenue
in the succeeding 12 to 18 months and approximately $3 to $4 billion in annual revenue by 2025. The
Company is targeting its revenue from products for pure electric vehicles to be over 25% of its total
revenue by 2025 and approximately 45% of its total revenue by 2030.
Acquisition of AKASOL AG
On June 4, 2021, a wholly-owned subsidiary of the Company, ABBA BidCo AG (“ABBA BidCo”),
completed its voluntary public takeover offer for shares of AKASOL, resulting in ownership of 89% of
AKASOL’s outstanding shares. The Company paid approximately €648 million ($788 million) to settle the
offer from current cash balances, which included proceeds received from its public offering of 1.00%
Senior Notes due 2031 completed on May 19, 2021. Following the settlement of the offer, AKASOL
became a consolidated majority-owned subsidiary of the Company. The Company also consolidated
approximately €64 million ($77 million) of gross debt of AKASOL. Subsequent to the completion of the
voluntary public takeover offer, the Company purchased additional shares of AKASOL for €28 million ($33
million) increasing its ownership to 93% as of December 31, 2021. The acquisition further strengthens
BorgWarner’s commercial vehicle and industrial electrification capabilities, which positions the Company
to capitalize on what it believes to be a fast-growing battery module and pack market.
On August 2, 2021, the Company initiated a merger squeeze out process under German law for the
purpose of acquiring 100% of AKASOL. On December 17, 2021, the shareholders of AKASOL voted to
mandatorily transfer to ABBA BidCo. AG, a wholly owned indirect subsidiary of the Company, each issued
and outstanding share of AKASOL held by shareholders that did not tender their shares in the Company’s
previously completed exchange offer for AKASOL shares (the “Squeeze Out”). In exchange for the
AKASOL shares transferred in the Squeeze Out, the Company will pay appropriate cash compensation,
in the amount of €119.16 per share. On February 10, 2022, the Company completed the registration of
the Squeeze Out resulting in 100% ownership. The Company expects to settle the Squeeze Out with
AKASOL minority shareholders in the first quarter of 2022. Refer to Note 2, “Acquisitions and
Dispositions,” to the Consolidated Financial Statements in Item 8 of this report for more information.
On October 1, 2020, the Company completed its acquisition of 100% of the outstanding ordinary shares
of Delphi Technologies from its shareholders 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 acquisition has strengthened the Company’s electronics and power electronics products,
strengthened its capabilities and scale, enhanced key combustion, commercial vehicle and aftermarket
product offerings, and positioned the Company for greater growth as electrified propulsion systems gain
momentum.
Refer to Note 2, “Acquisitions and Dispositions,” to the Consolidated Financial Statements in Item 8 of
this report for more information. Results of operations for AKASOL and Delphi Technologies are included
in the Company’s financial information following their respective dates of acquisition.
COVID-19 Pandemic and Other Supply Disruptions
Throughout 2020, COVID-19 materially impacted the Company’s business and results of operations.
Following the declaration of COVID-19 as a global pandemic on March 11, 2020, government authorities
around the world began to impose shelter-in-place orders and other restrictions. As a result, many OEMs
began suspending manufacturing operations, particularly in North America and Europe. This led to
various temporary closures of, or reduced operations at, the Company’s manufacturing facilities, late in
the first quarter of 2020 and throughout the second quarter of 2020. During the second half of 2020, as
global management of COVID-19 evolved and government restrictions were removed or lessened,
production levels improved, and substantially all of the Company’s production facilities resumed closer to
normal operations by the end of the third quarter of 2020.
During 2021, trailing impacts of the shutdowns and production declines related, in part, to COVID-19
created supply constraints of certain components, particularly semiconductor chips. These supply
constraints have had, and are expected to continue to have, significant impacts on global industry
production levels. In addition, it is possible a resurgence of COVID-19 could result in adverse impacts in
the future. Management cannot reasonably estimate the full impact the ongoing supply constraints or the
COVID-19 pandemic could have on the Company’s financial condition, results of operations or cash flows
in the future.
Bond Offering
On May 19, 2021, in anticipation of the acquisition of AKASOL and to refinance the Company’s €500
million 1.8% senior notes due in November 2022, the Company issued €1.0 billion in 1.0% senior notes
due May 2031. Interest is payable annually in arrears on May 19 of each year. These senior notes are not
guaranteed by any of the Company’s subsidiaries. On June 18, 2021, the Company repaid its €500
million 1.8% senior notes due November 2022 and incurred a loss on debt extinguishment of $20 million,
which is reflected in Interest expense, net in the Consolidated Statement of Operations.
34
35
RESULTS OF OPERATIONS
A detailed comparison of the Company’s 2019 operating results to its 2020 operating results can be found
in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in
the Company’s 2020 Annual Report on Form 10-K filed February 22, 2021.
other costs.
The following table presents a summary of the Company’s operating results:
(in millions, except per share data)
Net sales
Air Management
e-Propulsion & Drivetrain
Fuel Injection
Aftermarket
Inter-segment eliminations
Total net sales
Cost of sales
Gross profit
$
Selling, general and administrative expenses - R&D, net
Selling, general and administrative expenses - Other
Restructuring expense
Other operating expense, net
Operating income
Equity in affiliates’ earnings, net of tax
Unrealized loss (gain) on equity securities
Interest expense, net
Other postretirement income
Earnings before income taxes and noncontrolling interest
Provision for income taxes
Net earnings
Net earnings attributable to the noncontrolling interest, net of tax
Net earnings attributable to BorgWarner Inc.
Earnings per share — diluted
$
$
Year Ended December 31,
2021
2020
7,298
5,378
1,826
853
(517)
14,838
11,983
2,855
707
753
163
81
1,151
(48)
362
93
(45)
789
150
639
102
537
2.24
% of net sales
49.2 % $
36.2
12.3
5.8
(3.5)
100.0
80.8
19.2
4.8
5.1
1.1
0.5
7.8
(0.3)
2.4
0.6
(0.3)
5.3
1.0
4.3
0.7
3.6 % $
$
% of net sales
55.9 %
39.2
4.7
1.9
5,678
3,989
479
194
(175)
(1.7)
10,165
100.0
8,255
1,910
476
475
203
138
618
(18)
(382)
61
(7)
964
397
567
67
500
2.34
81.2
18.8
4.7
4.7
2.0
1.4
6.1
(0.2)
(3.8)
0.6
(0.1)
9.5
3.9
5.6
0.7
4.9 %
In 2019, legacy Delphi Technologies announced a restructuring plan to reshape and realign its global
Net sales for the year ended December 31, 2021 totaled $14,838 million, an increase of 46% from the
year ended December 31, 2020. During the year ended December 31, 2021, the net impact of
acquisitions, primarily related to legacy Delphi Technologies, increased revenues by $3,328 million from
the year ended December 31, 2020. Stronger foreign currencies, primarily the Euro, Chinese Renminbi
and Korean Won, increased net sales by approximately $270 million. The net increase excluding these
items was primarily due to increased demand for the Company’s products. In addition, net sales were
favorably impacted by the recovery of global markets from the negative effects of COVID-19 on 2020
production. However, this recovery was largely offset by supply constraints related to certain
components, particularly semiconductor chips, that negatively impacted global automotive production in
2021.
Cost of sales as a percentage of net sales was 80.8% and 81.2% in the years ended December 31,
2021 and 2020, respectively. During the year ended December 31, 2021, acquisitions, primarily related to
legacy Delphi Technologies, increased cost of sales. The Company’s material cost of sales was
approximately 54% and 57% of net sales in the years ended December 31, 2021 and 2020, respectively.
The decrease in material cost as a percentage of sales reflects the lower material costs associated with
the legacy Delphi Technologies business. Gross profit and gross margin were $2,855 million and 19.2%,
respectively during the year ended December 31, 2021 compared to $1,910 million and 18.8%,
36
37
respectively, during the year ended December 31, 2020. The increase in gross margin in 2021 compared
to 2020 was primarily due to the impact of increased sales, partially offset by a higher warranty provision
due to an unfavorable customer warranty settlement in December 2021 and increases in commodity and
Selling, general and administrative expenses (“SG&A”) were $1,460 million and $951 million, or 9.8%
and 9.4% of net sales, for the years ended December 31, 2021 and 2020, respectively. The increase in
SG&A was primarily related to the acquisition of Delphi Technologies, increased investments in research
and development and the reinstated costs related to specific cost reduction actions taken in response to
COVID-19 during 2020.
Research and development (“R&D”) costs, net of customer reimbursements, were $707 million, or 4.8%
of net sales, in the year ended December 31, 2021, compared to $476 million, or 4.7% of net sales, in the
year ended December 31, 2020. The increase of R&D costs, net of customer reimbursements, in the year
ended December 31, 2021, compared with the year ended December 31, 2020, was primarily due to the
acquisition of Delphi Technologies, which increased R&D costs by approximately $200 million during the
year ended December 31, 2021, as well as higher investment to support the continued development of
the Company’s electrification portfolio. The Company will continue to invest in R&D programs, which are
necessary to support short- and long-term growth. The Company’s current long-term expectation for R&D
spending is in the range of 5.0% to 5.5% of net sales.
Restructuring expense was $163 million and $203 million for the years ended December 31, 2021 and
2020, respectively, primarily related to employee benefit costs. Refer to Note 4 “Restructuring” to
the Consolidated Financial Statements in Item 8 of this report for more information.
In February 2020, the Company announced a restructuring plan to address existing structural costs.
During the years ended December 31, 2021 and 2020, the Company recorded $103 million and $148
million of restructuring expense related to this plan, respectively. Cumulatively, the Company has incurred
$251 million of restructuring charges related to this plan. These actions are expected to result in a total of
$300 million of restructuring costs through 2022. The resulting annual gross savings are expected to be
$90 million to $100 million and will be utilized to sustain overall operating margin profile and cost
competitiveness. Nearly all of the restructuring charges are expected to be cash expenditures.
technical center footprint and reduce salaried and contract staff. The Company continued actions under
this program post-acquisition and has recorded cumulative charges of $62 million since October 1, 2020.
This includes approximately $60 million in restructuring charges during the year ended December 31,
2021, primarily for the statutory minimum benefits and incremental one-time termination benefits
negotiated with local labor authorities. The majority of these actions under this program have been
completed.
Additionally, the Company recorded approximately $54 million in restructuring during the three months
ended December 31, 2020, for acquisition-related restructuring charges. In conjunction with the Delphi
Technologies acquisition, there were contractually required severance and post-combination stock-based
compensation cash payments to legacy Delphi Technologies executive officers and other employee
termination benefits.
and 2020, respectively.
Other operating expense, net was $81 million and $138 million for the years ended December 31, 2021
For the years ended December 31, 2021 and 2020, merger, acquisition and divestiture related expenses
were $50 million and $96 million, respectively. The decrease in 2021 was primarily related to higher
professional fees in 2020 associated with the acquisition of Delphi Technologies.
RESULTS OF OPERATIONS
A detailed comparison of the Company’s 2019 operating results to its 2020 operating results can be found
in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in
the Company’s 2020 Annual Report on Form 10-K filed February 22, 2021.
The following table presents a summary of the Company’s operating results:
(in millions, except per share data)
Net sales
Air Management
e-Propulsion & Drivetrain
Fuel Injection
Aftermarket
Inter-segment eliminations
Total net sales
Cost of sales
Gross profit
Selling, general and administrative expenses - R&D, net
Selling, general and administrative expenses - Other
Restructuring expense
Other operating expense, net
Operating income
Equity in affiliates’ earnings, net of tax
Unrealized loss (gain) on equity securities
Interest expense, net
Other postretirement income
Earnings before income taxes and noncontrolling interest
Provision for income taxes
Net earnings
Year Ended December 31,
2021
2020
% of net sales
$
49.2 % $
% of net sales
55.9 %
7,298
5,378
1,826
853
(517)
14,838
11,983
2,855
707
753
163
81
1,151
(48)
362
93
(45)
789
150
639
102
537
2.24
36.2
12.3
5.8
(3.5)
100.0
80.8
19.2
4.8
5.1
1.1
0.5
7.8
(0.3)
2.4
0.6
(0.3)
5.3
1.0
4.3
0.7
(175)
(1.7)
10,165
100.0
5,678
3,989
479
194
8,255
1,910
476
475
203
138
618
(18)
(382)
61
(7)
964
397
567
67
500
2.34
39.2
4.7
1.9
81.2
18.8
4.7
4.7
2.0
1.4
6.1
(0.2)
(3.8)
0.6
(0.1)
9.5
3.9
5.6
0.7
4.9 %
Net earnings attributable to the noncontrolling interest, net of tax
Net earnings attributable to BorgWarner Inc.
Earnings per share — diluted
$
$
3.6 % $
$
Net sales for the year ended December 31, 2021 totaled $14,838 million, an increase of 46% from the
year ended December 31, 2020. During the year ended December 31, 2021, the net impact of
acquisitions, primarily related to legacy Delphi Technologies, increased revenues by $3,328 million from
the year ended December 31, 2020. Stronger foreign currencies, primarily the Euro, Chinese Renminbi
and Korean Won, increased net sales by approximately $270 million. The net increase excluding these
items was primarily due to increased demand for the Company’s products. In addition, net sales were
favorably impacted by the recovery of global markets from the negative effects of COVID-19 on 2020
production. However, this recovery was largely offset by supply constraints related to certain
components, particularly semiconductor chips, that negatively impacted global automotive production in
2021.
Cost of sales as a percentage of net sales was 80.8% and 81.2% in the years ended December 31,
2021 and 2020, respectively. During the year ended December 31, 2021, acquisitions, primarily related to
legacy Delphi Technologies, increased cost of sales. The Company’s material cost of sales was
approximately 54% and 57% of net sales in the years ended December 31, 2021 and 2020, respectively.
The decrease in material cost as a percentage of sales reflects the lower material costs associated with
the legacy Delphi Technologies business. Gross profit and gross margin were $2,855 million and 19.2%,
respectively during the year ended December 31, 2021 compared to $1,910 million and 18.8%,
respectively, during the year ended December 31, 2020. The increase in gross margin in 2021 compared
to 2020 was primarily due to the impact of increased sales, partially offset by a higher warranty provision
due to an unfavorable customer warranty settlement in December 2021 and increases in commodity and
other costs.
Selling, general and administrative expenses (“SG&A”) were $1,460 million and $951 million, or 9.8%
and 9.4% of net sales, for the years ended December 31, 2021 and 2020, respectively. The increase in
SG&A was primarily related to the acquisition of Delphi Technologies, increased investments in research
and development and the reinstated costs related to specific cost reduction actions taken in response to
COVID-19 during 2020.
Research and development (“R&D”) costs, net of customer reimbursements, were $707 million, or 4.8%
of net sales, in the year ended December 31, 2021, compared to $476 million, or 4.7% of net sales, in the
year ended December 31, 2020. The increase of R&D costs, net of customer reimbursements, in the year
ended December 31, 2021, compared with the year ended December 31, 2020, was primarily due to the
acquisition of Delphi Technologies, which increased R&D costs by approximately $200 million during the
year ended December 31, 2021, as well as higher investment to support the continued development of
the Company’s electrification portfolio. The Company will continue to invest in R&D programs, which are
necessary to support short- and long-term growth. The Company’s current long-term expectation for R&D
spending is in the range of 5.0% to 5.5% of net sales.
Restructuring expense was $163 million and $203 million for the years ended December 31, 2021 and
2020, respectively, primarily related to employee benefit costs. Refer to Note 4 “Restructuring” to
the Consolidated Financial Statements in Item 8 of this report for more information.
In February 2020, the Company announced a restructuring plan to address existing structural costs.
During the years ended December 31, 2021 and 2020, the Company recorded $103 million and $148
million of restructuring expense related to this plan, respectively. Cumulatively, the Company has incurred
$251 million of restructuring charges related to this plan. These actions are expected to result in a total of
$300 million of restructuring costs through 2022. The resulting annual gross savings are expected to be
$90 million to $100 million and will be utilized to sustain overall operating margin profile and cost
competitiveness. Nearly all of the restructuring charges are expected to be cash expenditures.
In 2019, legacy Delphi Technologies announced a restructuring plan to reshape and realign its global
technical center footprint and reduce salaried and contract staff. The Company continued actions under
this program post-acquisition and has recorded cumulative charges of $62 million since October 1, 2020.
This includes approximately $60 million in restructuring charges during the year ended December 31,
2021, primarily for the statutory minimum benefits and incremental one-time termination benefits
negotiated with local labor authorities. The majority of these actions under this program have been
completed.
Additionally, the Company recorded approximately $54 million in restructuring during the three months
ended December 31, 2020, for acquisition-related restructuring charges. In conjunction with the Delphi
Technologies acquisition, there were contractually required severance and post-combination stock-based
compensation cash payments to legacy Delphi Technologies executive officers and other employee
termination benefits.
Other operating expense, net was $81 million and $138 million for the years ended December 31, 2021
and 2020, respectively.
For the years ended December 31, 2021 and 2020, merger, acquisition and divestiture related expenses
were $50 million and $96 million, respectively. The decrease in 2021 was primarily related to higher
professional fees in 2020 associated with the acquisition of Delphi Technologies.
36
37
remittance of foreign earnings, and certain tax law changes in India effective in the first quarter of 2020.
In addition, the Company recognized incremental valuation allowances of $53 million in 2020.
For further details, see Note 7, “Income Taxes,” to the Consolidated Financial Statements in Item 8 of this
report.
Net earnings attributable to the noncontrolling interest, net of tax of $102 million for the year ended
December 31, 2021 increased by $35 million compared to the year ended December 31, 2020. The
increase was due to the recovery from negative effects of COVID-19 on 2020 production and the addition
of noncontrolling interests from acquisitions.
During the year ended December 31, 2021, the Company recorded pre-tax losses of $22 million on the
sale of its Water Valley, Mississippi facility and $7 million in connection with the sale of an e-Propulsion &
Drivetrain technical center in Europe.
During the year ended December 31, 2021, the Company recorded an impairment charge of $14 million
to reduce its carrying value of an indefinite-lived trade name to the fair value. During the year ended
December 31, 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 downs of property,
plant and equipment associated with the announced closures of two European facilities. Additionally, as a
result of an evaluation of certain underlying technologies subsequent to the acquisition of Delphi
Technologies, the Company reduced the useful life of certain intangible assets during the fourth quarter of
2020 as they no longer provided future economic benefit. This resulted in accelerated amortization
expense of $38 million.
Other operating expense, net is primarily comprised of items included within the subtitle “Non-comparable
items impacting the Company’s earnings per diluted share and net earnings” below.
Equity in affiliates’ earnings, net of tax was $48 million and $18 million in the years ended
December 31, 2021 and 2020, respectively. This line item is driven by the results of the Company’s
unconsolidated joint ventures. The increase in equity in affiliates’ earnings in the year ended
December 31, 2021 was due to the recovery from negative effects of COVID-19 on 2020 production.
Unrealized loss (gain) on equity securities included a loss of $362 million and a gain of $382 million
for the years ended December 31, 2021 and 2020, respectively. This line item reflects the net unrealized
gains or losses recognized primarily related to the Company’s investment in Romeo Power, Inc. For
further details, see Note 2, “Acquisitions and Dispositions,” to the Consolidated Financial Statements in
Item 8 of this report.
Interest expense, net was $93 million and $61 million in the years ended December 31, 2021 and 2020,
respectively. The increase in interest expense for the year ended December 31, 2021, compared with the
year ended December 31, 2020, was primarily due to the Company’s $20 million loss on debt
extinguishment related to the early repayment of its €500 million 1.800% senior notes settled on June 18,
2021, the Company’s issuance of €1 billion 1.000% senior notes in May 2021 to support the AKASOL
acquisition, and the Company’s $1.1 billion senior notes issuance in June 2020.
Other postretirement income was $45 million and $7 million in the years ended December 31, 2021
and 2020, respectively. The increase in other postretirement income for the year ended December 31,
2021, compared with the year ended December 31, 2020, was primarily due to the assumption of Delphi
Technologies pension plans.
Provision for income taxes was $150 million for the year ended December 31, 2021 resulting in an
effective tax rate of 19%. This compared to $397 million or 41% for the year ended December 31, 2020.
In 2021, the Company recognized a $55 million tax benefit related to a reduction in certain unrecognized
tax benefits and accrued interest for a matter in which the statute of limitations had lapsed. The Company
also recognized a discrete tax benefit of $20 million related to an increase in its deferred tax assets as a
result of an increase in the United Kingdom (“UK”) statutory tax rate from 19% to 25%. Further, a net
discrete tax benefit of $36 million was recognized, primarily related to changes to certain withholding
rates applied to unremitted earnings.
In 2020, the Company recognized $49 million of income tax expense, which primarily related to final U.S.
Department of Treasury regulations issued in the third quarter of 2020, which impacted the net tax on
38
39
During the year ended December 31, 2021, the Company recorded pre-tax losses of $22 million on the
sale of its Water Valley, Mississippi facility and $7 million in connection with the sale of an e-Propulsion &
remittance of foreign earnings, and certain tax law changes in India effective in the first quarter of 2020.
In addition, the Company recognized incremental valuation allowances of $53 million in 2020.
For further details, see Note 7, “Income Taxes,” to the Consolidated Financial Statements in Item 8 of this
report.
Net earnings attributable to the noncontrolling interest, net of tax of $102 million for the year ended
December 31, 2021 increased by $35 million compared to the year ended December 31, 2020. The
increase was due to the recovery from negative effects of COVID-19 on 2020 production and the addition
of noncontrolling interests from acquisitions.
Drivetrain technical center in Europe.
During the year ended December 31, 2021, the Company recorded an impairment charge of $14 million
to reduce its carrying value of an indefinite-lived trade name to the fair value. During the year ended
December 31, 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 downs of property,
plant and equipment associated with the announced closures of two European facilities. Additionally, as a
result of an evaluation of certain underlying technologies subsequent to the acquisition of Delphi
Technologies, the Company reduced the useful life of certain intangible assets during the fourth quarter of
2020 as they no longer provided future economic benefit. This resulted in accelerated amortization
expense of $38 million.
Other operating expense, net is primarily comprised of items included within the subtitle “Non-comparable
items impacting the Company’s earnings per diluted share and net earnings” below.
Equity in affiliates’ earnings, net of tax was $48 million and $18 million in the years ended
December 31, 2021 and 2020, respectively. This line item is driven by the results of the Company’s
unconsolidated joint ventures. The increase in equity in affiliates’ earnings in the year ended
December 31, 2021 was due to the recovery from negative effects of COVID-19 on 2020 production.
Unrealized loss (gain) on equity securities included a loss of $362 million and a gain of $382 million
for the years ended December 31, 2021 and 2020, respectively. This line item reflects the net unrealized
gains or losses recognized primarily related to the Company’s investment in Romeo Power, Inc. For
further details, see Note 2, “Acquisitions and Dispositions,” to the Consolidated Financial Statements in
Item 8 of this report.
Interest expense, net was $93 million and $61 million in the years ended December 31, 2021 and 2020,
respectively. The increase in interest expense for the year ended December 31, 2021, compared with the
year ended December 31, 2020, was primarily due to the Company’s $20 million loss on debt
extinguishment related to the early repayment of its €500 million 1.800% senior notes settled on June 18,
2021, the Company’s issuance of €1 billion 1.000% senior notes in May 2021 to support the AKASOL
acquisition, and the Company’s $1.1 billion senior notes issuance in June 2020.
Other postretirement income was $45 million and $7 million in the years ended December 31, 2021
and 2020, respectively. The increase in other postretirement income for the year ended December 31,
2021, compared with the year ended December 31, 2020, was primarily due to the assumption of Delphi
Technologies pension plans.
Provision for income taxes was $150 million for the year ended December 31, 2021 resulting in an
effective tax rate of 19%. This compared to $397 million or 41% for the year ended December 31, 2020.
In 2021, the Company recognized a $55 million tax benefit related to a reduction in certain unrecognized
tax benefits and accrued interest for a matter in which the statute of limitations had lapsed. The Company
also recognized a discrete tax benefit of $20 million related to an increase in its deferred tax assets as a
result of an increase in the United Kingdom (“UK”) statutory tax rate from 19% to 25%. Further, a net
discrete tax benefit of $36 million was recognized, primarily related to changes to certain withholding
rates applied to unremitted earnings.
In 2020, the Company recognized $49 million of income tax expense, which primarily related to final U.S.
Department of Treasury regulations issued in the third quarter of 2020, which impacted the net tax on
38
39
(0.26)
(0.19)
(0.13)
(0.05)
0.01
(1.15)
(0.06)
—
—
—
—
0.50
—
(0.38)
—
(0.08)
0.04
1.36
—
(0.14)
(0.10)
(0.01)
(0.02)
(0.23)
(0.42)
Non-comparable items:
Restructuring expense
Customer warranty settlement1
Merger, acquisition and divestiture expense
Loss on sales of businesses
Asset impairments and lease modifications
Net gain on insurance recovery for property damage2
Unrealized (loss) gain on equity securities
Loss on debt extinguishment
Intangible asset accelerated amortization
Amortization of inventory fair value adjustment3
Delayed-draw term loan cancellation4
Pension settlement loss5
Tax adjustments6
Non-comparable items impacting the Company’s earnings per diluted share and net earnings
Segment Adjusted EBIT is most reflective of the operational profitability or loss of its reporting segments.
The Company’s earnings per diluted share were $2.24 and $2.34 for the years ended December 31,
2021 and 2020, respectively. The non-comparable items presented below are calculated after tax using
the corresponding effective tax rate discrete to each item and the weighted average number of diluted
shares for each of the years then ended. The Company believes the following table is useful in
highlighting non-comparable items that impacted its earnings per diluted share:
Segment Adjusted EBIT excludes certain corporate costs, which primarily represent headquarters’
expenses not directly attributable to the individual segments. Corporate expenses not allocated to
Segment Adjusted EBIT were $302 million and $192 million for the years ended December 31, 2021 and
2020, respectively. The increase in corporate expenses in 2021 related to the acquisition of Delphi
Technologies in 2020 and reinstated costs related to specific cost reduction actions taken in response to
Year Ended December 31,
2021
2020
$
(0.58) $
(0.86)
The following table presents net sales and Segment Adjusted EBIT for the Company’s reporting
COVID-19 during 2020.
segments:
(in millions)
Air Management
e-Propulsion & Drivetrain
Fuel Injection
Aftermarket
Inter-segment eliminations
Year ended December 31, 2021
Year ended December 31, 2020
Net sales
Adjusted EBIT % margin
Net sales
Adjusted EBIT % margin
Segment
Segment
$
7,298 $
1,070
14.7 % $
5,678 $
5,378
1,826
853
(517)
9.0 %
9.3 %
12.5 %
486
170
107
—
3,989
479
194
(175)
13.4 %
9.0 %
8.1 %
11.3 %
762
359
39
22
—
Totals
$
14,838 $
1,833
$
10,165 $
1,182
The Air Management segment’s net sales for the year ended December 31, 2021 increased $1,620
million, or 29%, and Segment Adjusted EBIT increased $308 million, or 40%, from the year ended
December 31, 2020. The net impact of acquisitions, related to Delphi Technologies and AKASOL,
increased Air Management revenues by $880 million in 2021. Stronger foreign currencies relative to the
U.S. Dollar, primarily the Euro, Chinese Renminbi, and Korean Won, increased net sales by
approximately $154 million from the year ended December 31, 2020. The net increase excluding these
items was primarily due to increased demand for the Company’s products. In addition, net sales were
favorably impacted by the recovery of global markets from the negative effects of COVID-19 on 2020
production. However, this recovery was largely offset by supply constraints related to certain
components, particularly semiconductor chips, that negatively impacted global automotive production in
2021. Segment Adjusted EBIT margin was 14.7% for the year ended December 31, 2021, compared to
13.4% in the year ended December 31, 2020. The Segment Adjusted EBIT margin increase was
primarily due to the impact of higher sales and savings arising from the Company’s restructuring
initiatives, partially offset by higher commodity costs in 2021.
The e-Propulsion & Drivetrain segment’s net sales for the year ended December 31, 2021 increased
$1,389 million, or 35%, and Segment Adjusted EBIT increased $127 million, or 35%, from the year ended
December 31, 2020. The Delphi Technologies acquisition increased e-Propulsion & Drivetrain revenues
by $779 million in 2021. Stronger foreign currencies relative to the U.S. Dollar, primarily the Euro,
Chinese Renminbi, and Korean Won, increased net sales by approximately $126 million from the year
ended December 31, 2020. The net increase excluding these items was primarily due to increased
demand for the Company’s products. In addition, net sales were favorably impacted by the recovery of
global markets from the negative effects of COVID-19 on 2020 production. However, this recovery was
largely offset by supply constraints related to certain components, particularly semiconductor chips, that
negatively impacted global automotive production in 2021. Segment Adjusted EBIT margin was 9.0% in
the year ended December 31, 2021 and 2020 as the impact of higher sales was offset by higher
commodity costs and increased net R&D investments.
The Fuel Injection segment’s net sales and Segment Adjusted EBIT for the year ended December 31,
2021 were $1,826 million and $170 million, respectively. For the three months ended December 31, 2020,
net sales and Segment Adjusted EBIT were $479 million and $39 million, respectively. This was a new
reporting segment following the acquisition of Delphi Technologies on October 1, 2020. Segment
Adjusted EBIT margin was 9.3% in the year ended December 31, 2021, compared to 8.1% in the three
Total impact of non-comparable items per share — diluted:
$
(1.91) $
_____________________
1 During the year ended December 31, 2021, the Company reached an agreement with a customer to fully resolve a
warranty claim and the Company recognized cumulative charges in the amount of $124 million in connection with the
warranty claim. Refer to Note 21, “Contingencies,” to the Consolidated Financial Statements in Item 8 of this report for
more information.
2 During the years ended December 31, 2021 and 2020, the Company recorded a net gain of $3 million and $9 million from
insurance recovery proceeds, respectively, which primarily represents the amounts 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.
3 Represents the non-cash charges related to the amortization of the fair value adjustment of inventories acquired in
connection with the acquisition of Delphi Technologies during the year ended December 31, 2020. Refer to Note 2,
“Acquisitions and Dispositions,” to the Consolidated Financial Statements in Item 8 of this report for more information.
4 Represents loan fees related to term loan cancellation during the year ended December 31, 2020. On April 29, 2020 the
Company entered into a $750 million delayed-draw term loan that was subsequently cancelled on June 19, 2020 in
accordance with its terms, following the Company’s issuance of $1.1 billion in 2.650% senior notes due July 2027.
5 During the year ended December 31, 2020, the Company recorded a non-cash pension settlement loss of $4
million related to a European plant closure.
6 In 2021, the Company recognized discrete reductions to tax expense of $124 million. These reductions primarily included a
$55 million tax benefit related to the lapse of the statute of limitations for a tax matter, a $20 million benefit related to an
increase in deferred tax assets associated with an increase in the UK tax rate, and a $49 million of tax benefit primarily
related to changes to certain withholding rates applied to unremitted earnings and other tax adjustments. In 2020, the
Company recognized an increase in tax expense of $54 million for the finalization of the U.S. Department of the Treasury
regulations issued in the third quarter of 2020, which impacted the net tax on remittance of foreign earnings, but was
partially offset by reductions to tax expense of $5 million related to tax reserves and other tax adjustments.
Results by Reporting Segment
The Company’s business is comprised of four reporting segments: Air Management, e-Propulsion &
Drivetrain, Fuel Injection and Aftermarket.
Segment Adjusted EBIT is the measure of segment income or loss used by the Company. Segment
Adjusted EBIT is comprised of earnings before interest, income taxes and noncontrolling interest (“EBIT”)
adjusted for restructuring, merger, acquisition and divestiture expense, impairment charges, affiliates’
earnings and other items not reflective of ongoing operating income or loss. The Company believes
40
41
Non-comparable items impacting the Company’s earnings per diluted share and net earnings
The Company’s earnings per diluted share were $2.24 and $2.34 for the years ended December 31,
2021 and 2020, respectively. The non-comparable items presented below are calculated after tax using
the corresponding effective tax rate discrete to each item and the weighted average number of diluted
shares for each of the years then ended. The Company believes the following table is useful in
highlighting non-comparable items that impacted its earnings per diluted share:
Segment Adjusted EBIT is most reflective of the operational profitability or loss of its reporting segments.
Segment Adjusted EBIT excludes certain corporate costs, which primarily represent headquarters’
expenses not directly attributable to the individual segments. Corporate expenses not allocated to
Segment Adjusted EBIT were $302 million and $192 million for the years ended December 31, 2021 and
2020, respectively. The increase in corporate expenses in 2021 related to the acquisition of Delphi
Technologies in 2020 and reinstated costs related to specific cost reduction actions taken in response to
COVID-19 during 2020.
Non-comparable items:
Restructuring expense
Customer warranty settlement1
Merger, acquisition and divestiture expense
Loss on sales of businesses
Asset impairments and lease modifications
Net gain on insurance recovery for property damage2
Unrealized (loss) gain on equity securities
Loss on debt extinguishment
Intangible asset accelerated amortization
Amortization of inventory fair value adjustment3
Delayed-draw term loan cancellation4
Pension settlement loss5
Tax adjustments6
_____________________
Year Ended December 31,
2021
2020
$
(0.58) $
(0.86)
(0.26)
(0.19)
(0.13)
(0.05)
0.01
(1.15)
(0.06)
—
—
—
—
0.50
(0.38)
—
—
(0.08)
0.04
1.36
—
(0.14)
(0.10)
(0.01)
(0.02)
(0.23)
(0.42)
Total impact of non-comparable items per share — diluted:
$
(1.91) $
1 During the year ended December 31, 2021, the Company reached an agreement with a customer to fully resolve a
warranty claim and the Company recognized cumulative charges in the amount of $124 million in connection with the
warranty claim. Refer to Note 21, “Contingencies,” to the Consolidated Financial Statements in Item 8 of this report for
more information.
2 During the years ended December 31, 2021 and 2020, the Company recorded a net gain of $3 million and $9 million from
insurance recovery proceeds, respectively, which primarily represents the amounts 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.
3 Represents the non-cash charges related to the amortization of the fair value adjustment of inventories acquired in
connection with the acquisition of Delphi Technologies during the year ended December 31, 2020. Refer to Note 2,
“Acquisitions and Dispositions,” to the Consolidated Financial Statements in Item 8 of this report for more information.
4 Represents loan fees related to term loan cancellation during the year ended December 31, 2020. On April 29, 2020 the
Company entered into a $750 million delayed-draw term loan that was subsequently cancelled on June 19, 2020 in
accordance with its terms, following the Company’s issuance of $1.1 billion in 2.650% senior notes due July 2027.
5 During the year ended December 31, 2020, the Company recorded a non-cash pension settlement loss of $4
million related to a European plant closure.
6 In 2021, the Company recognized discrete reductions to tax expense of $124 million. These reductions primarily included a
$55 million tax benefit related to the lapse of the statute of limitations for a tax matter, a $20 million benefit related to an
increase in deferred tax assets associated with an increase in the UK tax rate, and a $49 million of tax benefit primarily
related to changes to certain withholding rates applied to unremitted earnings and other tax adjustments. In 2020, the
Company recognized an increase in tax expense of $54 million for the finalization of the U.S. Department of the Treasury
regulations issued in the third quarter of 2020, which impacted the net tax on remittance of foreign earnings, but was
partially offset by reductions to tax expense of $5 million related to tax reserves and other tax adjustments.
Results by Reporting Segment
The Company’s business is comprised of four reporting segments: Air Management, e-Propulsion &
Drivetrain, Fuel Injection and Aftermarket.
Segment Adjusted EBIT is the measure of segment income or loss used by the Company. Segment
Adjusted EBIT is comprised of earnings before interest, income taxes and noncontrolling interest (“EBIT”)
adjusted for restructuring, merger, acquisition and divestiture expense, impairment charges, affiliates’
earnings and other items not reflective of ongoing operating income or loss. The Company believes
The following table presents net sales and Segment Adjusted EBIT for the Company’s reporting
segments:
(in millions)
Air Management
e-Propulsion & Drivetrain
Fuel Injection
Aftermarket
Inter-segment eliminations
Year ended December 31, 2021
Year ended December 31, 2020
Net sales
Adjusted EBIT % margin
Net sales
Adjusted EBIT % margin
Segment
Segment
$
7,298 $
1,070
14.7 % $
5,678 $
5,378
1,826
853
(517)
9.0 %
9.3 %
12.5 %
486
170
107
—
3,989
479
194
(175)
13.4 %
9.0 %
8.1 %
11.3 %
762
359
39
22
—
Totals
$
14,838 $
1,833
$
10,165 $
1,182
The Air Management segment’s net sales for the year ended December 31, 2021 increased $1,620
million, or 29%, and Segment Adjusted EBIT increased $308 million, or 40%, from the year ended
December 31, 2020. The net impact of acquisitions, related to Delphi Technologies and AKASOL,
increased Air Management revenues by $880 million in 2021. Stronger foreign currencies relative to the
U.S. Dollar, primarily the Euro, Chinese Renminbi, and Korean Won, increased net sales by
approximately $154 million from the year ended December 31, 2020. The net increase excluding these
items was primarily due to increased demand for the Company’s products. In addition, net sales were
favorably impacted by the recovery of global markets from the negative effects of COVID-19 on 2020
production. However, this recovery was largely offset by supply constraints related to certain
components, particularly semiconductor chips, that negatively impacted global automotive production in
2021. Segment Adjusted EBIT margin was 14.7% for the year ended December 31, 2021, compared to
13.4% in the year ended December 31, 2020. The Segment Adjusted EBIT margin increase was
primarily due to the impact of higher sales and savings arising from the Company’s restructuring
initiatives, partially offset by higher commodity costs in 2021.
The e-Propulsion & Drivetrain segment’s net sales for the year ended December 31, 2021 increased
$1,389 million, or 35%, and Segment Adjusted EBIT increased $127 million, or 35%, from the year ended
December 31, 2020. The Delphi Technologies acquisition increased e-Propulsion & Drivetrain revenues
by $779 million in 2021. Stronger foreign currencies relative to the U.S. Dollar, primarily the Euro,
Chinese Renminbi, and Korean Won, increased net sales by approximately $126 million from the year
ended December 31, 2020. The net increase excluding these items was primarily due to increased
demand for the Company’s products. In addition, net sales were favorably impacted by the recovery of
global markets from the negative effects of COVID-19 on 2020 production. However, this recovery was
largely offset by supply constraints related to certain components, particularly semiconductor chips, that
negatively impacted global automotive production in 2021. Segment Adjusted EBIT margin was 9.0% in
the year ended December 31, 2021 and 2020 as the impact of higher sales was offset by higher
commodity costs and increased net R&D investments.
The Fuel Injection segment’s net sales and Segment Adjusted EBIT for the year ended December 31,
2021 were $1,826 million and $170 million, respectively. For the three months ended December 31, 2020,
net sales and Segment Adjusted EBIT were $479 million and $39 million, respectively. This was a new
reporting segment following the acquisition of Delphi Technologies on October 1, 2020. Segment
Adjusted EBIT margin was 9.3% in the year ended December 31, 2021, compared to 8.1% in the three
40
41
which is a debt-to-EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) ratio. The
Company was in compliance with the financial covenant at December 31, 2021. At December 31, 2021
and 2020, the Company had no outstanding borrowings under this facility.
The Company’s commercial paper program allows the Company to issue $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
December 31, 2021 and 2020.
The total current combined borrowing capacity under the multi-currency revolving credit facility and
commercial paper program cannot exceed $2.0 billion.
In addition to the credit facility, the Company’s universal shelf registration provides the ability to issue
various debt and equity instruments subject to market conditions.
On February 12, 2021, April 28, 2021, July 28, 2021 and November 9, 2021, the Company’s Board of
Directors declared quarterly cash dividends of $0.17 per share of common stock. These dividends were
paid on March 16, 2021, June 15, 2021, September 15, 2021 and December 15, 2021, respectively.
During 2020, due to the business disruptions from COVID-19 and uncertainties surrounding the Delphi
Technologies acquisition, Standard & Poor’s downgraded the Company's rating from BBB+ with a stable
outlook to BBB with a negative outlook. Additionally, Moody's and Fitch adjusted their outlooks from
stable to negative but maintained the Company’s credit ratings at Baa1 and BBB+, respectively. In April
2021, Moody’s reaffirmed the Company’s Baa1 credit rating and adjusted its outlook from negative to
stable. In May 2021, Fitch Ratings reaffirmed the Company’s BBB+ rating and adjusted its outlook from
negative to stable. In December 2021, Standard & Poor’s reaffirmed the Company’s rating of BBB with a
negative outlook. None of the Company’s debt agreements require accelerated repayment in the event of
a downgrade in credit ratings.
months ended December 31, 2020. The Segment Adjusted EBIT margin increase was primarily due to
cost improvement measures and higher engineering cost recoveries in 2021.
The Aftermarket segment’s net sales and Segment Adjusted EBIT for the year ended December 31,
2021 were $853 million and $107 million, respectively. For the three months ended December 31, 2020,
net sales and Segment Adjusted EBIT were $194 million and $22 million, respectively. This was a new
reporting segment following the acquisition of Delphi Technologies on October 1, 2020. Segment
Adjusted EBIT margin was 12.5% in the year ended December 31, 2021, compared to 11.3% in the three
months ended December 31, 2020. The Segment Adjusted EBIT margin increase was primarily related to
increased pricing in 2021.
Outlook
The Company expects global industry production to increase year over year in 2022, as supply of certain
components, particularly semiconductor chips, is expected to improve modestly during the year. The
Company also expects net new business-related sales growth, due to increased penetration of
BorgWarner products around the world, to drive sales increase in excess of the growth in industry
production outlook. As a result, the Company expects increased revenue in 2022, excluding the impact of
foreign currencies.
The Company expects its results to be impacted by a planned increase in Research & Development
(“R&D”) expenditures during 2022. This planned R&D increase is to support growth in the Company’s
electric vehicle-related products and is primarily related to supporting the launch of recently awarded
programs. The Company also expects higher commodity cost, particularly related to steel and petroleum-
based resin products, and other supplier cost increases to negatively impact its results of operations.
These items are expected to be partially mitigated by cost reductions due to the Company’s restructuring
activities and synergies related to the acquisition of Delphi Technologies.
The Company maintains a positive long-term outlook for its global business and is committed to new
product development and strategic investments to enhance its product leadership strategy. There are
several trends that are driving the Company’s long-term growth that management expects to continue,
including adoption of product offerings for electrified vehicles and increasingly stringent global emissions
standards that support demand for the Company’s products driving vehicle efficiency.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains various liquidity sources including cash and cash equivalents and the unused
portion of its multi-currency revolving credit agreement. As of December 31, 2021, the Company had
liquidity of $3,841 million, comprised of cash and cash equivalent balances of $1,841 million and an
undrawn revolving credit facility of $2,000 million. The Company was in full compliance with its covenants
under the revolving credit facility and had full access to its undrawn revolving credit facility. Debt
maturities through the end of 2022 total $66 million. Given the Company’s strong liquidity position,
management believes that it will have sufficient liquidity and will maintain compliance with all covenants
through at least the next 12 months.
As of December 31, 2021, cash balances of $1,361 million were held by the Company’s subsidiaries
outside of the United States. Cash and cash equivalents held by these subsidiaries is used to fund
foreign operational activities and future investments, including acquisitions. The majority of cash and cash
equivalents held outside the United States is available for repatriation. The Company uses its U.S.
liquidity primarily for various corporate purposes, including but not limited to debt service, share
repurchases, dividend distributions, acquisitions and other corporate expenses.
The Company has a $2.0 billion multi-currency revolving credit facility, which includes a feature that
allows the facility to be increased by $1.0 billion with bank group approval. This facility matures in March
2025. The credit facility agreement contains customary events of default and one key financial covenant,
42
43
which is a debt-to-EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) ratio. The
Company was in compliance with the financial covenant at December 31, 2021. At December 31, 2021
and 2020, the Company had no outstanding borrowings under this facility.
The Company’s commercial paper program allows the Company to issue $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
December 31, 2021 and 2020.
The total current combined borrowing capacity under the multi-currency revolving credit facility and
commercial paper program cannot exceed $2.0 billion.
In addition to the credit facility, the Company’s universal shelf registration provides the ability to issue
various debt and equity instruments subject to market conditions.
On February 12, 2021, April 28, 2021, July 28, 2021 and November 9, 2021, the Company’s Board of
Directors declared quarterly cash dividends of $0.17 per share of common stock. These dividends were
paid on March 16, 2021, June 15, 2021, September 15, 2021 and December 15, 2021, respectively.
During 2020, due to the business disruptions from COVID-19 and uncertainties surrounding the Delphi
Technologies acquisition, Standard & Poor’s downgraded the Company's rating from BBB+ with a stable
outlook to BBB with a negative outlook. Additionally, Moody's and Fitch adjusted their outlooks from
stable to negative but maintained the Company’s credit ratings at Baa1 and BBB+, respectively. In April
2021, Moody’s reaffirmed the Company’s Baa1 credit rating and adjusted its outlook from negative to
stable. In May 2021, Fitch Ratings reaffirmed the Company’s BBB+ rating and adjusted its outlook from
negative to stable. In December 2021, Standard & Poor’s reaffirmed the Company’s rating of BBB with a
negative outlook. None of the Company’s debt agreements require accelerated repayment in the event of
a downgrade in credit ratings.
months ended December 31, 2020. The Segment Adjusted EBIT margin increase was primarily due to
cost improvement measures and higher engineering cost recoveries in 2021.
The Aftermarket segment’s net sales and Segment Adjusted EBIT for the year ended December 31,
2021 were $853 million and $107 million, respectively. For the three months ended December 31, 2020,
net sales and Segment Adjusted EBIT were $194 million and $22 million, respectively. This was a new
reporting segment following the acquisition of Delphi Technologies on October 1, 2020. Segment
Adjusted EBIT margin was 12.5% in the year ended December 31, 2021, compared to 11.3% in the three
months ended December 31, 2020. The Segment Adjusted EBIT margin increase was primarily related to
increased pricing in 2021.
Outlook
The Company expects global industry production to increase year over year in 2022, as supply of certain
components, particularly semiconductor chips, is expected to improve modestly during the year. The
Company also expects net new business-related sales growth, due to increased penetration of
BorgWarner products around the world, to drive sales increase in excess of the growth in industry
production outlook. As a result, the Company expects increased revenue in 2022, excluding the impact of
foreign currencies.
The Company expects its results to be impacted by a planned increase in Research & Development
(“R&D”) expenditures during 2022. This planned R&D increase is to support growth in the Company’s
electric vehicle-related products and is primarily related to supporting the launch of recently awarded
programs. The Company also expects higher commodity cost, particularly related to steel and petroleum-
based resin products, and other supplier cost increases to negatively impact its results of operations.
These items are expected to be partially mitigated by cost reductions due to the Company’s restructuring
activities and synergies related to the acquisition of Delphi Technologies.
The Company maintains a positive long-term outlook for its global business and is committed to new
product development and strategic investments to enhance its product leadership strategy. There are
several trends that are driving the Company’s long-term growth that management expects to continue,
including adoption of product offerings for electrified vehicles and increasingly stringent global emissions
standards that support demand for the Company’s products driving vehicle efficiency.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains various liquidity sources including cash and cash equivalents and the unused
portion of its multi-currency revolving credit agreement. As of December 31, 2021, the Company had
liquidity of $3,841 million, comprised of cash and cash equivalent balances of $1,841 million and an
undrawn revolving credit facility of $2,000 million. The Company was in full compliance with its covenants
under the revolving credit facility and had full access to its undrawn revolving credit facility. Debt
maturities through the end of 2022 total $66 million. Given the Company’s strong liquidity position,
management believes that it will have sufficient liquidity and will maintain compliance with all covenants
through at least the next 12 months.
As of December 31, 2021, cash balances of $1,361 million were held by the Company’s subsidiaries
outside of the United States. Cash and cash equivalents held by these subsidiaries is used to fund
foreign operational activities and future investments, including acquisitions. The majority of cash and cash
equivalents held outside the United States is available for repatriation. The Company uses its U.S.
liquidity primarily for various corporate purposes, including but not limited to debt service, share
repurchases, dividend distributions, acquisitions and other corporate expenses.
The Company has a $2.0 billion multi-currency revolving credit facility, which includes a feature that
allows the facility to be increased by $1.0 billion with bank group approval. This facility matures in March
2025. The credit facility agreement contains customary events of default and one key financial covenant,
42
43
Cash Flows
Operating Activities
(in millions)
OPERATING
Net earnings
Adjustments to reconcile net earnings to net cash flows from operations:
Depreciation and tooling amortization
Intangible asset amortization
Restructuring expense, net of cash paid
Stock-based compensation expense
Loss on sales of businesses
Loss on debt extinguishment
Unrealized loss (gain) on equity securities
Deferred income tax (benefit) provision
Other non-cash adjustments
Net earnings adjustments to reconcile to net cash flows from operations
Retirement plan contributions
Changes in assets and liabilities:
Receivables
Inventories
Accounts payable and accrued expenses
Other assets and liabilities
Net cash provided by operating activities
Year Ended December 31,
2021
2020
$
639 $
567
684
88
123
62
29
20
362
(180)
(22)
1,805
(30)
(59)
(268)
(134)
(8)
479
89
135
41
—
—
(382)
123
(5)
1,047
(182)
27
(28)
186
134
$
1,306 $
1,184
Net cash provided by operating activities was $1,306 million and $1,184 million in the years ended
December 31, 2021 and 2020, respectively. The increase for the year ended December 31, 2021,
compared with the year ended December 31, 2020, was primarily due to higher net earnings adjusted for
non-cash charges, partially offset by higher working capital, due to higher inventory levels and lower
accounts payable as the current volatile market environment led to unanticipated reductions in customer
production. During 2020, there were lower net investments in working capital (excluding working capital
acquired in the Delphi Technologies acquisition), partially offset by incremental retirement benefit plan
contributions made in December 2020 to the Delphi Technologies Pension Scheme in the United
Kingdom, which is discussed further below.
Capital expenditures, including tooling outlays
$
(666) $
(441)
Investing Activities
(in millions)
INVESTING
Capital expenditures for damage to property, plant and equipment
Insurance proceeds received for damage to property, plant and equipment
Payments for businesses acquired, net of cash and restricted cash acquired
Proceeds from sale of businesses, net of cash divested
Proceeds from settlement of net investment hedges, net
(Payments for) proceeds from other investing activities
Net cash used in investing activities
Net cash used in investing activities was $1,395 million and $866 million in the years ended
December 31, 2021 and 2020, respectively. The increase in cash used during the year ended
December 31, 2021, compared with the year ended December 31, 2020, was primarily due to cash
outflows related to the 2021 acquisition of AKASOL. In addition, in 2021, capital expenditures, including
tooling outlays, were higher primarily due to the acquisition of Delphi Technologies. As a percentage of
sales, capital expenditures were 4.5% and 4.3% for the years ended December 31, 2021 and 2020,
respectively.
Financing Activities
(in millions)
FINANCING
Additions to debt
Net (decrease) increase in notes payable
Repayments of debt, including current portion
Payments for debt issuance costs
Payments for purchase of treasury stock
Payments for stock-based compensation items
(Purchase of) capital contribution from noncontrolling interest
Dividends paid to BorgWarner stockholders
Dividends paid to noncontrolling stockholders
Net cash provided by financing activities
Year Ended December 31,
2021
2020
(2)
5
(759)
22
11
(6)
(20)
20
(449)
—
10
14
$
(1,395) $
(866)
Year Ended December 31,
2021
2020
$
(8) $
8
1,286
1,178
(699)
(11)
—
(15)
(33)
(162)
(72)
(331)
(10)
(216)
(13)
4
(146)
(37)
437
$
286 $
Net cash provided by financing activities was $286 million and $437 million in the years ended
December 31, 2021 and 2020, respectively. The decrease in net cash provided by financing activities
during the year ended December 31, 2021 was primarily related to the Company’s repayment of its €500
million 1.800% senior notes due November 2022, partially offset by no share repurchases 2021.
Additionally, net cash provided by financing activities for 2021 included the Company’s public offering and
issuance of €1.0 billion in 1.000% senior notes due May 2031, a $51 million increase in dividends paid to
BorgWarner and noncontrolling stockholders, as compared to 2020, and $33 million paid to acquire
additional shares in AKASOL.
44
45
Adjustments to reconcile net earnings to net cash flows from operations:
Cash Flows
Operating Activities
(in millions)
OPERATING
Net earnings
Depreciation and tooling amortization
Intangible asset amortization
Restructuring expense, net of cash paid
Stock-based compensation expense
Loss on sales of businesses
Loss on debt extinguishment
Unrealized loss (gain) on equity securities
Deferred income tax (benefit) provision
Other non-cash adjustments
Retirement plan contributions
Changes in assets and liabilities:
Receivables
Inventories
Accounts payable and accrued expenses
Other assets and liabilities
Net cash provided by operating activities
Net earnings adjustments to reconcile to net cash flows from operations
Year Ended December 31,
2021
2020
$
639 $
567
684
88
123
62
29
20
362
(180)
(22)
1,805
(30)
(59)
(268)
(134)
(8)
479
89
135
41
—
—
(382)
123
(5)
1,047
(182)
27
(28)
186
134
$
1,306 $
1,184
Net cash provided by operating activities was $1,306 million and $1,184 million in the years ended
December 31, 2021 and 2020, respectively. The increase for the year ended December 31, 2021,
compared with the year ended December 31, 2020, was primarily due to higher net earnings adjusted for
non-cash charges, partially offset by higher working capital, due to higher inventory levels and lower
accounts payable as the current volatile market environment led to unanticipated reductions in customer
production. During 2020, there were lower net investments in working capital (excluding working capital
acquired in the Delphi Technologies acquisition), partially offset by incremental retirement benefit plan
contributions made in December 2020 to the Delphi Technologies Pension Scheme in the United
Kingdom, which is discussed further below.
Investing Activities
(in millions)
INVESTING
Year Ended December 31,
2021
2020
Capital expenditures, including tooling outlays
$
(666) $
(441)
Capital expenditures for damage to property, plant and equipment
Insurance proceeds received for damage to property, plant and equipment
Payments for businesses acquired, net of cash and restricted cash acquired
Proceeds from sale of businesses, net of cash divested
Proceeds from settlement of net investment hedges, net
(Payments for) proceeds from other investing activities
Net cash used in investing activities
(2)
5
(759)
22
11
(6)
(20)
20
(449)
—
10
14
$
(1,395) $
(866)
Net cash used in investing activities was $1,395 million and $866 million in the years ended
December 31, 2021 and 2020, respectively. The increase in cash used during the year ended
December 31, 2021, compared with the year ended December 31, 2020, was primarily due to cash
outflows related to the 2021 acquisition of AKASOL. In addition, in 2021, capital expenditures, including
tooling outlays, were higher primarily due to the acquisition of Delphi Technologies. As a percentage of
sales, capital expenditures were 4.5% and 4.3% for the years ended December 31, 2021 and 2020,
respectively.
Financing Activities
(in millions)
FINANCING
Net (decrease) increase in notes payable
Additions to debt
Repayments of debt, including current portion
Payments for debt issuance costs
Payments for purchase of treasury stock
Payments for stock-based compensation items
(Purchase of) capital contribution from noncontrolling interest
Dividends paid to BorgWarner stockholders
Dividends paid to noncontrolling stockholders
Net cash provided by financing activities
Year Ended December 31,
2021
2020
$
(8) $
8
1,286
1,178
(699)
(11)
—
(15)
(33)
(162)
(72)
$
286 $
(331)
(10)
(216)
(13)
4
(146)
(37)
437
Net cash provided by financing activities was $286 million and $437 million in the years ended
December 31, 2021 and 2020, respectively. The decrease in net cash provided by financing activities
during the year ended December 31, 2021 was primarily related to the Company’s repayment of its €500
million 1.800% senior notes due November 2022, partially offset by no share repurchases 2021.
Additionally, net cash provided by financing activities for 2021 included the Company’s public offering and
issuance of €1.0 billion in 1.000% senior notes due May 2031, a $51 million increase in dividends paid to
BorgWarner and noncontrolling stockholders, as compared to 2020, and $33 million paid to acquire
additional shares in AKASOL.
44
45
Contractual Obligations
The Company’s significant cash requirements for contractual obligations as of December 31, 2021,
primarily consist of the principal and interest payments on its notes payable and long-term debt, non-
cancelable lease obligations and capital spending obligations. The principal amount of notes payable and
long-term debt was $4,277 million as of December 31, 2021. The projected interest payments on that
debt were $1,042 million as of December 31, 2021. Refer to Note 14, “Notes Payable and Debt,” to the
Consolidated Financial Statements in Item 8 of this report for more information.
As of December 31, 2021, non-cancelable lease obligations were $227 million. Refer to Note 22,
“Leases and Commitments,” to the Consolidated Financial Statements in Item 8 of this report for more
information. Capital spending obligations were $142 million as of December 31, 2021.
Management believes that the combination of cash from operations, cash balances, available credit
facilities, and the universal shelf registration capacity will be sufficient to satisfy the Company’s cash
needs for its current level of operations and its planned operations for the foreseeable future.
Management will continue to balance the Company’s needs for organic growth, inorganic growth, debt
reduction, cash conservation and return of cash to shareholders.
Pension and Other Postretirement Employee Benefits
The Company’s policy is to fund its defined benefit pension plans in accordance with applicable
government regulations and to make additional contributions when appropriate. At December 31, 2021,
all legal funding requirements had been met. The Company contributed $24 million, $174 million and $26
million to its defined benefit pension plans in the years ended December 31, 2021, 2020 and 2019,
respectively. On October 1, 2020, as a result of the acquisition of Delphi Technologies, the Company
assumed all of the retirement-related liabilities of Delphi Technologies, the most significant of which was
the Delphi Technologies Pension Scheme (the “Scheme”) in the United Kingdom. On December 12,
2020, the Company entered into a Heads of Terms Agreement (the “Agreement”) with the Trustees of the
Scheme related to the future funding of the Scheme. Under the Agreement, the Company eliminated the
prior schedule of contributions between Delphi Technologies and the Scheme in exchange for a $137
million (£100 million) one-time contribution into the Scheme Plan by December 31, 2020, which was paid
on December 15, 2020. The Agreement also contained other provisions regarding the implementation of
a revised asset investment strategy as well as a funding progress test that will be performed every three
years to determine if additional contributions need to be made into the Scheme by the Company. At this
time, the Company anticipates that no additional contributions will need to be made into the Scheme until
2026 at the earliest.
The Company expects to contribute a total of $20 million to $30 million into its defined benefit pension
plans during 2022. Of the $20 million to $30 million in projected 2022 contributions, $7 million are
contractually obligated, while any remaining payments would be discretionary.
The funded status of all pension plans was a net unfunded position of $184 million and $501 million at
December 31, 2021 and 2020, respectively. The decrease in the net unfunded position was a result of a
lower projected benefit obligation which is primarily due to actuarial gains during the period. The main
driver of these gains was the increase of 0.53% in the weighted average discount rate for Non-U.S.
plans. Of the total net unfunded amounts, $89 million and $139 million at December 31, 2021 and 2020,
respectively, were related to plans in Germany, where there is no tax deduction allowed under the
applicable regulations to fund the plans; hence, the common practice is to make contributions as benefit
payments become due. Additionally, $186 million of the net unfunded position at December 31, 2020
related to the acquired Delphi Technologies Pension Scheme in the United Kingdom, which reflects the
impact of the $137 million contribution discussed above.
Other postretirement employee benefits primarily consist of postretirement health care benefits for certain
employees and retirees of the Company’s U.S. operations. The Company funds these benefits as retiree
claims are incurred. Other postretirement employee benefits had an unfunded status of $54 million and
$65 million at December 31, 2021 and 2020, respectively.
The Company believes it will be able to fund the requirements of these plans through cash generated
from operations or other available sources of financing for the foreseeable future.
Refer to Note 18, “Retirement Benefit Plans,” to the Consolidated Financial Statements in Item 8 of this
report for more information regarding costs and assumptions for employee retirement benefits.
OTHER MATTERS
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.
The Company previously disclosed a warranty claim that an OEM customer asserted. The claim was
related to certain combustion-related products, and the Company and the customer continued to work
through the warranty process in the fourth quarter of 2021. In December 2021, as a result of discussions
that occurred in the fourth quarter, the Company (without any admission of liability) and the customer
reached an agreement to fully resolve the claim for $130 million, which the Company paid in 2021. For
the year ended December 31, 2021, the Company recorded cumulative charges of $124 million in
connection with the warranty claim. The Company is pursuing a partial recovery of this claim through its
insurance coverage. However, there is no assurance that there will be any recovery.
Environmental
formula.
such matter.
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. Responsibility for clean-up
and other remedial activities at a Superfund site is typically shared among PRPs based on an allocation
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
Refer to Note 21, “Contingencies,” to the Consolidated Financial Statements in Item 8 of this report for
further details and information respecting the Company’s environmental liability.
46
47
Contractual Obligations
The Company’s significant cash requirements for contractual obligations as of December 31, 2021,
primarily consist of the principal and interest payments on its notes payable and long-term debt, non-
cancelable lease obligations and capital spending obligations. The principal amount of notes payable and
long-term debt was $4,277 million as of December 31, 2021. The projected interest payments on that
debt were $1,042 million as of December 31, 2021. Refer to Note 14, “Notes Payable and Debt,” to the
Consolidated Financial Statements in Item 8 of this report for more information.
As of December 31, 2021, non-cancelable lease obligations were $227 million. Refer to Note 22,
“Leases and Commitments,” to the Consolidated Financial Statements in Item 8 of this report for more
information. Capital spending obligations were $142 million as of December 31, 2021.
Management believes that the combination of cash from operations, cash balances, available credit
facilities, and the universal shelf registration capacity will be sufficient to satisfy the Company’s cash
needs for its current level of operations and its planned operations for the foreseeable future.
Management will continue to balance the Company’s needs for organic growth, inorganic growth, debt
reduction, cash conservation and return of cash to shareholders.
Pension and Other Postretirement Employee Benefits
The Company’s policy is to fund its defined benefit pension plans in accordance with applicable
government regulations and to make additional contributions when appropriate. At December 31, 2021,
all legal funding requirements had been met. The Company contributed $24 million, $174 million and $26
million to its defined benefit pension plans in the years ended December 31, 2021, 2020 and 2019,
respectively. On October 1, 2020, as a result of the acquisition of Delphi Technologies, the Company
assumed all of the retirement-related liabilities of Delphi Technologies, the most significant of which was
the Delphi Technologies Pension Scheme (the “Scheme”) in the United Kingdom. On December 12,
2020, the Company entered into a Heads of Terms Agreement (the “Agreement”) with the Trustees of the
Scheme related to the future funding of the Scheme. Under the Agreement, the Company eliminated the
prior schedule of contributions between Delphi Technologies and the Scheme in exchange for a $137
million (£100 million) one-time contribution into the Scheme Plan by December 31, 2020, which was paid
on December 15, 2020. The Agreement also contained other provisions regarding the implementation of
a revised asset investment strategy as well as a funding progress test that will be performed every three
years to determine if additional contributions need to be made into the Scheme by the Company. At this
time, the Company anticipates that no additional contributions will need to be made into the Scheme until
2026 at the earliest.
The Company expects to contribute a total of $20 million to $30 million into its defined benefit pension
plans during 2022. Of the $20 million to $30 million in projected 2022 contributions, $7 million are
contractually obligated, while any remaining payments would be discretionary.
The funded status of all pension plans was a net unfunded position of $184 million and $501 million at
December 31, 2021 and 2020, respectively. The decrease in the net unfunded position was a result of a
lower projected benefit obligation which is primarily due to actuarial gains during the period. The main
driver of these gains was the increase of 0.53% in the weighted average discount rate for Non-U.S.
plans. Of the total net unfunded amounts, $89 million and $139 million at December 31, 2021 and 2020,
respectively, were related to plans in Germany, where there is no tax deduction allowed under the
applicable regulations to fund the plans; hence, the common practice is to make contributions as benefit
payments become due. Additionally, $186 million of the net unfunded position at December 31, 2020
related to the acquired Delphi Technologies Pension Scheme in the United Kingdom, which reflects the
impact of the $137 million contribution discussed above.
Other postretirement employee benefits primarily consist of postretirement health care benefits for certain
employees and retirees of the Company’s U.S. operations. The Company funds these benefits as retiree
claims are incurred. Other postretirement employee benefits had an unfunded status of $54 million and
$65 million at December 31, 2021 and 2020, respectively.
The Company believes it will be able to fund the requirements of these plans through cash generated
from operations or other available sources of financing for the foreseeable future.
Refer to Note 18, “Retirement Benefit Plans,” to the Consolidated Financial Statements in Item 8 of this
report for more information regarding costs and assumptions for employee retirement benefits.
OTHER MATTERS
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.
The Company previously disclosed a warranty claim that an OEM customer asserted. The claim was
related to certain combustion-related products, and the Company and the customer continued to work
through the warranty process in the fourth quarter of 2021. In December 2021, as a result of discussions
that occurred in the fourth quarter, the Company (without any admission of liability) and the customer
reached an agreement to fully resolve the claim for $130 million, which the Company paid in 2021. For
the year ended December 31, 2021, the Company recorded cumulative charges of $124 million in
connection with the warranty claim. The Company is pursuing a partial recovery of this claim through its
insurance coverage. However, there is no assurance that there will be any recovery.
Environmental
The Company and certain of its current and former direct and indirect corporate predecessors,
subsidiaries and divisions have been identified by the United States Environmental Protection Agency
and certain state environmental agencies and private parties as potentially responsible parties (“PRPs”)
at various hazardous waste disposal sites under the Comprehensive Environmental Response,
Compensation and Liability Act (“Superfund”) and equivalent state laws and, as such, may presently be
liable for the cost of clean-up and other remedial activities at 26 such sites. Responsibility for clean-up
and other remedial activities at a Superfund site is typically shared among PRPs based on an allocation
formula.
The Company believes that none of these matters, individually or in the aggregate, will have a material
adverse effect on its results of operations, financial position or cash flows. Generally, this is because
either the estimates of the maximum potential liability at a site are not material or the liability will be
shared with other PRPs, although no assurance can be given with respect to the ultimate outcome of any
such matter.
Refer to Note 21, “Contingencies,” to the Consolidated Financial Statements in Item 8 of this report for
further details and information respecting the Company’s environmental liability.
46
47
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The consolidated financial statements are prepared in conformity with accounting principles generally
accepted in the United States (“GAAP”). In preparing these financial statements, management has made
its best estimates and judgments of certain amounts included in the financial statements, giving due
consideration to materiality. Critical accounting policies are those that are most important to the portrayal
of the Company’s financial condition and results of operations. Some of these policies require
management's most difficult, subjective or complex judgments in the preparation of the financial
statements and accompanying notes. Management makes estimates and assumptions about the effect
of matters that are inherently uncertain, relating to the reporting of assets, liabilities, revenues, expenses
and the disclosure of contingent assets and liabilities. The Company’s most critical accounting policies
are discussed below.
Business combinations The Company allocates the cost of an acquired business to the assets
acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The
excess value of the cost of an acquired business over the estimated fair value of the assets acquired and
liabilities assumed is recognized as goodwill. The valuation of the acquired assets and liabilities will
impact the determination of future operating results. The Company uses a variety of information sources
to determine the value of acquired assets and liabilities, including third-party appraisers for the values
and lives of property, identifiable intangibles and inventories, and actuaries for defined benefit retirement
plans. Goodwill is assigned to reporting units as of the date of the related acquisition. If goodwill is
assigned to more than one reporting unit, the Company utilizes a method that is consistent with the
manner in which the amount of goodwill in a business combination is determined. Costs related to the
acquisition of a business are expensed as incurred.
Acquired intangible assets include customer relationships, developed technology and trade names. The
Company estimates the fair value of acquired intangible assets using various valuation techniques. The
primary valuation techniques used include 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 which
may include revenue growth rates, estimated earnings, royalty rates, obsolescence factors, contributory
asset charges, customer attrition and discount rates. Under the multi-period excess earnings method,
value is estimated as the present value of the benefits anticipated from ownership of the asset, in excess
of the returns required on the investment in contributory assets that are necessary to realize those
benefits. The intangible asset’s estimated earnings are determined as the residual earnings after
quantifying estimated earnings from contributory assets.
The Company estimates the fair value of trade names and developed technology using the relief from
royalty method, which calculates the cost savings associated with owning rather than licensing the
assets. Assumed royalty rates are applied to projected revenue for the remaining useful lives of the
assets to estimate the royalty savings.
While the Company uses its best estimates and assumptions, fair value estimates are inherently
uncertain and subject to refinement. As a result, during the measurement period, which may be up to one
year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities
assumed, with the corresponding offset to goodwill. Any adjustments required after the measurement
period are recorded in the consolidated statement of earnings.
Future changes in the judgments, assumptions and estimates that are used in acquisition valuations and
intangible asset 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.
Impairment of long-lived assets, including definite-lived intangible assets The Company reviews
the carrying value of its long-lived assets, whether held for use or disposal, including other amortizing
intangible assets, when events and circumstances warrant such a review under ASC Topic 360. In
assessing long-lived assets for an impairment loss, assets are grouped with other assets and liabilities at
the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets
and liabilities. In assessing long-lived assets for impairment, management generally considers individual
facilities to be the lowest level for which identifiable cash flows are largely independent. A recoverability
review is performed using the undiscounted cash flows if there is a triggering event. If the undiscounted
cash flow test for recoverability identifies a possible impairment, management will perform a fair value
analysis. Management determines fair value under ASC Topic 820 using the appropriate valuation
technique of market, income or cost approach. If the carrying value of a long-lived asset is considered
impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived
asset exceeds its fair value.
Management believes that the estimates of future cash flows and fair value assumptions are reasonable;
however, changes in assumptions underlying these estimates could affect the valuations. Significant
judgments and estimates used by management when evaluating long-lived assets for impairment include
(i) an assessment as to whether an adverse event or circumstance has triggered the need for an
impairment review; (ii) undiscounted future cash flows generated by the asset; and (iii) fair valuation of
the asset. Events and conditions that could result in impairment in the value of long-lived assets include
changes in the industries in which the Company operates, particularly the impact of a downturn in the
global economy, as well as competition and advances in technology, adverse changes in the regulatory
environment, or other factors leading to reduction in expected long-term sales or profitability.
Goodwill and other indefinite-lived intangible assets During the fourth quarter of each year, the
Company qualitatively assesses its goodwill assigned to each of its reporting units. This qualitative
assessment evaluates various events and circumstances, such as macroeconomic conditions, industry
and market conditions, cost factors, relevant events and financial trends, that may impact a reporting
unit's fair value. Using this qualitative assessment, the Company determines whether it is more-likely-
than-not the reporting unit's fair value exceeds its carrying value. If it is determined that it is not more-
likely-than-not the reporting unit's fair value exceeds the carrying value, or upon consideration of other
factors, including recent acquisition, restructuring or disposal activity or to refresh the fair values, the
Company performs a quantitative goodwill impairment analysis. In addition, the Company may test
goodwill in between annual test dates if an event occurs or circumstances change that could more-likely-
than-not reduce the fair value of a reporting unit below its carrying value.
Similar to goodwill, the Company can elect to perform the impairment test for indefinite-lived intangibles
other than goodwill (primarily trade names) using a qualitative analysis, considering similar factors as
outlined in the goodwill discussion in order to determine if it is more-likely-than-not that the fair value of
the trade names is less than the respective carrying values. If the Company elects to perform or is
required to perform a quantitative analysis, the test consists of a comparison of the fair value of the
indefinite-lived intangible asset to the carrying value of the asset as of the impairment testing date. The
Company estimates the fair value of indefinite-lived intangibles using the relief-from-royalty method,
which it believes is an appropriate and widely used valuation technique for such assets. The fair value
derived from the relief-from-royalty method is measured as the discounted cash flow savings realized
from owning such trade names and not being required to pay a royalty for their use.
During the fourth quarter of 2021, the Company performed an analysis on each reporting unit. Given the
macroeconomic environment, the Company performed quantitative goodwill impairment analyses for the
majority of reporting units to refresh their respective fair values. This requires the Company to make
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49
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The consolidated financial statements are prepared in conformity with accounting principles generally
accepted in the United States (“GAAP”). In preparing these financial statements, management has made
its best estimates and judgments of certain amounts included in the financial statements, giving due
consideration to materiality. Critical accounting policies are those that are most important to the portrayal
of the Company’s financial condition and results of operations. Some of these policies require
management's most difficult, subjective or complex judgments in the preparation of the financial
statements and accompanying notes. Management makes estimates and assumptions about the effect
of matters that are inherently uncertain, relating to the reporting of assets, liabilities, revenues, expenses
and the disclosure of contingent assets and liabilities. The Company’s most critical accounting policies
are discussed below.
Business combinations The Company allocates the cost of an acquired business to the assets
acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The
excess value of the cost of an acquired business over the estimated fair value of the assets acquired and
liabilities assumed is recognized as goodwill. The valuation of the acquired assets and liabilities will
impact the determination of future operating results. The Company uses a variety of information sources
to determine the value of acquired assets and liabilities, including third-party appraisers for the values
and lives of property, identifiable intangibles and inventories, and actuaries for defined benefit retirement
plans. Goodwill is assigned to reporting units as of the date of the related acquisition. If goodwill is
assigned to more than one reporting unit, the Company utilizes a method that is consistent with the
manner in which the amount of goodwill in a business combination is determined. Costs related to the
acquisition of a business are expensed as incurred.
Acquired intangible assets include customer relationships, developed technology and trade names. The
Company estimates the fair value of acquired intangible assets using various valuation techniques. The
primary valuation techniques used include 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 which
may include revenue growth rates, estimated earnings, royalty rates, obsolescence factors, contributory
asset charges, customer attrition and discount rates. Under the multi-period excess earnings method,
value is estimated as the present value of the benefits anticipated from ownership of the asset, in excess
of the returns required on the investment in contributory assets that are necessary to realize those
benefits. The intangible asset’s estimated earnings are determined as the residual earnings after
quantifying estimated earnings from contributory assets.
The Company estimates the fair value of trade names and developed technology using the relief from
royalty method, which calculates the cost savings associated with owning rather than licensing the
assets. Assumed royalty rates are applied to projected revenue for the remaining useful lives of the
assets to estimate the royalty savings.
While the Company uses its best estimates and assumptions, fair value estimates are inherently
uncertain and subject to refinement. As a result, during the measurement period, which may be up to one
year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities
assumed, with the corresponding offset to goodwill. Any adjustments required after the measurement
period are recorded in the consolidated statement of earnings.
Future changes in the judgments, assumptions and estimates that are used in acquisition valuations and
intangible asset 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.
Impairment of long-lived assets, including definite-lived intangible assets The Company reviews
the carrying value of its long-lived assets, whether held for use or disposal, including other amortizing
intangible assets, when events and circumstances warrant such a review under ASC Topic 360. In
assessing long-lived assets for an impairment loss, assets are grouped with other assets and liabilities at
the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets
and liabilities. In assessing long-lived assets for impairment, management generally considers individual
facilities to be the lowest level for which identifiable cash flows are largely independent. A recoverability
review is performed using the undiscounted cash flows if there is a triggering event. If the undiscounted
cash flow test for recoverability identifies a possible impairment, management will perform a fair value
analysis. Management determines fair value under ASC Topic 820 using the appropriate valuation
technique of market, income or cost approach. If the carrying value of a long-lived asset is considered
impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived
asset exceeds its fair value.
Management believes that the estimates of future cash flows and fair value assumptions are reasonable;
however, changes in assumptions underlying these estimates could affect the valuations. Significant
judgments and estimates used by management when evaluating long-lived assets for impairment include
(i) an assessment as to whether an adverse event or circumstance has triggered the need for an
impairment review; (ii) undiscounted future cash flows generated by the asset; and (iii) fair valuation of
the asset. Events and conditions that could result in impairment in the value of long-lived assets include
changes in the industries in which the Company operates, particularly the impact of a downturn in the
global economy, as well as competition and advances in technology, adverse changes in the regulatory
environment, or other factors leading to reduction in expected long-term sales or profitability.
Goodwill and other indefinite-lived intangible assets During the fourth quarter of each year, the
Company qualitatively assesses its goodwill assigned to each of its reporting units. This qualitative
assessment evaluates various events and circumstances, such as macroeconomic conditions, industry
and market conditions, cost factors, relevant events and financial trends, that may impact a reporting
unit's fair value. Using this qualitative assessment, the Company determines whether it is more-likely-
than-not the reporting unit's fair value exceeds its carrying value. If it is determined that it is not more-
likely-than-not the reporting unit's fair value exceeds the carrying value, or upon consideration of other
factors, including recent acquisition, restructuring or disposal activity or to refresh the fair values, the
Company performs a quantitative goodwill impairment analysis. In addition, the Company may test
goodwill in between annual test dates if an event occurs or circumstances change that could more-likely-
than-not reduce the fair value of a reporting unit below its carrying value.
Similar to goodwill, the Company can elect to perform the impairment test for indefinite-lived intangibles
other than goodwill (primarily trade names) using a qualitative analysis, considering similar factors as
outlined in the goodwill discussion in order to determine if it is more-likely-than-not that the fair value of
the trade names is less than the respective carrying values. If the Company elects to perform or is
required to perform a quantitative analysis, the test consists of a comparison of the fair value of the
indefinite-lived intangible asset to the carrying value of the asset as of the impairment testing date. The
Company estimates the fair value of indefinite-lived intangibles using the relief-from-royalty method,
which it believes is an appropriate and widely used valuation technique for such assets. The fair value
derived from the relief-from-royalty method is measured as the discounted cash flow savings realized
from owning such trade names and not being required to pay a royalty for their use.
During the fourth quarter of 2021, the Company performed an analysis on each reporting unit. Given the
macroeconomic environment, the Company performed quantitative goodwill impairment analyses for the
majority of reporting units to refresh their respective fair values. This requires the Company to make
48
49
significant assumptions and estimates about the extent and timing of future cash flows, discount rates
and growth rates. The basis of this goodwill impairment analysis is the Company’s annual budget and
long-range plan (“LRP”). The annual budget and LRP includes a five-year projection of future cash flows
based on actual new products and customer commitments. Because the projections are estimated over a
significant future period of time, those estimates and assumptions are subject to uncertainty. Further, the
market valuation models and other financial ratios used by the Company require certain assumptions and
estimates regarding the applicability of those models to the Company’s facts and circumstances.
The Company believes the assumptions and estimates used to determine the estimated fair value are
reasonable. Different assumptions could materially affect the estimated fair value. The primary
assumptions affecting the Company’s 2021 goodwill quantitative impairment review are as follows:
• Discount rates: the Company used a range of 12.4% to 13.6% weighted average cost of capital
(“WACC”) as the discount rates for future cash flows. The WACC is intended to represent a rate
of return that would be expected by a market participant.
• Operating income margin: the Company used historical and expected operating income
margins, which may vary based on the projections of the reporting unit being evaluated.
• Revenue growth rate: the Company used a global automotive market industry growth rate
forecast adjusted to estimate its own market participation for product lines.
In addition to the above primary assumptions, the Company notes the following risks to volume and
operating income assumptions that could have an impact on the discounted cash flow models:
•
•
•
•
The automotive industry is cyclical, and the Company’s results of operations would be adversely
affected by industry downturns.
The automotive industry is evolving, and if the Company does not respond appropriately, its
results of operations would be adversely affected.
The Company is dependent on market segments that use its key products and would be affected
by decreasing demand in those segments.
The Company is subject to risks related to international operations.
Based on the assumptions outlined above, the impairment testing conducted in the fourth quarter of 2021
indicated the Company’s goodwill assigned to the respective reporting units was not impaired. 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. Due to the
Company’s recent acquisitions, there is less headroom (the difference between the carrying value and
the fair value) associated with several of the Company’s reporting units. An increase in discount rates, a
reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated
fair values, which may result in impairment charges that could materially affect the Company’s financial
statements in any given year.
Refer to Note 12, “Goodwill and Other Intangibles,” to the Consolidated Financial Statements in Item 8 of
this report for more information regarding goodwill.
Product warranties The Company provides warranties on some, but not all, of its products. The
warranty terms are typically from one to three years. Provisions for estimated expenses related to product
warranty are made at the time products are sold. These estimates are established using historical
information about the nature, frequency and average cost of warranty claim settlements as well as
product manufacturing and industry developments and recoveries from third parties. Management
actively studies trends of warranty claims and takes action to improve product quality and minimize
warranty claims. Costs of product recalls, which may include the cost of the product being replaced as
well as the customer’s cost of the recall, including labor to remove and replace the recalled part, are
accrued as part of the Company’s warranty accrual at the time an obligation becomes probable and can
be reasonably estimated. Management believes that the warranty accrual is appropriate; however, actual
claims incurred could differ from the original estimates, requiring adjustments to the accrual:
(in millions)
Net sales
Warranty provision
Warranty provision as a percentage of net sales
(in millions)
25 basis point decrease (income)/expense
25 basis point increase (income)/expense
Year Ended December 31,
$
$
2021
14,838
225
1.5 %
$
$
2020
10,165
105
1.0 %
December 31,
2021
2020
$
$
(37) $
37 $
(25)
25
The following table illustrates the sensitivity of a 25 basis-point change (as a percentage of net sales) in
the assumed warranty trend on the Company’s accrued warranty liability:
At December 31, 2021, the total accrued warranty liability was $236 million. The accrual is represented
as $128 million in current liabilities and $108 million in non-current liabilities on the Consolidated Balance
Sheets.
Refer to Note 13, “Product Warranty,” to the Consolidated Financial Statements in Item 8 of this report for
more information regarding product warranties.
Pension and other postretirement defined benefits The Company provides postretirement defined
benefits to a number of its current and former employees. Costs associated with postretirement defined
benefits include pension and postretirement health care expenses for employees, retirees and surviving
spouses and dependents.
The Company’s defined benefit pension and other postretirement plans are accounted for in accordance
with ASC Topic 715. The determination of the Company’s obligation and expense for its pension and
other postretirement employee benefits, such as retiree health care, is dependent on certain assumptions
used by actuaries in calculating such amounts. Certain assumptions, including the expected long-term
rate of return on plan assets, discount rate, rates of increase in compensation and health care costs
trends are described in Note 18, “Retirement Benefit Plans,” to the Consolidated Financial Statements in
Item 8 of this report. The effects of any modification to those assumptions, or actual results that differ
from assumptions used, are either recognized immediately or amortized over future periods in
accordance with GAAP.
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51
significant assumptions and estimates about the extent and timing of future cash flows, discount rates
and growth rates. The basis of this goodwill impairment analysis is the Company’s annual budget and
long-range plan (“LRP”). The annual budget and LRP includes a five-year projection of future cash flows
based on actual new products and customer commitments. Because the projections are estimated over a
significant future period of time, those estimates and assumptions are subject to uncertainty. Further, the
market valuation models and other financial ratios used by the Company require certain assumptions and
estimates regarding the applicability of those models to the Company’s facts and circumstances.
The Company believes the assumptions and estimates used to determine the estimated fair value are
reasonable. Different assumptions could materially affect the estimated fair value. The primary
assumptions affecting the Company’s 2021 goodwill quantitative impairment review are as follows:
• Discount rates: the Company used a range of 12.4% to 13.6% weighted average cost of capital
(“WACC”) as the discount rates for future cash flows. The WACC is intended to represent a rate
of return that would be expected by a market participant.
• Operating income margin: the Company used historical and expected operating income
margins, which may vary based on the projections of the reporting unit being evaluated.
• Revenue growth rate: the Company used a global automotive market industry growth rate
forecast adjusted to estimate its own market participation for product lines.
In addition to the above primary assumptions, the Company notes the following risks to volume and
operating income assumptions that could have an impact on the discounted cash flow models:
•
•
•
•
The automotive industry is cyclical, and the Company’s results of operations would be adversely
affected by industry downturns.
The automotive industry is evolving, and if the Company does not respond appropriately, its
results of operations would be adversely affected.
The Company is dependent on market segments that use its key products and would be affected
by decreasing demand in those segments.
The Company is subject to risks related to international operations.
Based on the assumptions outlined above, the impairment testing conducted in the fourth quarter of 2021
indicated the Company’s goodwill assigned to the respective reporting units was not impaired. 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. Due to the
Company’s recent acquisitions, there is less headroom (the difference between the carrying value and
the fair value) associated with several of the Company’s reporting units. An increase in discount rates, a
reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated
fair values, which may result in impairment charges that could materially affect the Company’s financial
statements in any given year.
Refer to Note 12, “Goodwill and Other Intangibles,” to the Consolidated Financial Statements in Item 8 of
this report for more information regarding goodwill.
Product warranties The Company provides warranties on some, but not all, of its products. The
warranty terms are typically from one to three years. Provisions for estimated expenses related to product
warranty are made at the time products are sold. These estimates are established using historical
information about the nature, frequency and average cost of warranty claim settlements as well as
product manufacturing and industry developments and recoveries from third parties. Management
actively studies trends of warranty claims and takes action to improve product quality and minimize
warranty claims. Costs of product recalls, which may include the cost of the product being replaced as
well as the customer’s cost of the recall, including labor to remove and replace the recalled part, are
accrued as part of the Company’s warranty accrual at the time an obligation becomes probable and can
be reasonably estimated. Management believes that the warranty accrual is appropriate; however, actual
claims incurred could differ from the original estimates, requiring adjustments to the accrual:
(in millions)
Net sales
Warranty provision
Warranty provision as a percentage of net sales
Year Ended December 31,
$
$
2021
14,838
225
1.5 %
$
$
2020
10,165
105
1.0 %
The following table illustrates the sensitivity of a 25 basis-point change (as a percentage of net sales) in
the assumed warranty trend on the Company’s accrued warranty liability:
(in millions)
25 basis point decrease (income)/expense
25 basis point increase (income)/expense
December 31,
2021
2020
$
$
(37) $
37 $
(25)
25
At December 31, 2021, the total accrued warranty liability was $236 million. The accrual is represented
as $128 million in current liabilities and $108 million in non-current liabilities on the Consolidated Balance
Sheets.
Refer to Note 13, “Product Warranty,” to the Consolidated Financial Statements in Item 8 of this report for
more information regarding product warranties.
Pension and other postretirement defined benefits The Company provides postretirement defined
benefits to a number of its current and former employees. Costs associated with postretirement defined
benefits include pension and postretirement health care expenses for employees, retirees and surviving
spouses and dependents.
The Company’s defined benefit pension and other postretirement plans are accounted for in accordance
with ASC Topic 715. The determination of the Company’s obligation and expense for its pension and
other postretirement employee benefits, such as retiree health care, is dependent on certain assumptions
used by actuaries in calculating such amounts. Certain assumptions, including the expected long-term
rate of return on plan assets, discount rate, rates of increase in compensation and health care costs
trends are described in Note 18, “Retirement Benefit Plans,” to the Consolidated Financial Statements in
Item 8 of this report. The effects of any modification to those assumptions, or actual results that differ
from assumptions used, are either recognized immediately or amortized over future periods in
accordance with GAAP.
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The primary assumptions affecting the Company’s accounting for employee benefits under ASC Topics
712 and 715 as of December 31, 2021 are as follows:
The following table illustrates the sensitivity to a change in discount rate for Company sponsored U.S.
and non-U.S. pension plans on its pension obligations:
• Expected long-term rate of return on plan assets: The expected long-term rate of return is used in
the calculation of net periodic benefit cost. The required use of the expected long-term rate of return
on plan assets may result in recognized returns that are greater or less than the actual returns on
those plan assets in any given year. Over time, however, the expected long-term rate of return on
plan assets is designed to approximate actual earned long-term returns. The expected long-term rate
of return for pension assets has been determined based on various inputs, including historical returns
for the different asset classes held by the Company’s trusts and its asset allocation, as well as inputs
from internal and external sources regarding expected capital market return, inflation and other
variables. The Company also considers the impact of active management of the plans’ invested
assets. In determining its pension expense for the year ended December 31, 2021, the Company
used long-term rates of return on plan assets ranging from 1.5% to 7.7% outside of the U.S. and 5.8%
in the U.S.
Actual returns on U.S. pension assets were 3.1% and 9.3% for the years ended December 31, 2021
and 2020, respectively, compared to the expected rate of return assumptions of 5.8% and 6.0%,
respectively, for the same years ended.
Actual returns on U.K. pension assets were 5.4% and 4.0% for the years ended December 31, 2021
and 2020, respectively, compared to the expected rate of return assumption of 4.0% for the same
years ended.
Actual returns on German pension assets were 5.4% and 4.3% for the years ended December 31,
2021 and 2020, respectively, compared to the expected rate of return assumptions of 5.0% and 6.0%,
respectively, for the same years ended.
• Discount rate: The discount rate is used to calculate pension and other postretirement employee
benefit (“OPEB”) obligations. In determining the discount rate, the Company utilizes a full-yield
approach in the estimation of service and interest components by applying the specific spot rates
along the yield curve used in the determination of the benefit obligation to the relevant projected cash
flows. For its significant plans, the Company used discount rates ranging from 0.91% to 3.50% to
determine its pension and other benefit obligations as of December 31, 2021, including weighted
average discount rates of 2.73% in the U.S., 1.97% outside of the U.S. (including 1.91% in the U.K.)
and 2.46% for U.S. other postretirement health care plans. The U.S. and U.K. discount rates reflect
the fact that the U.S. and U.K. pension plans have been closed for new participants.
• Health care cost trend: For postretirement employee health care plan accounting, the Company
reviews external data and Company-specific historical trends for health care cost to determine the
health care cost trend rate assumptions. In determining the projected benefit obligation for
postretirement employee health care plans as of December 31, 2021, the Company used health care
cost trend rates of 6.25%, declining to an ultimate trend rate of 4.75% by the year 2026.
While the Company believes that these assumptions are appropriate, significant differences in actual
experience or significant changes in these assumptions may materially affect the Company's pension and
OPEB and its future expense.
The sensitivity to a 25 basis-point change in the assumptions for discount rate and expected return on
assets related to 2022 pre-tax pension expense for Company sponsored U.S. and non-U.S. pension
plans is expected to be negligible.
(in millions)
25 basis point decrease in discount rate
25 basis point increase in discount rate
Impact on U.S. PBO
PBO
Impact on Non-U.S.
$
$
4
$
(4) $
102
(95)
The sensitivity to a 25 basis-point change in the discount rate assumption and to the assumed health
care cost trend related to the Company’s OPEB obligation and service and interest cost is expected to be
negligible.
Refer to Note 18, “Retirement Benefit Plans,” to the Consolidated Financial Statements in Item 8 of this
report for more information regarding the Company’s retirement benefit plans.
Restructuring Restructuring costs may occur when the Company takes action to exit or significantly
curtail a part of its operations or implements a reorganization that affects the nature and focus of
operations. A restructuring charge can consist of severance costs associated with reductions to the
workforce, costs to terminate an operating lease or contract, professional fees and other costs incurred
related to the implementation of restructuring activities.
The Company generally records costs associated with voluntary separations at the time of employee
acceptance. Costs for involuntary separation programs are recorded when management has approved
the plan for separation, the employees are identified and aware of the benefits they are entitled to and it
is unlikely that the plan will change significantly. When a plan of separation requires approval by or
consultation with the relevant labor organization or government, the costs are recorded upon agreement.
Costs associated with benefits that are contingent on the employee continuing to provide service are
accrued over the required service period.
Income taxes The Company accounts for income taxes in accordance with ASC Topic 740. Deferred tax
assets and liabilities are recognized for the future tax consequences attributable to differences between
financial statement carrying amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance if,
based on the weight of available evidence, it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
Accounting for income taxes is complex, in part because the Company conducts business globally and,
therefore, files income tax returns in numerous tax jurisdictions. Management judgment is required in
determining the Company’s worldwide provision for income taxes and recording the related assets and
liabilities, including accruals for unrecognized tax benefits and assessing the need for valuation
allowances. In calculating the provision for income taxes on an interim basis, the Company uses an
estimate of the annual effective tax rate based upon the facts and circumstances known at each interim
period. In determining the need for a valuation allowance, the historical and projected financial
performance of the operation recording the net deferred tax asset is considered along with any other
pertinent information. Since future financial results may differ from previous estimates, periodic
adjustments to the Company’s valuation allowance may be necessary.
The Company is subject to income taxes in the U.S. at the federal and state level and numerous non-
U.S. jurisdictions. The determination of accruals for unrecognized tax benefits includes the application of
complex tax laws in a multitude of jurisdictions across the Company's global operations. Management
judgment is required in determining the accruals for unrecognized tax benefits. In the ordinary course of
the Company’s business, there are many transactions and calculations where the ultimate tax
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53
The primary assumptions affecting the Company’s accounting for employee benefits under ASC Topics
712 and 715 as of December 31, 2021 are as follows:
The following table illustrates the sensitivity to a change in discount rate for Company sponsored U.S.
and non-U.S. pension plans on its pension obligations:
• Expected long-term rate of return on plan assets: The expected long-term rate of return is used in
the calculation of net periodic benefit cost. The required use of the expected long-term rate of return
on plan assets may result in recognized returns that are greater or less than the actual returns on
those plan assets in any given year. Over time, however, the expected long-term rate of return on
plan assets is designed to approximate actual earned long-term returns. The expected long-term rate
of return for pension assets has been determined based on various inputs, including historical returns
for the different asset classes held by the Company’s trusts and its asset allocation, as well as inputs
from internal and external sources regarding expected capital market return, inflation and other
variables. The Company also considers the impact of active management of the plans’ invested
assets. In determining its pension expense for the year ended December 31, 2021, the Company
used long-term rates of return on plan assets ranging from 1.5% to 7.7% outside of the U.S. and 5.8%
in the U.S.
Actual returns on U.S. pension assets were 3.1% and 9.3% for the years ended December 31, 2021
and 2020, respectively, compared to the expected rate of return assumptions of 5.8% and 6.0%,
respectively, for the same years ended.
Actual returns on U.K. pension assets were 5.4% and 4.0% for the years ended December 31, 2021
and 2020, respectively, compared to the expected rate of return assumption of 4.0% for the same
years ended.
Actual returns on German pension assets were 5.4% and 4.3% for the years ended December 31,
2021 and 2020, respectively, compared to the expected rate of return assumptions of 5.0% and 6.0%,
respectively, for the same years ended.
• Discount rate: The discount rate is used to calculate pension and other postretirement employee
benefit (“OPEB”) obligations. In determining the discount rate, the Company utilizes a full-yield
approach in the estimation of service and interest components by applying the specific spot rates
along the yield curve used in the determination of the benefit obligation to the relevant projected cash
flows. For its significant plans, the Company used discount rates ranging from 0.91% to 3.50% to
determine its pension and other benefit obligations as of December 31, 2021, including weighted
average discount rates of 2.73% in the U.S., 1.97% outside of the U.S. (including 1.91% in the U.K.)
and 2.46% for U.S. other postretirement health care plans. The U.S. and U.K. discount rates reflect
the fact that the U.S. and U.K. pension plans have been closed for new participants.
• Health care cost trend: For postretirement employee health care plan accounting, the Company
reviews external data and Company-specific historical trends for health care cost to determine the
health care cost trend rate assumptions. In determining the projected benefit obligation for
postretirement employee health care plans as of December 31, 2021, the Company used health care
cost trend rates of 6.25%, declining to an ultimate trend rate of 4.75% by the year 2026.
While the Company believes that these assumptions are appropriate, significant differences in actual
experience or significant changes in these assumptions may materially affect the Company's pension and
OPEB and its future expense.
The sensitivity to a 25 basis-point change in the assumptions for discount rate and expected return on
assets related to 2022 pre-tax pension expense for Company sponsored U.S. and non-U.S. pension
plans is expected to be negligible.
(in millions)
25 basis point decrease in discount rate
25 basis point increase in discount rate
Impact on U.S. PBO
Impact on Non-U.S.
PBO
$
$
4
$
(4) $
102
(95)
The sensitivity to a 25 basis-point change in the discount rate assumption and to the assumed health
care cost trend related to the Company’s OPEB obligation and service and interest cost is expected to be
negligible.
Refer to Note 18, “Retirement Benefit Plans,” to the Consolidated Financial Statements in Item 8 of this
report for more information regarding the Company’s retirement benefit plans.
Restructuring Restructuring costs may occur when the Company takes action to exit or significantly
curtail a part of its operations or implements a reorganization that affects the nature and focus of
operations. A restructuring charge can consist of severance costs associated with reductions to the
workforce, costs to terminate an operating lease or contract, professional fees and other costs incurred
related to the implementation of restructuring activities.
The Company generally records costs associated with voluntary separations at the time of employee
acceptance. Costs for involuntary separation programs are recorded when management has approved
the plan for separation, the employees are identified and aware of the benefits they are entitled to and it
is unlikely that the plan will change significantly. When a plan of separation requires approval by or
consultation with the relevant labor organization or government, the costs are recorded upon agreement.
Costs associated with benefits that are contingent on the employee continuing to provide service are
accrued over the required service period.
Income taxes The Company accounts for income taxes in accordance with ASC Topic 740. Deferred tax
assets and liabilities are recognized for the future tax consequences attributable to differences between
financial statement carrying amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance if,
based on the weight of available evidence, it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
Accounting for income taxes is complex, in part because the Company conducts business globally and,
therefore, files income tax returns in numerous tax jurisdictions. Management judgment is required in
determining the Company’s worldwide provision for income taxes and recording the related assets and
liabilities, including accruals for unrecognized tax benefits and assessing the need for valuation
allowances. In calculating the provision for income taxes on an interim basis, the Company uses an
estimate of the annual effective tax rate based upon the facts and circumstances known at each interim
period. In determining the need for a valuation allowance, the historical and projected financial
performance of the operation recording the net deferred tax asset is considered along with any other
pertinent information. Since future financial results may differ from previous estimates, periodic
adjustments to the Company’s valuation allowance may be necessary.
The Company is subject to income taxes in the U.S. at the federal and state level and numerous non-
U.S. jurisdictions. The determination of accruals for unrecognized tax benefits includes the application of
complex tax laws in a multitude of jurisdictions across the Company's global operations. Management
judgment is required in determining the accruals for unrecognized tax benefits. In the ordinary course of
the Company’s business, there are many transactions and calculations where the ultimate tax
52
53
determination is less than certain. Accruals for unrecognized tax benefits are established when, despite
the belief that tax positions are supportable, there remain certain positions that do not meet the minimum
probability threshold, which is a tax position that is more-likely-than-not to be sustained upon examination
by the applicable taxing authority. The Company has certain U.S. state income tax returns and certain
non-U.S. income tax returns that are currently under various stages of audit by applicable tax authorities.
At December 31, 2021, the Company had a liability for tax positions the Company estimates are not
more-likely-than-not to be sustained based on the technical merits, which is included in Other non-current
liabilities. Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues raised by the
taxing authorities may differ materially from the amounts accrued for each year.
The Company records valuation allowances to reduce the carrying value of certain deferred tax assets to
amounts that it expects are more likely than not to be realized. Existing deferred tax assets, net operating
losses, and tax credits by jurisdiction and expectations of the ability to utilize these tax attributes are
assessed through a review of past, current and estimated future taxable income and tax planning
strategies.
Estimates of future taxable income, including income generated from prudent and feasible tax planning
strategies resulting from actual or planned business and operational developments, could change in the
near term, perhaps materially, which may require the Company to consider any potential impact to the
assessment of the recoverability of the related deferred tax asset. Such potential impact could be
material to the Company’s consolidated financial condition or results of operations for an individual
reporting period.
The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) that was signed into law in December 2017 constituted
a major change to the U.S. tax system. The impact of the Tax Act on the Company is based on
management’s current interpretations of the Tax Act, recently issued regulations and related analysis. The
Company’s tax liability may be materially different based on regulatory developments or enacted changes
to the U.S. tax law. In future periods, its effective tax rate could be subject to additional uncertainty as a
result of regulatory or legislative developments related to U.S. tax law.
Refer to Note 7, “Income Taxes,” to the Consolidated Financial Statements in Item 8 of this report for
more information regarding income taxes.
New Accounting Pronouncements
Refer to Note 1, “Summary of Significant Accounting Policies,” to the Consolidated Financial Statements
in Item 8 of this report for more information regarding new applicable accounting pronouncements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s primary market risks include fluctuations in interest rates and foreign currency exchange
rates. The Company is also affected by changes in the prices of commodities used or consumed in its
manufacturing operations. Some of its commodity purchase price risk is covered by supply agreements
with customers and suppliers. Other commodity purchase price risk is occasionally addressed by hedging
strategies, which include forward contracts. The Company enters into derivative instruments only with
high credit quality counterparties and diversifies its positions across such counterparties in order to
reduce its exposure to credit losses. The Company does not engage in any derivative instruments for
purposes other than hedging specific operating risks.
The Company has established policies and procedures to manage sensitivity to interest rate, foreign
currency exchange rate and commodity purchase price risk, which include monitoring the level of
exposure to each market risk. For quantitative disclosures about market risk, refer to Note 17, “Financial
Instruments,” to the Consolidated Financial Statements in Item 8 of this report for information with respect
to interest rate risk and foreign currency exchange rate risk and commodity purchase price risk.
Interest Rate Risk
Interest rate risk is the risk that the Company will incur economic losses due to adverse changes in
interest rates. The Company manages its interest rate risk by balancing its exposure to fixed and variable
rates while attempting to optimize its interest costs. The Company selectively uses interest rate swaps to
reduce market value risk associated with changes in interest rates (fair value hedges). At December 31,
2021, all of the Company’s long-term debt had fixed interest rates.
Foreign Currency Exchange Rate Risk
Foreign currency exchange rate risk is the risk that the Company will incur economic losses due to
adverse changes in foreign currency exchange rates. Currently, the Company’s most significant currency
exposures relate to the Brazilian Real, British Pound, Chinese Renminbi, Euro, Polish Zloty, Singapore
Dollar, Korean Won, Mexican Peso, Thailand Baht and Turkish Lira. The Company mitigates its foreign
currency exchange rate risk by establishing local production facilities and related supply chain
participants in the markets it serves, by invoicing customers in the same currency as the source of the
products and by funding some of its investments in foreign markets through local currency loans. The
Company also monitors its foreign currency exposure in each country and implements strategies to
respond to changing economic and political environments. In addition, the Company regularly enters into
forward currency contracts, cross-currency swaps and foreign currency denominated debt designated as
net investment hedges to reduce exposure to translation exchange rate risk. As of December 31, 2021
and 2020, the Company recorded a deferred gain of $10 million and a deferred loss of $230 million,
respectively, both before taxes, for designated net investment hedges within accumulated other
comprehensive income (loss).
The significant foreign currency translation adjustments, including the impact of the net investment
hedges discussed above, during the years ended December 31, 2021 and 2020, are shown in the
following table, which provides the percentage change in U.S. Dollars against the respective currencies
and the approximate impacts of these changes recorded within other comprehensive income (loss) for
the respective periods.
(in millions, except for percentages)
December 31, 2021
(in millions, except for percentages)
December 31, 2020
(9) %
(7) %
(7) %
(10) %
3 %
7 %
9 %
7 %
(23) %
14 %
$
$
$
$
$
$
$
$
$
$
(72)
(55)
(13)
(9)
63
124
36
51
(14)
(8)
Korean Won
Euro
Brazilian Real
Japanese Yen
Chinese Renminbi
Chinese Renminbi
Euro
Korean Won
Brazilian Real
Swedish Krona
54
55
determination is less than certain. Accruals for unrecognized tax benefits are established when, despite
the belief that tax positions are supportable, there remain certain positions that do not meet the minimum
probability threshold, which is a tax position that is more-likely-than-not to be sustained upon examination
by the applicable taxing authority. The Company has certain U.S. state income tax returns and certain
non-U.S. income tax returns that are currently under various stages of audit by applicable tax authorities.
At December 31, 2021, the Company had a liability for tax positions the Company estimates are not
more-likely-than-not to be sustained based on the technical merits, which is included in Other non-current
liabilities. Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues raised by the
taxing authorities may differ materially from the amounts accrued for each year.
The Company records valuation allowances to reduce the carrying value of certain deferred tax assets to
amounts that it expects are more likely than not to be realized. Existing deferred tax assets, net operating
losses, and tax credits by jurisdiction and expectations of the ability to utilize these tax attributes are
assessed through a review of past, current and estimated future taxable income and tax planning
strategies.
Estimates of future taxable income, including income generated from prudent and feasible tax planning
strategies resulting from actual or planned business and operational developments, could change in the
near term, perhaps materially, which may require the Company to consider any potential impact to the
assessment of the recoverability of the related deferred tax asset. Such potential impact could be
material to the Company’s consolidated financial condition or results of operations for an individual
reporting period.
The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) that was signed into law in December 2017 constituted
a major change to the U.S. tax system. The impact of the Tax Act on the Company is based on
management’s current interpretations of the Tax Act, recently issued regulations and related analysis. The
Company’s tax liability may be materially different based on regulatory developments or enacted changes
to the U.S. tax law. In future periods, its effective tax rate could be subject to additional uncertainty as a
result of regulatory or legislative developments related to U.S. tax law.
Refer to Note 7, “Income Taxes,” to the Consolidated Financial Statements in Item 8 of this report for
more information regarding income taxes.
New Accounting Pronouncements
Refer to Note 1, “Summary of Significant Accounting Policies,” to the Consolidated Financial Statements
in Item 8 of this report for more information regarding new applicable accounting pronouncements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s primary market risks include fluctuations in interest rates and foreign currency exchange
rates. The Company is also affected by changes in the prices of commodities used or consumed in its
manufacturing operations. Some of its commodity purchase price risk is covered by supply agreements
with customers and suppliers. Other commodity purchase price risk is occasionally addressed by hedging
strategies, which include forward contracts. The Company enters into derivative instruments only with
high credit quality counterparties and diversifies its positions across such counterparties in order to
reduce its exposure to credit losses. The Company does not engage in any derivative instruments for
purposes other than hedging specific operating risks.
The Company has established policies and procedures to manage sensitivity to interest rate, foreign
currency exchange rate and commodity purchase price risk, which include monitoring the level of
exposure to each market risk. For quantitative disclosures about market risk, refer to Note 17, “Financial
Instruments,” to the Consolidated Financial Statements in Item 8 of this report for information with respect
to interest rate risk and foreign currency exchange rate risk and commodity purchase price risk.
Interest Rate Risk
Interest rate risk is the risk that the Company will incur economic losses due to adverse changes in
interest rates. The Company manages its interest rate risk by balancing its exposure to fixed and variable
rates while attempting to optimize its interest costs. The Company selectively uses interest rate swaps to
reduce market value risk associated with changes in interest rates (fair value hedges). At December 31,
2021, all of the Company’s long-term debt had fixed interest rates.
Foreign Currency Exchange Rate Risk
Foreign currency exchange rate risk is the risk that the Company will incur economic losses due to
adverse changes in foreign currency exchange rates. Currently, the Company’s most significant currency
exposures relate to the Brazilian Real, British Pound, Chinese Renminbi, Euro, Polish Zloty, Singapore
Dollar, Korean Won, Mexican Peso, Thailand Baht and Turkish Lira. The Company mitigates its foreign
currency exchange rate risk by establishing local production facilities and related supply chain
participants in the markets it serves, by invoicing customers in the same currency as the source of the
products and by funding some of its investments in foreign markets through local currency loans. The
Company also monitors its foreign currency exposure in each country and implements strategies to
respond to changing economic and political environments. In addition, the Company regularly enters into
forward currency contracts, cross-currency swaps and foreign currency denominated debt designated as
net investment hedges to reduce exposure to translation exchange rate risk. As of December 31, 2021
and 2020, the Company recorded a deferred gain of $10 million and a deferred loss of $230 million,
respectively, both before taxes, for designated net investment hedges within accumulated other
comprehensive income (loss).
The significant foreign currency translation adjustments, including the impact of the net investment
hedges discussed above, during the years ended December 31, 2021 and 2020, are shown in the
following table, which provides the percentage change in U.S. Dollars against the respective currencies
and the approximate impacts of these changes recorded within other comprehensive income (loss) for
the respective periods.
(in millions, except for percentages)
Korean Won
Euro
Brazilian Real
Japanese Yen
Chinese Renminbi
(in millions, except for percentages)
Chinese Renminbi
Euro
Korean Won
Brazilian Real
Swedish Krona
December 31, 2021
(9) %
(7) %
(7) %
(10) %
3 %
$
$
$
$
$
(72)
(55)
(13)
(9)
63
December 31, 2020
7 %
9 %
7 %
(23) %
14 %
$
$
$
$
$
124
36
51
(14)
(8)
54
55
Commodity Price Risk
Commodity price risk is the possibility that the Company will incur economic losses due to adverse
changes in the cost of raw materials used in the production of its products. Commodity forward and
option contracts are occasionally executed to offset exposure to potential change in prices mainly for
various non-ferrous metals and natural gas consumption used in the manufacturing of vehicle
components. As of December 31, 2021 and 2020, the Company had no outstanding commodity swap
contracts.
Disclosure Regarding Forward-Looking Statements
The matters discussed in this Item 7 include forward looking statements. See “Forward Looking
Statements” at the beginning of this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative information regarding market risk, refer to the discussion in Item 7 of this
report under the caption “Quantitative and Qualitative Disclosures about Market Risk.”
For information regarding interest rate risk, foreign currency exchange risk and commodity price risk,
refer to Note 17, “Financial Instruments,” to the Consolidated Financial Statements in Item 8 of this report.
For information regarding the levels of indebtedness subject to interest rate fluctuation, refer to Note 14,
“Notes Payable and Debt,” to the Consolidated Financial Statements in Item 8 of this report. For
information regarding the level of business outside the United States, which is subject to foreign currency
exchange rate market risk, refer to Note 24, “Reporting Segments and Related Information,” to the
Consolidated Financial Statements in Item 8 of this report.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements and Supplementary Data
Page No.
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Cash Flows
Consolidated Statements of Equity
Notes to Consolidated Financial Statements
58
61
62
63
64
65
66
56
57
Commodity Price Risk
Commodity price risk is the possibility that the Company will incur economic losses due to adverse
changes in the cost of raw materials used in the production of its products. Commodity forward and
option contracts are occasionally executed to offset exposure to potential change in prices mainly for
various non-ferrous metals and natural gas consumption used in the manufacturing of vehicle
components. As of December 31, 2021 and 2020, the Company had no outstanding commodity swap
contracts.
Disclosure Regarding Forward-Looking Statements
The matters discussed in this Item 7 include forward looking statements. See “Forward Looking
Statements” at the beginning of this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative information regarding market risk, refer to the discussion in Item 7 of this
report under the caption “Quantitative and Qualitative Disclosures about Market Risk.”
For information regarding interest rate risk, foreign currency exchange risk and commodity price risk,
refer to Note 17, “Financial Instruments,” to the Consolidated Financial Statements in Item 8 of this report.
For information regarding the levels of indebtedness subject to interest rate fluctuation, refer to Note 14,
“Notes Payable and Debt,” to the Consolidated Financial Statements in Item 8 of this report. For
information regarding the level of business outside the United States, which is subject to foreign currency
exchange rate market risk, refer to Note 24, “Reporting Segments and Related Information,” to the
Consolidated Financial Statements in Item 8 of this report.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements and Supplementary Data
Page No.
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Cash Flows
Consolidated Statements of Equity
Notes to Consolidated Financial Statements
58
61
62
63
64
65
66
56
57
Report of Independent Registered Public Accounting Firm
Definition and Limitations of Internal Control over Financial Reporting
To the Board of Directors and Stockholders of BorgWarner Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of BorgWarner Inc. and its subsidiaries (the
“Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of
comprehensive income, of equity and of cash flows for each of the three years in the period ended December 31,
2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have
audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A.
Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s
internal control over financial reporting based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement, whether due to error or fraud, and whether effective internal control over financial
reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded
AKASOL AG from its assessment of internal control over financial reporting as of December 31, 2021 because it
was acquired by the Company in a purchase business combination on June 4, 2021. We have also excluded
AKASOL AG from our audit of internal control over financial reporting. AKASOL AG is a majority-owned subsidiary
whose total assets and total net sales excluded from management’s assessment and our audit of internal control
over financial reporting represent approximately 1.3% and 0.5%, respectively, of the related consolidated financial
statement amounts as of and for the year ended December 31, 2021.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that (i)
relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
Worldwide Provision for Income Taxes
As described in Notes 1 and 7 to the consolidated financial statements, the Company recorded income taxes from
continuing operations of $150 million for the year ended December 31, 2021. Management judgment is required in
determining the Company’s worldwide provision for income taxes and recording the related assets and liabilities,
including accruals for unrecognized tax benefits and assessing the need for valuation allowances. As disclosed by
management, accounting for income taxes is complex, in part because the Company conducts business globally
and, therefore, files income tax returns in numerous tax jurisdictions. The Company is subject to income taxes in the
U.S. at the federal and state level and numerous non-U.S. jurisdictions. In the ordinary course of the Company’s
business, there are many transactions and calculations where the ultimate tax determination is less than certain.
Accruals for unrecognized tax benefits are established when, despite the belief that tax positions are supportable,
there remain certain positions that do not meet the minimum probability threshold, which is a tax position that is
more-likely-than-not to be sustained upon examination by the applicable taxing authority. The determination of
accruals for unrecognized tax benefits includes the application of complex tax laws in a multitude of jurisdictions
across the Company’s global operations. The Company records valuation allowances to reduce the carrying value
of deferred tax assets to amounts that it expects are more likely than not to be realized. The Company assesses
existing deferred tax assets, net operating loss carryforwards, and tax credit carryforwards by jurisdiction and
expectations of its ability to utilize these tax attributes through a review of past, current, and estimated future taxable
income and tax planning strategies.
The principal considerations for our determination that performing procedures relating to management’s worldwide
provision for income taxes is a critical audit matter are the significant judgment by management when developing
the worldwide provision for income taxes, which in turn led to a high degree of auditor judgment, subjectivity and
effort in performing procedures and evaluating management’s worldwide provision for income taxes, including the
accruals for unrecognized tax benefits and valuation allowances on deferred tax assets. Also, the audit effort
involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of
controls relating to management’s worldwide provision for income taxes, including controls over accruals for
unrecognized tax benefits and valuation allowances on deferred tax assets. These procedures also included,
among others, (i) testing the accuracy of the worldwide provision for income taxes, including the rate reconciliation
and permanent and temporary differences, (ii) evaluating the completeness of the accruals for unrecognized tax
benefits, (iii) evaluating the reasonableness of management’s more-likely-than-not determination in consideration of
58
59
Report of Independent Registered Public Accounting Firm
Definition and Limitations of Internal Control over Financial Reporting
To the Board of Directors and Stockholders of BorgWarner Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of BorgWarner Inc. and its subsidiaries (the
“Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of
comprehensive income, of equity and of cash flows for each of the three years in the period ended December 31,
2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have
audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A.
Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s
internal control over financial reporting based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement, whether due to error or fraud, and whether effective internal control over financial
reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded
AKASOL AG from its assessment of internal control over financial reporting as of December 31, 2021 because it
was acquired by the Company in a purchase business combination on June 4, 2021. We have also excluded
AKASOL AG from our audit of internal control over financial reporting. AKASOL AG is a majority-owned subsidiary
whose total assets and total net sales excluded from management’s assessment and our audit of internal control
over financial reporting represent approximately 1.3% and 0.5%, respectively, of the related consolidated financial
statement amounts as of and for the year ended December 31, 2021.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that (i)
relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
Worldwide Provision for Income Taxes
As described in Notes 1 and 7 to the consolidated financial statements, the Company recorded income taxes from
continuing operations of $150 million for the year ended December 31, 2021. Management judgment is required in
determining the Company’s worldwide provision for income taxes and recording the related assets and liabilities,
including accruals for unrecognized tax benefits and assessing the need for valuation allowances. As disclosed by
management, accounting for income taxes is complex, in part because the Company conducts business globally
and, therefore, files income tax returns in numerous tax jurisdictions. The Company is subject to income taxes in the
U.S. at the federal and state level and numerous non-U.S. jurisdictions. In the ordinary course of the Company’s
business, there are many transactions and calculations where the ultimate tax determination is less than certain.
Accruals for unrecognized tax benefits are established when, despite the belief that tax positions are supportable,
there remain certain positions that do not meet the minimum probability threshold, which is a tax position that is
more-likely-than-not to be sustained upon examination by the applicable taxing authority. The determination of
accruals for unrecognized tax benefits includes the application of complex tax laws in a multitude of jurisdictions
across the Company’s global operations. The Company records valuation allowances to reduce the carrying value
of deferred tax assets to amounts that it expects are more likely than not to be realized. The Company assesses
existing deferred tax assets, net operating loss carryforwards, and tax credit carryforwards by jurisdiction and
expectations of its ability to utilize these tax attributes through a review of past, current, and estimated future taxable
income and tax planning strategies.
The principal considerations for our determination that performing procedures relating to management’s worldwide
provision for income taxes is a critical audit matter are the significant judgment by management when developing
the worldwide provision for income taxes, which in turn led to a high degree of auditor judgment, subjectivity and
effort in performing procedures and evaluating management’s worldwide provision for income taxes, including the
accruals for unrecognized tax benefits and valuation allowances on deferred tax assets. Also, the audit effort
involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of
controls relating to management’s worldwide provision for income taxes, including controls over accruals for
unrecognized tax benefits and valuation allowances on deferred tax assets. These procedures also included,
among others, (i) testing the accuracy of the worldwide provision for income taxes, including the rate reconciliation
and permanent and temporary differences, (ii) evaluating the completeness of the accruals for unrecognized tax
benefits, (iii) evaluating the reasonableness of management’s more-likely-than-not determination in consideration of
58
59
the tax laws in relevant jurisdictions, and (iv) evaluating the reasonableness of management’s assessment of the
realizability of its deferred tax assets based on expectations of the ability to utilize its tax attributes through a review
of historical and estimated future taxable income and tax planning strategies. Professionals with specialized skill
and knowledge were used to assist in (i) testing the accuracy of the worldwide provision for income taxes, (ii)
evaluating the completeness of the accruals for unrecognized tax benefits, (iii) evaluating the reasonableness of
management’s more-likely-than-not determination in consideration of the tax laws in relevant jurisdictions, and (iv)
evaluating the reasonableness of management’s assessment of the realizability of its deferred tax assets.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 15, 2022
We have served as the Company’s auditor since 2008.
BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share amounts)
ASSETS
Cash and cash equivalents
Restricted cash
Receivables, net
Inventories, net
Prepayments and other current assets
Total current assets
Property, plant and equipment, net
Investments and long-term receivables
Goodwill
Other intangible assets, net
Other non-current assets
Total assets
LIABILITIES AND EQUITY
Notes payable and other short-term debt
Accounts payable
Other current liabilities
Total current liabilities
Long-term debt
Retirement-related liabilities
Other non-current liabilities
Total liabilities
Commitments and contingencies
Capital stock:
outstanding
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
Total BorgWarner Inc. stockholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
Preferred stock, $0.01 par value; authorized shares: 5,000,000; none issued and outstanding
Common stock, $0.01 par value; authorized shares: 390,000,000; issued shares: (2021 and
2020 - 283,575,876); outstanding shares: (2021 - 239,776,892; 2020 - 238,930,703)
Non-voting common stock, $0.01 par value; authorized shares: 25,000,000; none issued and
Common stock held in treasury, at cost: (2021 - 43,798,984 shares; 2020 - 44,645,173 shares)
(1,812)
(1,834)
See Accompanying Notes to Consolidated Financial Statements.
December 31,
2021
2020
$
1,841 $
1,650
$
16,575 $
16,029
$
66 $
3
2,898
1,534
321
6,597
4,395
530
3,279
1,091
683
2,276
1,456
3,798
4,261
290
964
9,313
—
3
—
—
2,919
1,286
312
6,167
4,591
820
2,627
1,096
728
49
2,352
1,409
3,810
3,738
576
1,181
9,305
—
3
—
2,637
6,671
2,614
6,296
(551)
(651)
6,948
314
7,262
6,428
296
6,724
$
16,575 $
16,029
60
61
the tax laws in relevant jurisdictions, and (iv) evaluating the reasonableness of management’s assessment of the
realizability of its deferred tax assets based on expectations of the ability to utilize its tax attributes through a review
of historical and estimated future taxable income and tax planning strategies. Professionals with specialized skill
and knowledge were used to assist in (i) testing the accuracy of the worldwide provision for income taxes, (ii)
evaluating the completeness of the accruals for unrecognized tax benefits, (iii) evaluating the reasonableness of
management’s more-likely-than-not determination in consideration of the tax laws in relevant jurisdictions, and (iv)
evaluating the reasonableness of management’s assessment of the realizability of its deferred tax assets.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 15, 2022
We have served as the Company’s auditor since 2008.
BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share amounts)
ASSETS
Cash and cash equivalents
Restricted cash
Receivables, net
Inventories, net
Prepayments and other current assets
Total current assets
Property, plant and equipment, net
Investments and long-term receivables
Goodwill
Other intangible assets, net
Other non-current assets
Total assets
LIABILITIES AND EQUITY
Notes payable and other short-term debt
Accounts payable
Other current liabilities
Total current liabilities
Long-term debt
Retirement-related liabilities
Other non-current liabilities
Total liabilities
Commitments and contingencies
Capital stock:
Preferred stock, $0.01 par value; authorized shares: 5,000,000; none issued and outstanding
Common stock, $0.01 par value; authorized shares: 390,000,000; issued shares: (2021 and
2020 - 283,575,876); outstanding shares: (2021 - 239,776,892; 2020 - 238,930,703)
Non-voting common stock, $0.01 par value; authorized shares: 25,000,000; none issued and
outstanding
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
December 31,
2021
2020
$
1,841 $
1,650
3
2,898
1,534
321
6,597
4,395
530
3,279
1,091
683
—
2,919
1,286
312
6,167
4,591
820
2,627
1,096
728
$
16,575 $
16,029
$
66 $
2,276
1,456
3,798
4,261
290
964
9,313
—
3
—
49
2,352
1,409
3,810
3,738
576
1,181
9,305
—
3
—
2,637
6,671
2,614
6,296
(551)
(651)
Common stock held in treasury, at cost: (2021 - 43,798,984 shares; 2020 - 44,645,173 shares)
(1,812)
(1,834)
Total BorgWarner Inc. stockholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
6,948
314
7,262
6,428
296
6,724
$
16,575 $
16,029
See Accompanying Notes to Consolidated Financial Statements.
60
61
BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions, except per share amounts)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Restructuring expense
Other operating expense (income), net
Operating income
Equity in affiliates’ earnings, net of tax
Unrealized loss (gain) on equity securities
Interest expense, net
Other postretirement (income) expense
Earnings before income taxes and noncontrolling interest
Provision for income taxes
Net earnings
Net earnings attributable to the noncontrolling interest, net of tax
Net earnings attributable to BorgWarner Inc.
Earnings per share attributable to BorgWarner Inc. — basic
Earnings per share attributable to BorgWarner Inc. — diluted
Weighted average shares outstanding:
Basic
Diluted
Year Ended December 31,
2021
2020
2019
$
14,838 $
11,983
2,855
10,165 $
8,255
1,910
10,168
8,067
2,101
1,460
163
81
1,151
(48)
362
93
(45)
789
150
639
102
537 $
951
203
138
618
(18)
(382)
61
(7)
964
397
567
67
500 $
873
72
(147)
1,303
(32)
—
43
27
1,265
468
797
51
746
2.25 $
2.35 $
3.63
2.24 $
2.34 $
3.61
238.1
239.5
213.0
214.0
205.7
206.8
$
$
$
See Accompanying Notes to Consolidated Financial Statements.
(in millions)
Net earnings attributable to BorgWarner Inc.
Other comprehensive income (loss)
Foreign currency translation adjustments1
Defined benefit postretirement plans1
Other1
Year Ended December 31,
2021
2020
2019
$
537 $
500 $
746
(102)
176
(100)
—
76
202
—
100
637
(55)
4
(2)
(53)
51
(2)
Total other comprehensive income (loss) attributable to BorgWarner Inc.
Comprehensive income attributable to BorgWarner Inc.1
576
693
Net earnings attributable to noncontrolling interest, net of tax
Other comprehensive (loss) income attributable to the noncontrolling interest1
102
(6)
67
20
Comprehensive income
$
733 $
663 $
742
____________________________________
1 Net of income taxes.
See Accompanying Notes to Consolidated Financial Statements.
62
63
BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
576
693
(102)
176
(55)
4
(2)
(53)
(100)
—
76
202
—
100
637
Year Ended December 31,
2021
2020
2019
$
537 $
500 $
746
(in millions)
Net earnings attributable to BorgWarner Inc.
Other comprehensive income (loss)
Foreign currency translation adjustments1
Defined benefit postretirement plans1
Other1
Total other comprehensive income (loss) attributable to BorgWarner Inc.
Comprehensive income attributable to BorgWarner Inc.1
(in millions, except per share amounts)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Restructuring expense
Other operating expense (income), net
Operating income
Equity in affiliates’ earnings, net of tax
Unrealized loss (gain) on equity securities
Interest expense, net
Other postretirement (income) expense
Provision for income taxes
Net earnings
Earnings before income taxes and noncontrolling interest
Year Ended December 31,
2021
2020
2019
$
14,838 $
10,165 $
10,168
11,983
2,855
8,255
1,910
1,460
163
81
1,151
(48)
362
93
(45)
789
150
639
102
951
203
138
618
(18)
(382)
61
(7)
964
397
567
67
8,067
2,101
873
72
(147)
1,303
(32)
—
43
27
1,265
468
797
51
746
$
$
$
Earnings per share attributable to BorgWarner Inc. — basic
2.25 $
2.35 $
3.63
Earnings per share attributable to BorgWarner Inc. — diluted
2.24 $
2.34 $
3.61
Weighted average shares outstanding:
Basic
Diluted
See Accompanying Notes to Consolidated Financial Statements.
238.1
239.5
213.0
214.0
205.7
206.8
Net earnings attributable to the noncontrolling interest, net of tax
Net earnings attributable to BorgWarner Inc.
537 $
500 $
See Accompanying Notes to Consolidated Financial Statements.
Net earnings attributable to noncontrolling interest, net of tax
Other comprehensive (loss) income attributable to the noncontrolling interest1
102
(6)
67
20
51
(2)
Comprehensive income
$
733 $
663 $
742
____________________________________
1 Net of income taxes.
62
63
BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2021
2020
2019
(in millions)
OPERATING
Net cash provided by operating activities (see Note 25)
$
1,306 $
1,184 $
1,008
(in millions, except share data)
INVESTING
Capital expenditures, including tooling outlays
Capital expenditures for damage to property, plant and equipment
Insurance proceeds received for damage to property, plant and equipment
(666)
(2)
5
(441)
(20)
20
Payments for businesses acquired, net of cash and restricted cash acquired
(759)
(449)
(1,395)
(866)
(489)
Acquisition of Delphi Technologies
37,188,819
1,477
BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
Number of shares
BorgWarner Inc. stockholder's equity
Issued
common
stock
Common
stock held in
treasury
Issued
common
stock
Capital in
excess of
par value
Treasury
stock
Retained
earnings
comprehensive
income (loss)
Noncontrolling
interests
Accumulated
other
Balance, January 1, 2019
246,387,057
(38,172,123) $
3 $
1,146 $
(1,585) $
5,336 $
(674) $
Balance, December 31, 2019
246,387,057
(39,979,514) $
3 $
1,145 $
(1,657) $
5,942 $
(727) $
Noncontrolling interest contributions
Dividends declared ($0.68 per share) 1
Net issuance for executive stock plan
Net issuance of restricted stock
Purchase of treasury stock
Net earnings
Other comprehensive loss
Dividends declared ($0.68 per share)1
Noncontrolling interest contributions
Net issuance for executive stock plan
Net issuance of restricted stock
Purchase of treasury stock
Net earnings
Other comprehensive loss
Dividends declared ($0.68 per share)1
Net issuance for executive stock plan
Net issuance of restricted stock
Acquisition of AKASOL
Purchase and reclass of noncontrolling
interest
Net earnings
Other comprehensive income
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
199,135
571,996
(2,578,522)
197,811
297,108
595,052
(5,755,630)
89,787
756,402
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1)
—
—
—
—
—
(8)
—
—
—
—
—
19
5
—
(1)
—
—
(100)
(216)
—
—
7
21
—
—
—
—
—
12
27
—
—
—
2
20
—
—
—
—
(140)
—
—
—
—
746
—
(146)
—
—
—
—
—
500
—
—
—
—
—
537
—
(162)
(53)
—
—
—
—
—
—
—
—
—
—
—
—
—
76
—
—
—
—
—
—
100
Balance, December 31, 2020
283,575,876
(44,645,173) $
3 $
2,614 $
(1,834) $
6,296 $
(651) $
Balance, December 31, 2021
283,575,876
(43,798,984) $
3 $
2,637 $
(1,812) $
6,671 $
(551) $
____________________________________
1 Dividends declared relate to BorgWarner common stock.
See Accompanying Notes to Consolidated Financial Statements.
119
4
(34)
—
—
—
51
(2)
138
(22)
4
89
—
—
—
67
20
296
(84)
—
—
96
(90)
102
(6)
314
(481)
—
—
(10)
24
22
(53)
9
—
63
(204)
—
(100)
(15)
4
(140)
(28)
(420)
(6)
93
739
832
22
11
(20)
14
—
10
(2)
16
(8)
1,286
8
1,178
(699)
(11)
—
(15)
(33)
(162)
(72)
286
(3)
194
1,650
(331)
(10)
(216)
(13)
4
(146)
(37)
437
63
818
832
Proceeds from sale of businesses, net of cash divested
Proceeds from settlement of net investment hedges, net
Payments for investments in equity securities
Proceeds from asset disposals and other, net
Net cash used in investing activities
FINANCING
Net (decrease) increase in notes payable
Additions to debt
Repayments of debt, including current portion
Payments for debt issuance costs
Payments for purchase of treasury stock
Payments for stock-based compensation items
(Purchase of) capital contribution from noncontrolling interest
Dividends paid to BorgWarner stockholders
Dividends paid to noncontrolling stockholders
Net cash provided by financing activities
Effect of exchange rate changes on cash
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash, cash equivalents and restricted cash at end of year
$
1,844 $
1,650 $
See Accompanying Notes to Consolidated Financial Statements.
64
65
BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
OPERATING
INVESTING
Capital expenditures, including tooling outlays
Capital expenditures for damage to property, plant and equipment
Insurance proceeds received for damage to property, plant and equipment
Proceeds from sale of businesses, net of cash divested
Proceeds from settlement of net investment hedges, net
Payments for businesses acquired, net of cash and restricted cash acquired
(759)
(449)
Payments for investments in equity securities
Proceeds from asset disposals and other, net
Net cash used in investing activities
Net (decrease) increase in notes payable
FINANCING
Additions to debt
Repayments of debt, including current portion
Payments for debt issuance costs
Payments for purchase of treasury stock
Payments for stock-based compensation items
Dividends paid to BorgWarner stockholders
Dividends paid to noncontrolling stockholders
Net cash provided by financing activities
Effect of exchange rate changes on cash
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
(Purchase of) capital contribution from noncontrolling interest
Year Ended December 31,
2021
2020
2019
(8)
1,286
8
1,178
(666)
(2)
5
22
11
14
(20)
(699)
(11)
—
(15)
(33)
(162)
(72)
286
(3)
194
1,650
(441)
(20)
20
—
10
(2)
16
(331)
(10)
(216)
(13)
4
(146)
(37)
437
63
818
832
(481)
—
—
(10)
24
22
(53)
9
—
63
(204)
—
(100)
(15)
4
(140)
(28)
(420)
(6)
93
739
832
Net cash provided by operating activities (see Note 25)
$
1,306 $
1,184 $
1,008
(in millions, except share data)
BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
Number of shares
BorgWarner Inc. stockholder's equity
Issued
common
stock
Common
stock held in
treasury
Issued
common
stock
Capital in
excess of
par value
Treasury
stock
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Noncontrolling
interests
Balance, January 1, 2019
246,387,057
(38,172,123) $
3 $
1,146 $
(1,585) $
5,336 $
(674) $
(1,395)
(866)
(489)
Acquisition of Delphi Technologies
37,188,819
Noncontrolling interest contributions
Dividends declared ($0.68 per share) 1
Net issuance for executive stock plan
Net issuance of restricted stock
Purchase of treasury stock
Net earnings
Other comprehensive loss
Balance, December 31, 2019
Dividends declared ($0.68 per share)1
Noncontrolling interest contributions
Net issuance for executive stock plan
Net issuance of restricted stock
Purchase of treasury stock
Net earnings
Other comprehensive loss
Balance, December 31, 2020
Dividends declared ($0.68 per share)1
Net issuance for executive stock plan
Net issuance of restricted stock
Acquisition of AKASOL
Purchase and reclass of noncontrolling
interest
Net earnings
Other comprehensive income
—
—
—
—
—
—
—
—
—
199,135
571,996
(2,578,522)
—
—
—
—
—
—
—
—
—
—
—
—
(1)
—
—
—
—
—
7
21
(100)
—
—
—
(140)
—
—
—
746
—
—
—
—
—
—
—
(53)
246,387,057
(39,979,514) $
3 $
1,145 $
(1,657) $
5,942 $
(727) $
—
—
—
—
—
—
—
—
—
197,811
297,108
595,052
(5,755,630)
—
—
—
—
—
—
—
—
—
—
—
—
1,477
(8)
—
—
—
—
—
—
—
12
27
(216)
—
—
(146)
—
—
—
—
—
500
—
—
—
—
—
—
—
—
76
283,575,876
(44,645,173) $
3 $
2,614 $
(1,834) $
6,296 $
(651) $
—
—
—
—
—
—
—
—
89,787
756,402
—
—
—
—
—
—
—
—
—
—
—
—
19
5
—
(1)
—
—
—
2
20
—
—
—
—
(162)
—
—
—
—
537
—
—
—
—
—
—
—
100
Cash, cash equivalents and restricted cash at end of year
$
1,844 $
1,650 $
See Accompanying Notes to Consolidated Financial Statements.
Balance, December 31, 2021
283,575,876
(43,798,984) $
3 $
2,637 $
(1,812) $
6,671 $
(551) $
____________________________________
1 Dividends declared relate to BorgWarner common stock.
See Accompanying Notes to Consolidated Financial Statements.
64
65
119
4
(34)
—
—
—
51
(2)
138
(22)
4
89
—
—
—
67
20
296
(84)
—
—
96
(90)
102
(6)
314
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
INTRODUCTION
BorgWarner Inc. (together with its Consolidated Subsidiaries, the “Company”) is a Delaware corporation
incorporated in 1987. The Company is a global product leader in clean and efficient technology solutions
for combustion, hybrid and electric vehicles. The Company’s products help improve vehicle performance,
propulsion efficiency, stability and air quality. The Company manufactures and sells these products
worldwide, primarily to original equipment manufacturers (“OEMs”) of light vehicles (passenger cars,
sport-utility vehicles (“SUVs”), vans and light trucks). The Company's products are also sold to OEMs of
commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway vehicles
(agricultural and construction machinery and marine applications). The Company also manufactures and
sells its products to certain Tier One vehicle systems suppliers and into the aftermarket for light,
commercial and off-highway vehicles. The Company operates manufacturing facilities serving customers
in Europe, the Americas and Asia and is an original equipment supplier to nearly every major automotive
OEM in the world.
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 shutdowns and production declines related, in part, to COVID-19,
created supply constraints of certain components, particularly semiconductor chips. These supply
constraints have had, and are expected to continue to have, significant impacts on global industry
production levels. In addition, it is possible a resurgence of COVID-19 could result in adverse impacts in
the future. Management cannot reasonably estimate the full impact the ongoing supply constraints or the
COVID-19 pandemic could have on the Company’s financial condition, results of operations or cash flows
in the future.
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following paragraphs briefly describe the Company’s significant accounting policies.
Basis of presentation Certain prior period amounts have been reclassified to conform to current period
presentation. On October 1, 2020, and June 4, 2021, the Company completed its acquisitions of Delphi
Technologies PLC (“Delphi Technologies”), and AKASOL AG (“AKASOL”), respectively. Accordingly, the
Company’s Consolidated Financial Statements reflect the results of Delphi Technologies and AKASOL
following the dates of acquisition. Refer to Note 2, “Acquisitions and Dispositions,” to the Consolidated
Financial Statements for more information.
Use of estimates The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“GAAP”) requires management to make estimates
and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities as of the date of the financial statements and the
accompanying notes, as well as the amounts of revenues and expenses reported during the periods
covered by these financial statements and accompanying notes. Actual results could differ from those
estimates.
Principles of consolidation The Consolidated Financial Statements include all majority-owned
subsidiaries with a controlling financial interest. All inter-company balances and transactions have been
eliminated in consolidation.
Joint ventures and equity securities The Company has investments in three unconsolidated joint
ventures: NSK-Warner K.K., Turbo Energy Private Limited and Delphi-TVS Diesel Systems Ltd of which
the Company owns 50%, 32.6% and 52.5%, respectively. These joint ventures are non-controlled
affiliates in which the Company exercises significant influence but does not have a controlling financial
interest and, therefore, are accounted for under the equity method. With respect to the Company’s 52.5%
owned joint venture, although the Company is the majority owner, it does not have the ability to control
significant decisions or management of the entity. Generally, under the equity method, the Company’s
original investments in these joint ventures are recorded at cost and subsequently adjusted by the
Company’s share of equity in income or losses. The Company monitors its equity method investments for
indicators of other-than-temporary declines in fair value on an ongoing basis. If such a decline has
occurred, an impairment charge is recorded, which is measured as the difference between the carrying
value and the estimated fair value. The Company’s investment in these non-controlled affiliates is
included within Investments and long-term receivables in the Consolidated Balance Sheets. The
Company’s share of equity in income or losses is included in Equity in affiliates’ earnings, net of tax in the
Consolidated Statements of Operations.
The Company also has certain investments for which it does not have the ability to exercise significant
influence (generally when ownership interest is less than 20%). The Company’s investment in these
equity securities is included within Investments and long-term receivables in the Consolidated Balance
Sheet. Refer to Note 10, “Other Current and Non-Current Assets,” to the Consolidated Financial
Statements for more information.
Interests in privately held companies that do not have readily determinable fair values, are accounted for
using the measurement alternative under ASC Topic 321, which includes monitoring on an ongoing basis
for indicators of impairments or upward adjustments. These equity securities are measured at cost less
impairments, adjusted for observable price changes in orderly transactions for the identical or similar
investment of the same issuer. If the Company determines that an indicator of impairment or upward
adjustment is present, an adjustment is recorded, which is measured as the difference between carrying
value and estimated fair value. Estimated fair value is generally determined using an income approach on
discounted cash flows or negotiated transaction values.
Equity securities that have readily determinable fair values are measured at fair value with changes in fair
value recorded in Unrealized (loss) gain on equity securities in the Consolidated Statements of
Operations.
Business combinations In accordance with ASC Topic 805, “Business Combinations,” acquisitions are
recorded using the acquisition method of accounting. The Company includes the operating results of
acquired entities from their respective dates of acquisition. The Company recognizes and measures the
identifiable assets acquired, liabilities assumed, and any non-controlling interest at the acquisition date
fair value. Various valuation techniques are used to determine the fair value of intangible assets, with the
primary techniques being forms of the income approach, specifically the relief-from-royalty and multi-
period excess earnings valuation methods. Under these valuation approaches, the Company is required
to make estimates and assumptions from a market participant perspective that may include revenue
growth rates, estimated earnings, royalty rates, obsolescence factors, contributory asset charges,
customer attrition and discount rates. The excess, if any, of total consideration transferred in a business
combination over the fair value of identifiable assets acquired, liabilities assumed and any non-controlling
interest is recognized as goodwill. Costs incurred as a result of a business combination other than costs
66
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
INTRODUCTION
BorgWarner Inc. (together with its Consolidated Subsidiaries, the “Company”) is a Delaware corporation
incorporated in 1987. The Company is a global product leader in clean and efficient technology solutions
for combustion, hybrid and electric vehicles. The Company’s products help improve vehicle performance,
propulsion efficiency, stability and air quality. The Company manufactures and sells these products
worldwide, primarily to original equipment manufacturers (“OEMs”) of light vehicles (passenger cars,
sport-utility vehicles (“SUVs”), vans and light trucks). The Company's products are also sold to OEMs of
commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway vehicles
(agricultural and construction machinery and marine applications). The Company also manufactures and
sells its products to certain Tier One vehicle systems suppliers and into the aftermarket for light,
commercial and off-highway vehicles. The Company operates manufacturing facilities serving customers
in Europe, the Americas and Asia and is an original equipment supplier to nearly every major automotive
OEM in the world.
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 shutdowns and production declines related, in part, to COVID-19,
created supply constraints of certain components, particularly semiconductor chips. These supply
constraints have had, and are expected to continue to have, significant impacts on global industry
production levels. In addition, it is possible a resurgence of COVID-19 could result in adverse impacts in
the future. Management cannot reasonably estimate the full impact the ongoing supply constraints or the
COVID-19 pandemic could have on the Company’s financial condition, results of operations or cash flows
in the future.
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following paragraphs briefly describe the Company’s significant accounting policies.
Basis of presentation Certain prior period amounts have been reclassified to conform to current period
presentation. On October 1, 2020, and June 4, 2021, the Company completed its acquisitions of Delphi
Technologies PLC (“Delphi Technologies”), and AKASOL AG (“AKASOL”), respectively. Accordingly, the
Company’s Consolidated Financial Statements reflect the results of Delphi Technologies and AKASOL
following the dates of acquisition. Refer to Note 2, “Acquisitions and Dispositions,” to the Consolidated
Financial Statements for more information.
Use of estimates The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“GAAP”) requires management to make estimates
and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities as of the date of the financial statements and the
accompanying notes, as well as the amounts of revenues and expenses reported during the periods
covered by these financial statements and accompanying notes. Actual results could differ from those
estimates.
Principles of consolidation The Consolidated Financial Statements include all majority-owned
subsidiaries with a controlling financial interest. All inter-company balances and transactions have been
eliminated in consolidation.
Joint ventures and equity securities The Company has investments in three unconsolidated joint
ventures: NSK-Warner K.K., Turbo Energy Private Limited and Delphi-TVS Diesel Systems Ltd of which
the Company owns 50%, 32.6% and 52.5%, respectively. These joint ventures are non-controlled
affiliates in which the Company exercises significant influence but does not have a controlling financial
interest and, therefore, are accounted for under the equity method. With respect to the Company’s 52.5%
owned joint venture, although the Company is the majority owner, it does not have the ability to control
significant decisions or management of the entity. Generally, under the equity method, the Company’s
original investments in these joint ventures are recorded at cost and subsequently adjusted by the
Company’s share of equity in income or losses. The Company monitors its equity method investments for
indicators of other-than-temporary declines in fair value on an ongoing basis. If such a decline has
occurred, an impairment charge is recorded, which is measured as the difference between the carrying
value and the estimated fair value. The Company’s investment in these non-controlled affiliates is
included within Investments and long-term receivables in the Consolidated Balance Sheets. The
Company’s share of equity in income or losses is included in Equity in affiliates’ earnings, net of tax in the
Consolidated Statements of Operations.
The Company also has certain investments for which it does not have the ability to exercise significant
influence (generally when ownership interest is less than 20%). The Company’s investment in these
equity securities is included within Investments and long-term receivables in the Consolidated Balance
Sheet. Refer to Note 10, “Other Current and Non-Current Assets,” to the Consolidated Financial
Statements for more information.
Interests in privately held companies that do not have readily determinable fair values, are accounted for
using the measurement alternative under ASC Topic 321, which includes monitoring on an ongoing basis
for indicators of impairments or upward adjustments. These equity securities are measured at cost less
impairments, adjusted for observable price changes in orderly transactions for the identical or similar
investment of the same issuer. If the Company determines that an indicator of impairment or upward
adjustment is present, an adjustment is recorded, which is measured as the difference between carrying
value and estimated fair value. Estimated fair value is generally determined using an income approach on
discounted cash flows or negotiated transaction values.
Equity securities that have readily determinable fair values are measured at fair value with changes in fair
value recorded in Unrealized (loss) gain on equity securities in the Consolidated Statements of
Operations.
Business combinations In accordance with ASC Topic 805, “Business Combinations,” acquisitions are
recorded using the acquisition method of accounting. The Company includes the operating results of
acquired entities from their respective dates of acquisition. The Company recognizes and measures the
identifiable assets acquired, liabilities assumed, and any non-controlling interest at the acquisition date
fair value. Various valuation techniques are used to determine the fair value of intangible assets, with the
primary techniques being forms of the income approach, specifically the relief-from-royalty and multi-
period excess earnings valuation methods. Under these valuation approaches, the Company is required
to make estimates and assumptions from a market participant perspective that may include revenue
growth rates, estimated earnings, royalty rates, obsolescence factors, contributory asset charges,
customer attrition and discount rates. The excess, if any, of total consideration transferred in a business
combination over the fair value of identifiable assets acquired, liabilities assumed and any non-controlling
interest is recognized as goodwill. Costs incurred as a result of a business combination other than costs
66
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
related to the issuance of debt or equity securities are recorded in the period the costs are incurred.
During the measurement period, which may be up to one year from the acquisition date, the Company
may record adjustments to assets acquired and liabilities assumed with the corresponding offset to
goodwill.
Revenue recognition Revenue is recognized when performance obligations under the terms of a
contract are satisfied, which generally occurs with the transfer of control of the products. For most
products, transfer of control occurs upon shipment or delivery; however, a limited number of customer
arrangements for highly customized products with no alternative use provide the Company with the right
to payment during the production process. As a result, for these limited arrangements, revenue is
recognized as goods are produced and control transfers to the customer using the input cost-to-cost
method. Revenue is measured at the amount of consideration the Company expects to receive in
exchange for transferring the goods. Although the Company may enter into long-term supply
arrangements with its major customers, the prices and volumes are not fixed over the life of the
arrangements, and a contract does not exist for purposes of applying ASC Topic 606 until volumes are
contractually known.
Sales incentives and allowances (including returns) are recognized as a reduction to revenue at the time
of the related sale. The Company estimates the allowances based on an analysis of historical experience.
Taxes assessed by a governmental authority collected by the Company concurrent with a specific
revenue-producing transaction are excluded from net sales. Shipping and handling fees billed to
customers are included in sales, while costs of shipping and handling are included in cost of sales. The
Company has elected to apply the accounting policy election available under ASC Topic 606 and
accounts for shipping and handling activities as a fulfillment cost.
The Company has a limited number of arrangements with customers where the price paid by the
customer is dependent on the volume of product purchased over the term of the arrangement. In other
arrangements, the Company will provide a rebate to customers based on the volume of products
purchased during the course of the arrangement. The Company estimates the volumes to be sold over
the term of the arrangement and recognizes revenue based on the estimated amount of consideration to
be received from these arrangements.
The Company continually seeks business development opportunities and at times provides customer
incentives for new program awards. The Company evaluates the underlying economics of each amount
of consideration payable to a customer to determine the proper accounting by understanding the reasons
for the payment, the rights and obligations resulting from the payment, the nature of the promise in the
contract, and other relevant facts and circumstances. When the Company determines that the payments
are incremental and incurred only if the new business is obtained and expects to recover these amounts
from the customer over the term of the new business arrangement, the Company capitalizes these
amounts. The Company recognizes a reduction to revenue as products that the upfront payments are
related to are transferred to the customer, based on the total amount of products expected to be sold over
the term of the arrangement (generally 3 to 7 years). The Company evaluates the amounts capitalized
each period end for recoverability and expenses any amounts that are no longer expected to be
recovered over the term of the business arrangement.
Refer to Note 3, “Revenue from Contracts with Customers,” to the Consolidated Financial Statements for
more information.
Cost of sales The Company includes materials, direct labor and manufacturing overhead within cost of
sales. Manufacturing overhead is comprised of indirect materials, indirect labor, factory operating costs,
warranty costs and other such costs associated with manufacturing products for sale.
Cash and cash equivalents Cash and cash equivalents are valued at fair market value. It is the
Company's policy to classify all highly liquid investments with original maturities of three months or less
as cash and cash equivalents. Cash and cash equivalents are maintained with several financial
institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits.
Generally, these deposits may be redeemed upon demand and are maintained with financial institutions
of reputable credit and, therefore, bear minimal risk.
Restricted cash Restricted cash includes amounts designated for uses other than current operations
and is related to the Company’s commitment to invest in a certain privately-held company.
Receivables, net and long-term receivables Accounts receivable and long-term receivables are stated
at cost less an allowance for credit losses. An allowance for credit losses is recorded for amounts that
may become uncollectible in the future. The allowance for credit losses is an estimate based on expected
losses, current economic and market conditions, and a review of the current status of each customer’s
accounts receivable.
Sales of receivables are accounted for in accordance with the ASC Topic 860. Agreements which result in
true sales of the transferred receivables, as defined in ASC Topic 860, which occur when receivables are
transferred to a third party without recourse to the Company, are excluded from amounts reported in the
consolidated balance sheets. Cash proceeds received from such sales are included in operating cash
flows. The expenses associated with receivables factoring are recorded in the consolidated statements of
operations within interest expense. Refer to Note 8, “Receivables, Net,” to the Consolidated Financial
Statements for more information.
Inventories, net The majority of inventory is measured using first-in, first-out (“FIFO”) or average-cost
methods at the lower of cost or net realizable value, with the exception of certain U.S. inventories that are
determined using the last-in, first-out (“LIFO”) method at the lower of cost or market. Inventory held by
U.S. operations using the LIFO method was $178 million and $186 million at December 31, 2021 and
2020, respectively. Such inventories, if valued at current cost instead of LIFO, would have been greater
by $25 million and $15 million at December 31, 2021 and 2020, respectively. Refer to Note 9,
“Inventories, net,” to the Consolidated Financial Statements for more information.
Pre-production costs related to long-term supply arrangements Engineering, research and
development and other design and development costs for products sold on long-term supply
arrangements are expensed as incurred unless the Company has a contractual guarantee for
reimbursement from the customer. Costs for molds, dies and other tools used to make products sold on
long-term supply arrangements for which the Company has title to the assets are capitalized in property,
plant and equipment and amortized to cost of sales over the shorter of the term of the arrangement or
over the estimated useful lives of the assets, typically 3 to 5 years. Costs for molds, dies and other tools
used to make products sold on long-term supply arrangements for which the Company has a contractual
guarantee for lump sum reimbursement from the customer are capitalized in prepayments and other
current assets.
Property, plant and equipment, net Property, plant and equipment is valued at cost less accumulated
depreciation. Expenditures for maintenance, repairs and renewals of relatively minor items are generally
charged to expense as incurred. Renewals of significant items are capitalized. Depreciation is generally
computed on a straight-line basis over the estimated useful lives of the assets. Useful lives for buildings
range from 15 to 40 years and useful lives for machinery and equipment range from three to 12 years.
For income tax purposes, accelerated methods of depreciation are generally used. Refer to Note 11,
“Property, Plant and Equipment, Net,” to the Consolidated Financial Statements for more information.
Impairment of long-lived assets, including definite-lived intangible assets The Company reviews
the carrying value of its long-lived assets, whether held for use or disposal, including other amortizing
intangible assets, when events and circumstances warrant such a review under ASC Topic 360. In
68
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
related to the issuance of debt or equity securities are recorded in the period the costs are incurred.
During the measurement period, which may be up to one year from the acquisition date, the Company
may record adjustments to assets acquired and liabilities assumed with the corresponding offset to
goodwill.
Revenue recognition Revenue is recognized when performance obligations under the terms of a
contract are satisfied, which generally occurs with the transfer of control of the products. For most
products, transfer of control occurs upon shipment or delivery; however, a limited number of customer
arrangements for highly customized products with no alternative use provide the Company with the right
to payment during the production process. As a result, for these limited arrangements, revenue is
recognized as goods are produced and control transfers to the customer using the input cost-to-cost
method. Revenue is measured at the amount of consideration the Company expects to receive in
exchange for transferring the goods. Although the Company may enter into long-term supply
arrangements with its major customers, the prices and volumes are not fixed over the life of the
arrangements, and a contract does not exist for purposes of applying ASC Topic 606 until volumes are
contractually known.
Sales incentives and allowances (including returns) are recognized as a reduction to revenue at the time
of the related sale. The Company estimates the allowances based on an analysis of historical experience.
Taxes assessed by a governmental authority collected by the Company concurrent with a specific
revenue-producing transaction are excluded from net sales. Shipping and handling fees billed to
customers are included in sales, while costs of shipping and handling are included in cost of sales. The
Company has elected to apply the accounting policy election available under ASC Topic 606 and
accounts for shipping and handling activities as a fulfillment cost.
The Company has a limited number of arrangements with customers where the price paid by the
customer is dependent on the volume of product purchased over the term of the arrangement. In other
arrangements, the Company will provide a rebate to customers based on the volume of products
purchased during the course of the arrangement. The Company estimates the volumes to be sold over
the term of the arrangement and recognizes revenue based on the estimated amount of consideration to
be received from these arrangements.
The Company continually seeks business development opportunities and at times provides customer
incentives for new program awards. The Company evaluates the underlying economics of each amount
of consideration payable to a customer to determine the proper accounting by understanding the reasons
for the payment, the rights and obligations resulting from the payment, the nature of the promise in the
contract, and other relevant facts and circumstances. When the Company determines that the payments
are incremental and incurred only if the new business is obtained and expects to recover these amounts
from the customer over the term of the new business arrangement, the Company capitalizes these
amounts. The Company recognizes a reduction to revenue as products that the upfront payments are
related to are transferred to the customer, based on the total amount of products expected to be sold over
the term of the arrangement (generally 3 to 7 years). The Company evaluates the amounts capitalized
each period end for recoverability and expenses any amounts that are no longer expected to be
recovered over the term of the business arrangement.
Refer to Note 3, “Revenue from Contracts with Customers,” to the Consolidated Financial Statements for
more information.
Cost of sales The Company includes materials, direct labor and manufacturing overhead within cost of
sales. Manufacturing overhead is comprised of indirect materials, indirect labor, factory operating costs,
warranty costs and other such costs associated with manufacturing products for sale.
Cash and cash equivalents Cash and cash equivalents are valued at fair market value. It is the
Company's policy to classify all highly liquid investments with original maturities of three months or less
as cash and cash equivalents. Cash and cash equivalents are maintained with several financial
institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits.
Generally, these deposits may be redeemed upon demand and are maintained with financial institutions
of reputable credit and, therefore, bear minimal risk.
Restricted cash Restricted cash includes amounts designated for uses other than current operations
and is related to the Company’s commitment to invest in a certain privately-held company.
Receivables, net and long-term receivables Accounts receivable and long-term receivables are stated
at cost less an allowance for credit losses. An allowance for credit losses is recorded for amounts that
may become uncollectible in the future. The allowance for credit losses is an estimate based on expected
losses, current economic and market conditions, and a review of the current status of each customer’s
accounts receivable.
Sales of receivables are accounted for in accordance with the ASC Topic 860. Agreements which result in
true sales of the transferred receivables, as defined in ASC Topic 860, which occur when receivables are
transferred to a third party without recourse to the Company, are excluded from amounts reported in the
consolidated balance sheets. Cash proceeds received from such sales are included in operating cash
flows. The expenses associated with receivables factoring are recorded in the consolidated statements of
operations within interest expense. Refer to Note 8, “Receivables, Net,” to the Consolidated Financial
Statements for more information.
Inventories, net The majority of inventory is measured using first-in, first-out (“FIFO”) or average-cost
methods at the lower of cost or net realizable value, with the exception of certain U.S. inventories that are
determined using the last-in, first-out (“LIFO”) method at the lower of cost or market. Inventory held by
U.S. operations using the LIFO method was $178 million and $186 million at December 31, 2021 and
2020, respectively. Such inventories, if valued at current cost instead of LIFO, would have been greater
by $25 million and $15 million at December 31, 2021 and 2020, respectively. Refer to Note 9,
“Inventories, net,” to the Consolidated Financial Statements for more information.
Pre-production costs related to long-term supply arrangements Engineering, research and
development and other design and development costs for products sold on long-term supply
arrangements are expensed as incurred unless the Company has a contractual guarantee for
reimbursement from the customer. Costs for molds, dies and other tools used to make products sold on
long-term supply arrangements for which the Company has title to the assets are capitalized in property,
plant and equipment and amortized to cost of sales over the shorter of the term of the arrangement or
over the estimated useful lives of the assets, typically 3 to 5 years. Costs for molds, dies and other tools
used to make products sold on long-term supply arrangements for which the Company has a contractual
guarantee for lump sum reimbursement from the customer are capitalized in prepayments and other
current assets.
Property, plant and equipment, net Property, plant and equipment is valued at cost less accumulated
depreciation. Expenditures for maintenance, repairs and renewals of relatively minor items are generally
charged to expense as incurred. Renewals of significant items are capitalized. Depreciation is generally
computed on a straight-line basis over the estimated useful lives of the assets. Useful lives for buildings
range from 15 to 40 years and useful lives for machinery and equipment range from three to 12 years.
For income tax purposes, accelerated methods of depreciation are generally used. Refer to Note 11,
“Property, Plant and Equipment, Net,” to the Consolidated Financial Statements for more information.
Impairment of long-lived assets, including definite-lived intangible assets The Company reviews
the carrying value of its long-lived assets, whether held for use or disposal, including other amortizing
intangible assets, when events and circumstances warrant such a review under ASC Topic 360. In
68
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
assessing long-lived assets for an impairment loss, assets are grouped with other assets and liabilities at
the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets
and liabilities. In assessing long-lived assets for impairment, management generally considers individual
facilities to be the lowest level for which identifiable cash flows are largely independent. A recoverability
review is performed using the undiscounted cash flows if there is a triggering event. If the undiscounted
cash flow test for recoverability identifies a possible impairment, management will perform a fair value
analysis. Management determines fair value under ASC Topic 820 using the appropriate valuation
technique of market, income or cost approach. If the carrying value of a long-lived asset is considered
impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived
asset exceeds its fair value.
Management believes that the estimates of future cash flows and fair value assumptions are reasonable;
however, changes in assumptions underlying these estimates could affect the valuations. Significant
judgments and estimates used by management when evaluating long-lived assets for impairment include
(i) an assessment as to whether an adverse event or circumstance has triggered the need for an
impairment review; (ii) undiscounted future cash flows generated by the asset; and (iii) fair valuation of
the asset.
Goodwill and other intangible assets During the fourth quarter of each year, the Company qualitatively
assesses its goodwill assigned to each of its reporting units. This qualitative assessment evaluates
various events and circumstances, such as macroeconomic conditions, industry and market conditions,
cost factors, relevant events and financial trends, that may impact a reporting unit's fair value. Using this
qualitative assessment, the Company determines whether it is more-likely-than-not the reporting unit's
fair value exceeds its carrying value. If it is determined that it is not more-likely-than-not the reporting
unit's fair value exceeds the carrying value, or upon consideration of other factors, including recent
acquisition, restructuring or disposal activity or to refresh the fair values, the Company performs a
quantitative goodwill impairment analysis. In addition, the Company may test goodwill in between annual
test dates if an event occurs or circumstances change that could more-likely-than-not reduce the fair
value of a reporting unit below its carrying value.
The Company has definite-lived intangible assets related to patents and developed technology, customer
relationships and trade names. The Company amortizes definite-lived intangible assets over their
estimated useful lives. The Company also has intangible assets related to acquired trade names that are
classified as indefinite-lived when there are no foreseeable limits on the periods of time over which they
are expected to contribute cash flows. Costs to renew or extend the term of acquired intangible assets
are recognized as expense as incurred.
Similar to goodwill, the Company can elect to perform the impairment test for indefinite-lived intangibles
other than goodwill (primarily trade names) using a qualitative analysis, considering similar factors as
outlined in the goodwill discussion in order to determine if it is more-likely-than-not that the fair value of
the trade names is less than the respective carrying values. If the Company elects to perform or is
required to perform a quantitative analysis, the test consists of a comparison of the fair value of the
indefinite-lived intangible asset to the carrying value of the asset as of the impairment testing date. The
Company estimates the fair value of indefinite-lived intangibles using the relief-from-royalty method,
which it believes is an appropriate and widely used valuation technique for such assets. The fair value
derived from the relief-from-royalty method is measured as the discounted cash flow savings realized
from owning such trade names and not being required to pay a royalty for their use.
Refer to Note 12, “Goodwill and Other Intangibles,” to the Consolidated Financial Statements for more
information.
Assets and liabilities held for sale The Company classifies assets and liabilities (disposal groups) to be
sold as held for sale in the period in which all of the following criteria are met: management, having the
authority to approve the action, commits to a plan to sell the disposal group; the disposal group is
available for immediate sale in its present condition subject only to terms that are usual and customary
for sales of such disposal groups; an active program to locate a buyer and other actions required to
complete the plan to sell the disposal group have been initiated; the sale of the disposal group is
probable, and transfer of the disposal group is expected to qualify for recognition as a completed sale
within one year, except if events or circumstances beyond the Company’s control extend the period of
time required to sell the disposal group beyond one year; the disposal group is being actively marketed
for sale at a price that is reasonable in relation to its current fair value; and actions required to complete
the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be
withdrawn.
The Company initially measures a disposal group that is classified as held for sale at the lower of its
carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized
in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale
of a disposal group until the date of sale. The Company assesses the fair value of a disposal group, less
any costs to sell, each reporting period it remains classified as held for sale and reports any subsequent
changes as an adjustment to the carrying value of the disposal group, as long as the new carrying value
does not exceed the carrying value of the disposal group at the time it was initially classified as held for
sale. Additionally, depreciation is not recorded during the period in which the long-lived assets, included in
the disposal group, are classified as held for sale.
Upon determining that a disposal group meets the criteria to be classified as held for sale, the Company
reports the assets and liabilities of the disposal group, if material, in the line items assets held for sale
and liabilities held for sale in the Consolidated Balance Sheet.
Product warranties The Company provides warranties on some, but not all, of its products. The
warranty terms are typically from one to three years. Provisions for estimated expenses related to product
warranty are made at the time products are sold. These estimates are established using historical
information about the nature, frequency and average cost of warranty claim settlements as well as
product manufacturing and industry developments and recoveries from third parties. Management
actively studies trends of warranty claims and takes action to improve product quality and minimize
warranty claims. Costs of product recalls, which may include the cost of the product being replaced as
well as the customer’s cost of the recall, including labor to remove and replace the recalled part, are
accrued as part of the Company’s warranty accrual at the time an obligation becomes probable and can
be reasonably estimated. Management believes that the warranty accrual is appropriate; however, actual
claims incurred could differ from the original estimates, requiring adjustments to the accrual. The product
warranty accrual is allocated to current and non-current liabilities in the Consolidated Balance Sheets.
Refer to Note 13, “Product Warranty,” to the Consolidated Financial Statements for more information.
Other loss accruals and valuation allowances The Company has numerous other loss exposures,
such as customer claims, workers’ compensation claims, litigation and recoverability of certain assets.
Establishing loss accruals or valuation allowances for these matters requires the use of estimates and
judgment in regard to the risk exposure and ultimate realization. The Company estimates losses using
consistent and appropriate methods; however, changes to its assumptions could materially affect the
recorded accrued liabilities for loss or asset valuation allowances.
Environmental contingencies The Company accounts for environmental costs in accordance with ASC
Topic 450. Costs related to environmental assessments and remediation efforts at operating facilities are
accrued when it is probable that a liability has been incurred and the amount of that liability can be
reasonably estimated. Estimated costs are recorded at undiscounted amounts, based on experience and
assessments and are regularly evaluated. The liabilities are recorded in Other current liabilities and Other
non-current liabilities in the Company’s Consolidated Balance Sheets.
70
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
assessing long-lived assets for an impairment loss, assets are grouped with other assets and liabilities at
the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets
and liabilities. In assessing long-lived assets for impairment, management generally considers individual
facilities to be the lowest level for which identifiable cash flows are largely independent. A recoverability
review is performed using the undiscounted cash flows if there is a triggering event. If the undiscounted
cash flow test for recoverability identifies a possible impairment, management will perform a fair value
analysis. Management determines fair value under ASC Topic 820 using the appropriate valuation
technique of market, income or cost approach. If the carrying value of a long-lived asset is considered
impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived
asset exceeds its fair value.
Management believes that the estimates of future cash flows and fair value assumptions are reasonable;
however, changes in assumptions underlying these estimates could affect the valuations. Significant
judgments and estimates used by management when evaluating long-lived assets for impairment include
(i) an assessment as to whether an adverse event or circumstance has triggered the need for an
impairment review; (ii) undiscounted future cash flows generated by the asset; and (iii) fair valuation of
the asset.
Goodwill and other intangible assets During the fourth quarter of each year, the Company qualitatively
assesses its goodwill assigned to each of its reporting units. This qualitative assessment evaluates
various events and circumstances, such as macroeconomic conditions, industry and market conditions,
cost factors, relevant events and financial trends, that may impact a reporting unit's fair value. Using this
qualitative assessment, the Company determines whether it is more-likely-than-not the reporting unit's
fair value exceeds its carrying value. If it is determined that it is not more-likely-than-not the reporting
unit's fair value exceeds the carrying value, or upon consideration of other factors, including recent
acquisition, restructuring or disposal activity or to refresh the fair values, the Company performs a
quantitative goodwill impairment analysis. In addition, the Company may test goodwill in between annual
test dates if an event occurs or circumstances change that could more-likely-than-not reduce the fair
value of a reporting unit below its carrying value.
The Company has definite-lived intangible assets related to patents and developed technology, customer
relationships and trade names. The Company amortizes definite-lived intangible assets over their
estimated useful lives. The Company also has intangible assets related to acquired trade names that are
classified as indefinite-lived when there are no foreseeable limits on the periods of time over which they
are expected to contribute cash flows. Costs to renew or extend the term of acquired intangible assets
are recognized as expense as incurred.
Similar to goodwill, the Company can elect to perform the impairment test for indefinite-lived intangibles
other than goodwill (primarily trade names) using a qualitative analysis, considering similar factors as
outlined in the goodwill discussion in order to determine if it is more-likely-than-not that the fair value of
the trade names is less than the respective carrying values. If the Company elects to perform or is
required to perform a quantitative analysis, the test consists of a comparison of the fair value of the
indefinite-lived intangible asset to the carrying value of the asset as of the impairment testing date. The
Company estimates the fair value of indefinite-lived intangibles using the relief-from-royalty method,
which it believes is an appropriate and widely used valuation technique for such assets. The fair value
derived from the relief-from-royalty method is measured as the discounted cash flow savings realized
from owning such trade names and not being required to pay a royalty for their use.
Refer to Note 12, “Goodwill and Other Intangibles,” to the Consolidated Financial Statements for more
information.
Assets and liabilities held for sale The Company classifies assets and liabilities (disposal groups) to be
sold as held for sale in the period in which all of the following criteria are met: management, having the
authority to approve the action, commits to a plan to sell the disposal group; the disposal group is
available for immediate sale in its present condition subject only to terms that are usual and customary
for sales of such disposal groups; an active program to locate a buyer and other actions required to
complete the plan to sell the disposal group have been initiated; the sale of the disposal group is
probable, and transfer of the disposal group is expected to qualify for recognition as a completed sale
within one year, except if events or circumstances beyond the Company’s control extend the period of
time required to sell the disposal group beyond one year; the disposal group is being actively marketed
for sale at a price that is reasonable in relation to its current fair value; and actions required to complete
the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be
withdrawn.
The Company initially measures a disposal group that is classified as held for sale at the lower of its
carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized
in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale
of a disposal group until the date of sale. The Company assesses the fair value of a disposal group, less
any costs to sell, each reporting period it remains classified as held for sale and reports any subsequent
changes as an adjustment to the carrying value of the disposal group, as long as the new carrying value
does not exceed the carrying value of the disposal group at the time it was initially classified as held for
sale. Additionally, depreciation is not recorded during the period in which the long-lived assets, included in
the disposal group, are classified as held for sale.
Upon determining that a disposal group meets the criteria to be classified as held for sale, the Company
reports the assets and liabilities of the disposal group, if material, in the line items assets held for sale
and liabilities held for sale in the Consolidated Balance Sheet.
Product warranties The Company provides warranties on some, but not all, of its products. The
warranty terms are typically from one to three years. Provisions for estimated expenses related to product
warranty are made at the time products are sold. These estimates are established using historical
information about the nature, frequency and average cost of warranty claim settlements as well as
product manufacturing and industry developments and recoveries from third parties. Management
actively studies trends of warranty claims and takes action to improve product quality and minimize
warranty claims. Costs of product recalls, which may include the cost of the product being replaced as
well as the customer’s cost of the recall, including labor to remove and replace the recalled part, are
accrued as part of the Company’s warranty accrual at the time an obligation becomes probable and can
be reasonably estimated. Management believes that the warranty accrual is appropriate; however, actual
claims incurred could differ from the original estimates, requiring adjustments to the accrual. The product
warranty accrual is allocated to current and non-current liabilities in the Consolidated Balance Sheets.
Refer to Note 13, “Product Warranty,” to the Consolidated Financial Statements for more information.
Other loss accruals and valuation allowances The Company has numerous other loss exposures,
such as customer claims, workers’ compensation claims, litigation and recoverability of certain assets.
Establishing loss accruals or valuation allowances for these matters requires the use of estimates and
judgment in regard to the risk exposure and ultimate realization. The Company estimates losses using
consistent and appropriate methods; however, changes to its assumptions could materially affect the
recorded accrued liabilities for loss or asset valuation allowances.
Environmental contingencies The Company accounts for environmental costs in accordance with ASC
Topic 450. Costs related to environmental assessments and remediation efforts at operating facilities are
accrued when it is probable that a liability has been incurred and the amount of that liability can be
reasonably estimated. Estimated costs are recorded at undiscounted amounts, based on experience and
assessments and are regularly evaluated. The liabilities are recorded in Other current liabilities and Other
non-current liabilities in the Company’s Consolidated Balance Sheets.
70
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Refer to Note 21, “Contingencies,” to the Consolidated Financial Statements for more information.
Derivative financial instruments The Company recognizes that certain normal business transactions
and foreign currency operations generate risk. Examples of risks include exposure to exchange rate risk
related to transactions denominated in currencies other than the functional currency, changes in
commodity costs and interest rates. It is the objective of the Company to assess the impact of these
transaction risks and offer protection from selected risks through various methods, including financial
derivatives. Virtually all derivative instruments held by the Company are designated as hedges, have high
correlation with the underlying exposure and are highly effective in offsetting underlying price movements.
Accordingly, gains and losses from changes in qualifying hedge fair values are matched with the
underlying transactions. Hedge instruments are generally reported gross, with no right to offset, on the
Consolidated Balance Sheets at their fair value based on quoted market prices for contracts with similar
maturities. The Company does not engage in any derivative transactions for purposes other than hedging
specific risks.
Refer to Note 17, “Financial Instruments,” to the Consolidated Financial Statements for more information.
Foreign currency The financial statements of foreign subsidiaries are translated to U.S. Dollars using
the period-end exchange rate for assets and liabilities and an average exchange rate for each period for
revenues, expenses and capital expenditures. The local currency is the functional currency for
substantially all of the Company's foreign subsidiaries. Translation adjustments for foreign subsidiaries
are recorded as a component of accumulated other comprehensive income (loss) in equity. The
Company recognizes transaction gains and losses arising from fluctuations in currency exchange rates
on transactions denominated in currencies other than the functional currency in earnings as incurred.
Refer to Note 20, “Accumulated Other Comprehensive Loss,” to the Consolidated Financial Statements
for more information.
Pensions and other postretirement employee defined benefits The Company’s defined benefit
pension and other postretirement employee benefit plans are accounted for in accordance with ASC
Topic 715. Disability, early retirement and other postretirement employee benefits are accounted for in
accordance with ASC Topic 712.
Pensions and other postretirement employee benefit costs and related liabilities and assets are
dependent upon assumptions used in calculating such amounts. These assumptions include discount
rates, expected returns on plan assets, health care cost trends, compensation and other factors. In
accordance with GAAP, actual results that differ from the assumptions used are accumulated and
amortized over future periods, and accordingly, generally affect recognized expense in future periods.
Refer to Note 18, “Retirement Benefit Plans,” to the Consolidated Financial Statements for more
information.
Restructuring Restructuring costs may occur when the Company takes action to exit or significantly
curtail a part of its operations or implements a reorganization that affects the nature and focus of
operations. A restructuring charge can consist of severance costs associated with reductions to the
workforce, costs to terminate an operating lease or contract, professional fees and other costs incurred
related to the implementation of restructuring activities.
The Company generally records costs associated with voluntary separations at the time of employee
acceptance. Costs for involuntary separation programs are recorded when management has approved
the plan for separation, the employees are identified and aware of the benefits they are entitled to and it
is unlikely that the plan will change significantly. When a plan of separation requires approval by or
consultation with the relevant labor organization or government, the costs are recorded upon agreement.
Costs associated with benefits that are contingent on the employee continuing to provide service are
accrued over the required service period.
Refer to Note 4, “Restructuring,” to the Consolidated Financial Statements for more information.
Income taxes In accordance with ASC Topic 740, the Company’s income tax expense is calculated
based on expected income and statutory tax rates in the various jurisdictions in which the Company
operates and requires the use of management’s estimates and judgments. Accounting for income taxes is
complex, in part because the Company conducts business globally and, therefore, files income tax
returns in numerous tax jurisdictions. Management judgment is required in determining the Company’s
worldwide provision for income taxes and recording the related assets and liabilities, including accruals
for unrecognized tax benefits and assessing the need for valuation allowances.
The determination of accruals for unrecognized tax benefits includes the application of complex tax laws
in a multitude of jurisdictions across the Company’s global operations. Management judgment is required
in determining the gross unrecognized tax benefits’ related liabilities. In the ordinary course of the
Company’s business, there are many transactions and calculations where the ultimate tax determination
is less than certain. Accruals for unrecognized tax benefits are established when, despite the belief that
tax positions are supportable, there remain certain positions that do not meet the minimum probability
threshold, which is a tax position that is more-likely-than-not to be sustained upon examination by the
applicable taxing authority.
The Company records valuation allowances to reduce the carrying value of deferred tax assets to
amounts that it expects are more likely than not to be realized. The Company assesses existing deferred
tax assets, net operating losses, and tax credits by jurisdiction and expectations of its ability to utilize
these tax attributes through a review of past, current and estimated future taxable income and tax
planning strategies.
Refer to Note 7, “Income Taxes,” to the Consolidated Financial Statements for more information.
New Accounting Pronouncements
Recently Adopted Accounting Standards
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.
72
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Refer to Note 21, “Contingencies,” to the Consolidated Financial Statements for more information.
Derivative financial instruments The Company recognizes that certain normal business transactions
and foreign currency operations generate risk. Examples of risks include exposure to exchange rate risk
related to transactions denominated in currencies other than the functional currency, changes in
commodity costs and interest rates. It is the objective of the Company to assess the impact of these
transaction risks and offer protection from selected risks through various methods, including financial
derivatives. Virtually all derivative instruments held by the Company are designated as hedges, have high
correlation with the underlying exposure and are highly effective in offsetting underlying price movements.
Accordingly, gains and losses from changes in qualifying hedge fair values are matched with the
underlying transactions. Hedge instruments are generally reported gross, with no right to offset, on the
Consolidated Balance Sheets at their fair value based on quoted market prices for contracts with similar
maturities. The Company does not engage in any derivative transactions for purposes other than hedging
specific risks.
Refer to Note 17, “Financial Instruments,” to the Consolidated Financial Statements for more information.
Foreign currency The financial statements of foreign subsidiaries are translated to U.S. Dollars using
the period-end exchange rate for assets and liabilities and an average exchange rate for each period for
revenues, expenses and capital expenditures. The local currency is the functional currency for
substantially all of the Company's foreign subsidiaries. Translation adjustments for foreign subsidiaries
are recorded as a component of accumulated other comprehensive income (loss) in equity. The
Company recognizes transaction gains and losses arising from fluctuations in currency exchange rates
on transactions denominated in currencies other than the functional currency in earnings as incurred.
Refer to Note 20, “Accumulated Other Comprehensive Loss,” to the Consolidated Financial Statements
for more information.
Pensions and other postretirement employee defined benefits The Company’s defined benefit
pension and other postretirement employee benefit plans are accounted for in accordance with ASC
Topic 715. Disability, early retirement and other postretirement employee benefits are accounted for in
accordance with ASC Topic 712.
Pensions and other postretirement employee benefit costs and related liabilities and assets are
dependent upon assumptions used in calculating such amounts. These assumptions include discount
rates, expected returns on plan assets, health care cost trends, compensation and other factors. In
accordance with GAAP, actual results that differ from the assumptions used are accumulated and
amortized over future periods, and accordingly, generally affect recognized expense in future periods.
Refer to Note 18, “Retirement Benefit Plans,” to the Consolidated Financial Statements for more
information.
Restructuring Restructuring costs may occur when the Company takes action to exit or significantly
curtail a part of its operations or implements a reorganization that affects the nature and focus of
operations. A restructuring charge can consist of severance costs associated with reductions to the
workforce, costs to terminate an operating lease or contract, professional fees and other costs incurred
related to the implementation of restructuring activities.
The Company generally records costs associated with voluntary separations at the time of employee
acceptance. Costs for involuntary separation programs are recorded when management has approved
the plan for separation, the employees are identified and aware of the benefits they are entitled to and it
is unlikely that the plan will change significantly. When a plan of separation requires approval by or
consultation with the relevant labor organization or government, the costs are recorded upon agreement.
Costs associated with benefits that are contingent on the employee continuing to provide service are
accrued over the required service period.
Refer to Note 4, “Restructuring,” to the Consolidated Financial Statements for more information.
Income taxes In accordance with ASC Topic 740, the Company’s income tax expense is calculated
based on expected income and statutory tax rates in the various jurisdictions in which the Company
operates and requires the use of management’s estimates and judgments. Accounting for income taxes is
complex, in part because the Company conducts business globally and, therefore, files income tax
returns in numerous tax jurisdictions. Management judgment is required in determining the Company’s
worldwide provision for income taxes and recording the related assets and liabilities, including accruals
for unrecognized tax benefits and assessing the need for valuation allowances.
The determination of accruals for unrecognized tax benefits includes the application of complex tax laws
in a multitude of jurisdictions across the Company’s global operations. Management judgment is required
in determining the gross unrecognized tax benefits’ related liabilities. In the ordinary course of the
Company’s business, there are many transactions and calculations where the ultimate tax determination
is less than certain. Accruals for unrecognized tax benefits are established when, despite the belief that
tax positions are supportable, there remain certain positions that do not meet the minimum probability
threshold, which is a tax position that is more-likely-than-not to be sustained upon examination by the
applicable taxing authority.
The Company records valuation allowances to reduce the carrying value of deferred tax assets to
amounts that it expects are more likely than not to be realized. The Company assesses existing deferred
tax assets, net operating losses, and tax credits by jurisdiction and expectations of its ability to utilize
these tax attributes through a review of past, current and estimated future taxable income and tax
planning strategies.
Refer to Note 7, “Income Taxes,” to the Consolidated Financial Statements for more information.
New Accounting Pronouncements
Recently Adopted Accounting Standards
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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 the Company
has included updated disclosures in these Consolidated Financial Statements. Refer to Note 18,
“Retirement Benefit Plans,” to the Consolidated Financial Statements for more detail.
Accounting Standards Not Yet Adopted
In November 2021, the FASB issued ASU No. 2021-10, “Government Assistance (Topic 832): Disclosures
by Business Entities about Government Assistance.” It is expected to increase transparency in financial
reporting by requiring business entities to disclose information about certain types of government
assistance they receive. The amendments require the following annual disclosures about transactions
with a government: (i) information about the nature of the transactions and the related accounting policy
used to account for the transactions; (ii) the line items on the balance sheet and income statement that
are affected by the transactions, and the amounts applicable to each financial statement line item; and
(iii) significant terms and conditions of the transactions, including commitments and contingencies. This
guidance is effective for annual reporting periods beginning after December 15, 2021. The Company
does not expect this guidance to have a material impact on its Consolidated Financial Statements.
In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for
Contract Assets and Contract Liabilities from Contracts with Customers.” It requires entities to apply Topic
606 to recognize and measure contract assets and contract liabilities in a business combination. The
amendments improve comparability after the business combination by providing consistent recognition
and measurement guidance for revenue contracts with customers acquired in a business combination
and revenue contracts with customers not acquired in a business combination. This guidance is effective
for interim and annual reporting periods beginning after December 15, 2022. The Company does not
expect this guidance to have a material impact on its Consolidated Financial Statements.
NOTE 2
ACQUISITIONS AND DISPOSITIONS
Acquisitions
AKASOL AG
On June 4, 2021, the Company completed its voluntary public takeover offer for shares of AKASOL AG
(“AKASOL”), resulting in ownership of 89% of AKASOL’s outstanding shares. The Company paid
approximately €648 million ($788 million) to settle the offer from current cash balances, which included
proceeds received from its public offering of 1.0% Senior Notes due May 2031 completed on May 19,
2021. Refer to Note 14, “Notes Payable and Debt,” to the Consolidated Financial Statements for more
information. Following the settlement of the offer, AKASOL became a consolidated majority-owned
subsidiary of the Company. The Company also consolidated approximately €64 million ($77 million) of
gross debt of AKASOL. Subsequent to the completion of the voluntary public takeover offer, the Company
purchased additional shares of AKASOL for €28 million ($33 million) increasing its ownership to 93% as
of December 31, 2021. The acquisition further strengthens BorgWarner’s commercial vehicle and
industrial electrification capabilities, which positions the Company to capitalize on what it believes to be a
fast-growing battery module and pack market.
On August 2, 2021, the Company initiated a merger squeeze out process under German law for the
purpose of acquiring 100% of AKASOL. On December 17, 2021, the shareholders of AKASOL voted to
mandatorily transfer to ABBA BidCo. AG, a wholly owned indirect subsidiary of the Company, each issued
and outstanding share of AKASOL held by shareholders that did not tender their shares in the Company’s
previously completed exchange offer for AKASOL shares (the “Squeeze Out”). In exchange for the
AKASOL shares transferred in the Squeeze Out, the Company will pay appropriate cash compensation,
in the amount of €119.16 per share, which was determined by a valuation firm and the adequacy of which
was examined by an independent, court-appointed auditor. The noncontrolling interest in AKASOL of
approximately €51 million ($58 million) to be acquired through the Squeeze Out was reclassified to Other
current liabilities in the Company’s Consolidated Balance Sheet as it was deemed mandatorily
redeemable. No shareholder objections were filed during the statutory contestation period, and on
February 10, 2022, the Company completed the registration of the Squeeze Out resulting in 100%
ownership. The Company expects to settle the Squeeze Out with AKASOL minority shareholders in the
first quarter of 2022.
The initial purchase price was allocated on a preliminary basis as of June 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. The final
valuation of assets acquired and liabilities assumed may be different from the estimated values shown
below.
74
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 the Company
has included updated disclosures in these Consolidated Financial Statements. Refer to Note 18,
“Retirement Benefit Plans,” to the Consolidated Financial Statements for more detail.
Accounting Standards Not Yet Adopted
In November 2021, the FASB issued ASU No. 2021-10, “Government Assistance (Topic 832): Disclosures
by Business Entities about Government Assistance.” It is expected to increase transparency in financial
reporting by requiring business entities to disclose information about certain types of government
assistance they receive. The amendments require the following annual disclosures about transactions
with a government: (i) information about the nature of the transactions and the related accounting policy
used to account for the transactions; (ii) the line items on the balance sheet and income statement that
are affected by the transactions, and the amounts applicable to each financial statement line item; and
(iii) significant terms and conditions of the transactions, including commitments and contingencies. This
guidance is effective for annual reporting periods beginning after December 15, 2021. The Company
does not expect this guidance to have a material impact on its Consolidated Financial Statements.
In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for
Contract Assets and Contract Liabilities from Contracts with Customers.” It requires entities to apply Topic
606 to recognize and measure contract assets and contract liabilities in a business combination. The
amendments improve comparability after the business combination by providing consistent recognition
and measurement guidance for revenue contracts with customers acquired in a business combination
and revenue contracts with customers not acquired in a business combination. This guidance is effective
for interim and annual reporting periods beginning after December 15, 2022. The Company does not
expect this guidance to have a material impact on its Consolidated Financial Statements.
NOTE 2
ACQUISITIONS AND DISPOSITIONS
Acquisitions
AKASOL AG
On June 4, 2021, the Company completed its voluntary public takeover offer for shares of AKASOL AG
(“AKASOL”), resulting in ownership of 89% of AKASOL’s outstanding shares. The Company paid
approximately €648 million ($788 million) to settle the offer from current cash balances, which included
proceeds received from its public offering of 1.0% Senior Notes due May 2031 completed on May 19,
2021. Refer to Note 14, “Notes Payable and Debt,” to the Consolidated Financial Statements for more
information. Following the settlement of the offer, AKASOL became a consolidated majority-owned
subsidiary of the Company. The Company also consolidated approximately €64 million ($77 million) of
gross debt of AKASOL. Subsequent to the completion of the voluntary public takeover offer, the Company
purchased additional shares of AKASOL for €28 million ($33 million) increasing its ownership to 93% as
of December 31, 2021. The acquisition further strengthens BorgWarner’s commercial vehicle and
industrial electrification capabilities, which positions the Company to capitalize on what it believes to be a
fast-growing battery module and pack market.
On August 2, 2021, the Company initiated a merger squeeze out process under German law for the
purpose of acquiring 100% of AKASOL. On December 17, 2021, the shareholders of AKASOL voted to
mandatorily transfer to ABBA BidCo. AG, a wholly owned indirect subsidiary of the Company, each issued
and outstanding share of AKASOL held by shareholders that did not tender their shares in the Company’s
previously completed exchange offer for AKASOL shares (the “Squeeze Out”). In exchange for the
AKASOL shares transferred in the Squeeze Out, the Company will pay appropriate cash compensation,
in the amount of €119.16 per share, which was determined by a valuation firm and the adequacy of which
was examined by an independent, court-appointed auditor. The noncontrolling interest in AKASOL of
approximately €51 million ($58 million) to be acquired through the Squeeze Out was reclassified to Other
current liabilities in the Company’s Consolidated Balance Sheet as it was deemed mandatorily
redeemable. No shareholder objections were filed during the statutory contestation period, and on
February 10, 2022, the Company completed the registration of the Squeeze Out resulting in 100%
ownership. The Company expects to settle the Squeeze Out with AKASOL minority shareholders in the
first quarter of 2022.
The initial purchase price was allocated on a preliminary basis as of June 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. The final
valuation of assets acquired and liabilities assumed may be different from the estimated values shown
below.
74
75
Following the June 4, 2021 acquisition date, AKASOL’s operations had net sales of $67 million for the
year ended December 31, 2021. The impact on net earnings was immaterial for the year ended
December 31, 2021. Due to its insignificant size relative to the Company, supplemental pro forma
financial information of the combined entity for the current 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 has strengthened the Company’s electronics and power electronics products,
strengthened its capabilities and scale, enhanced key combustion, commercial vehicle and aftermarket
product offerings, and positioned the Company for greater growth as electrified propulsion systems gain
momentum. Upon closing, the Company also assumed approximately $800 million (par value) in
aggregate principal amount of Delphi Technologies’ outstanding 5.0% Senior Notes due October 2025.
The following table summarizes the purchase price for Delphi Technologies:
BorgWarner common stock issued for purchase of Delphi Technologies
37,188,819
(in millions, except for share data)
BorgWarner share price at October 1, 2020
Fair value of stock consideration
Stock compensation consideration
Total stock consideration
Cash consideration
Repayment of Delphi Technologies’ debt
Total consideration
$
$
$
$
39.54
1,470
7
1,477
18
896
2,391
The Company finalized its valuation of the assets and liabilities of the Delphi Technologies acquisition
during the third quarter of 2021.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of
June 4, 2021, the acquisition date:
(in millions)
ASSETS
Initial
Allocation
Measurement
Period
Adjustments
Revised
Allocation
Cash and cash equivalents (including restricted cash of $16 million)
$
29 $
— $
Receivables, net
Inventories, net
Prepayments and other current assets
Property, plant and equipment, net
Goodwill
Other intangible assets, net
Other non-current assets
Total assets acquired
LIABILITIES
Notes payable and other short-term debt
Accounts payable
Other current liabilities
Long-term debt
Other non-current liabilities
Total liabilities assumed
Noncontrolling interests
1,035
(1)
1,034
16
42
5
106
707
130
—
—
(2)
—
(3)
(3)
—
7
8
22
13
69
39
151
96
—
—
6
—
(7)
(1)
—
29
16
40
5
103
704
130
7
8
22
19
69
32
150
96
788
Net assets and noncontrolling interest acquired
$
788 $
— $
Any excess of the purchase price over the estimated fair value of net identifiable assets was recognized
as goodwill. Goodwill of $704 million, including the impact of measurement period adjustments, was
recorded within the Company’s Air Management segment. The goodwill consists of the Company’s
expected future economic benefits that will arise from acquiring this business, which is established in
making next-generation products for electric vehicles and the potential development and deployment of
future technologies, across a global customer base, in this market and across adjacent industries. The
goodwill is not expected to be deductible for tax purposes.
The following table summarizes the other intangible assets acquired:
(in millions)
Amortized intangible assets:
Developed technology
Customer relationships
Total amortized intangible assets
Unamortized trade names
Total other intangible assets
Estimated
Life
Estimated
Fair Value
5 years
$
11 years
Indefinite
70
25
95
35
$
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.
76
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of
June 4, 2021, the acquisition date:
Initial
Allocation
Measurement
Period
Adjustments
Revised
Allocation
Following the June 4, 2021 acquisition date, AKASOL’s operations had net sales of $67 million for the
year ended December 31, 2021. The impact on net earnings was immaterial for the year ended
December 31, 2021. Due to its insignificant size relative to the Company, supplemental pro forma
financial information of the combined entity for the current and prior reporting period is not provided.
Cash and cash equivalents (including restricted cash of $16 million)
$
29 $
— $
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 has strengthened the Company’s electronics and power electronics products,
strengthened its capabilities and scale, enhanced key combustion, commercial vehicle and aftermarket
product offerings, and positioned the Company for greater growth as electrified propulsion systems gain
momentum. Upon closing, the Company also assumed approximately $800 million (par value) in
aggregate principal amount of Delphi Technologies’ outstanding 5.0% Senior Notes due October 2025.
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
Fair value of stock consideration
Stock compensation consideration
Total stock consideration
Cash consideration
Repayment of Delphi Technologies’ debt
Total consideration
$
$
$
$
39.54
1,470
7
1,477
18
896
2,391
The Company finalized its valuation of the assets and liabilities of the Delphi Technologies acquisition
during the third quarter of 2021.
(in millions)
ASSETS
Receivables, net
Inventories, net
Prepayments and other current assets
Property, plant and equipment, net
Notes payable and other short-term debt
Goodwill
Other intangible assets, net
Other non-current assets
Total assets acquired
LIABILITIES
Accounts payable
Other current liabilities
Long-term debt
Other non-current liabilities
Total liabilities assumed
Noncontrolling interests
(in millions)
Amortized intangible assets:
Developed technology
Customer relationships
Total amortized intangible assets
Unamortized trade names
Total other intangible assets
1,035
(1)
1,034
16
42
5
106
707
130
—
8
22
13
69
39
151
96
—
(2)
—
(3)
(3)
—
7
—
—
6
—
(7)
(1)
—
29
16
40
5
103
704
130
7
8
22
19
69
32
150
96
788
Estimated
Life
Estimated
Fair Value
5 years
$
11 years
Indefinite
70
25
95
35
$
130
Net assets and noncontrolling interest acquired
$
788 $
— $
Any excess of the purchase price over the estimated fair value of net identifiable assets was recognized
as goodwill. Goodwill of $704 million, including the impact of measurement period adjustments, was
recorded within the Company’s Air Management segment. The goodwill consists of the Company’s
expected future economic benefits that will arise from acquiring this business, which is established in
making next-generation products for electric vehicles and the potential development and deployment of
future technologies, across a global customer base, in this market and across adjacent industries. The
goodwill is not expected to be deductible for tax purposes.
The following table summarizes the other intangible assets acquired:
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.
76
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the final fair values of assets acquired and liabilities assumed as of the
acquisition date and subsequent measurement period adjustments:
The following table summarizes the other intangible assets acquired:
(in millions)
ASSETS
Cash and cash equivalents
Receivables, net
Inventories, net1
Prepayments and other current assets
Property, plant and equipment, net
Investments and long-term receivables
Goodwill
Other intangible assets, net
Other non-current assets
Total assets acquired
LIABILITIES
Notes payable and other short-term debt
Accounts payable
Other current liabilities
Long-term debt
Other non-current liabilities:
Retirement-related
Other non-current liabilities
Total liabilities assumed
Noncontrolling interest
Initial
Allocation
Measurement
Period
Adjustments
Revised
Allocation
$
460 $
— $
901
398
77
1,548
103
710
760
359
5,316
2
692
609
934
313
286
2,836
89
(4)
(5)
2
(31)
(1)
44
—
1
6
—
1
9
—
—
(4)
6
—
460
897
393
79
1,517
102
754
760
360
5,322
2
693
618
934
313
282
2,842
89
Net assets and noncontrolling interest acquired
$
2,391 $
— $
2,391
_____________________________
1 During the three months ended December 31, 2020, the Company incurred $27 million of expense related to the amortization of
the inventory fair value adjustment.
Any excess of the purchase price over the estimated fair value of net assets was recognized as goodwill.
At the acquisition date, goodwill of $754 million, including the impact 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
e-Propulsion & Drivetrain
Fuel Injection
Aftermarket
Total acquisition date goodwill
$
$
150
301
—
303
754
(in millions)
Amortized intangible assets:
Developed technology
Customer relationships
Total amortized intangible assets
Unamortized trade name
Total other intangible assets
Estimated
Life
Estimated
Fair Value
14 years
$
15 years
Indefinite
$
270
380
650
110
760
Generally accepted valuation practice indicates that assets and liabilities may be valued using a range of
methodologies. The property, plant and equipment and inventory acquired were valued using a
combination of cost and market approaches. Goodwill, identifiable intangible assets, noncontrolling
interests and the equity method investment were valued using the income approach. Management used
a third-party valuation firm to assist in the determination of the purchase accounting fair values; however,
management ultimately oversees the third-party valuation firm to ensure that the transaction-specific
assumptions are appropriate.
The following table summarizes the net sales and earnings related to Delphi Technologies’ operations
that have been included in the Company’s Consolidated Statement of Operations for the year ended
December 31, 2020, following the October 1, 2020 acquisition date:
(in millions)
Net sales
Net earnings attributable to BorgWarner Inc.
$
$
1,120
30
Pro forma financial information (unaudited): The following table summarizes, on a pro forma basis,
the combined results of operations of the Company and Delphi Technologies business as though the
acquisition and the related financing had occurred as of January 1, 2019. The pro forma results are not
necessarily indicative of either the actual consolidated results had the acquisition of Delphi Technologies
occurred on January 1, 2019 or of future consolidated operating results. Actual operating results for the
year ended December 31, 2021 have been included in the table below for comparative purposes.
(in millions)
Net sales
Net earnings attributable to BorgWarner Inc.
Actual
Pro forma (unaudited)
Year Ended December 31,
2021
2020
2019
$
$
14,838 $
12,792 $
14,529
537 $
616 $
625
These pro forma amounts have been calculated after applying the Company’s accounting policies and
the results presented above primarily reflect (i) depreciation adjustments relating to fair value adjustments
to property, plant and equipment; (ii) amortization adjustments relating to fair value estimates of intangible
assets; (iii) incremental interest expense, net on debt related transactions; (iv) cost of goods sold
adjustments relating to fair value adjustments to inventory; and (v) stock-based compensation that was
accelerated and settled on the date of acquisition.
In 2020, the Company incurred $89 million of acquisition-related costs. These expenses are included in
Other operating expense (income), net in the Company’s Consolidated Statement of Operations for the
year ended December 31, 2020 and are reflected in the pro forma earnings for the year ended December
31, 2019, in the table above.
78
79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the final fair values of assets acquired and liabilities assumed as of the
The following table summarizes the other intangible assets acquired:
acquisition date and subsequent measurement period adjustments:
(in millions)
ASSETS
Cash and cash equivalents
Receivables, net
Inventories, net1
Prepayments and other current assets
Property, plant and equipment, net
Investments and long-term receivables
Notes payable and other short-term debt
Goodwill
Other intangible assets, net
Other non-current assets
Total assets acquired
LIABILITIES
Accounts payable
Other current liabilities
Long-term debt
Other non-current liabilities:
Retirement-related
Other non-current liabilities
Total liabilities assumed
Noncontrolling interest
for tax purposes.
(in millions)
Air Management
e-Propulsion & Drivetrain
Fuel Injection
Aftermarket
Total acquisition date goodwill
Initial
Allocation
Measurement
Period
Adjustments
Revised
Allocation
$
460 $
— $
1,548
901
398
77
103
710
760
359
5,316
2
692
609
934
313
286
2,836
89
(4)
(5)
2
(31)
(1)
44
—
1
6
—
1
9
—
—
(4)
6
—
1,517
460
897
393
79
102
754
760
360
2
693
618
934
5,322
313
282
2,842
89
$
$
150
301
—
303
754
(in millions)
Amortized intangible assets:
Developed technology
Customer relationships
Total amortized intangible assets
Unamortized trade name
Total other intangible assets
Estimated
Life
Estimated
Fair Value
14 years
$
15 years
Indefinite
$
270
380
650
110
760
Generally accepted valuation practice indicates that assets and liabilities may be valued using a range of
methodologies. The property, plant and equipment and inventory acquired were valued using a
combination of cost and market approaches. Goodwill, identifiable intangible assets, noncontrolling
interests and the equity method investment were valued using the income approach. Management used
a third-party valuation firm to assist in the determination of the purchase accounting fair values; however,
management ultimately oversees the third-party valuation firm to ensure that the transaction-specific
assumptions are appropriate.
The following table summarizes the net sales and earnings related to Delphi Technologies’ operations
that have been included in the Company’s Consolidated Statement of Operations for the year ended
December 31, 2020, following the October 1, 2020 acquisition date:
(in millions)
Net sales
Net earnings attributable to BorgWarner Inc.
$
$
1,120
30
Pro forma financial information (unaudited): The following table summarizes, on a pro forma basis,
the combined results of operations of the Company and Delphi Technologies business as though the
acquisition and the related financing had occurred as of January 1, 2019. The pro forma results are not
necessarily indicative of either the actual consolidated results had the acquisition of Delphi Technologies
occurred on January 1, 2019 or of future consolidated operating results. Actual operating results for the
year ended December 31, 2021 have been included in the table below for comparative purposes.
(in millions)
Net sales
Net earnings attributable to BorgWarner Inc.
Actual
Pro forma (unaudited)
Year Ended December 31,
2021
2020
2019
$
$
14,838 $
12,792 $
14,529
537 $
616 $
625
These pro forma amounts have been calculated after applying the Company’s accounting policies and
the results presented above primarily reflect (i) depreciation adjustments relating to fair value adjustments
to property, plant and equipment; (ii) amortization adjustments relating to fair value estimates of intangible
assets; (iii) incremental interest expense, net on debt related transactions; (iv) cost of goods sold
adjustments relating to fair value adjustments to inventory; and (v) stock-based compensation that was
accelerated and settled on the date of acquisition.
In 2020, the Company incurred $89 million of acquisition-related costs. These expenses are included in
Other operating expense (income), net in the Company’s Consolidated Statement of Operations for the
year ended December 31, 2020 and are reflected in the pro forma earnings for the year ended December
31, 2019, in the table above.
78
79
Net assets and noncontrolling interest acquired
$
2,391 $
— $
2,391
1 During the three months ended December 31, 2020, the Company incurred $27 million of expense related to the amortization of
_____________________________
the inventory fair value adjustment.
Any excess of the purchase price over the estimated fair value of net assets was recognized as goodwill.
At the acquisition date, goodwill of $754 million, including the impact 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Romeo Power, Inc.
Water Valley Divestiture
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.
On December 29, 2020, through the business combination of Romeo Systems, Inc. and special purpose
acquisition company RMG Acquisition Corporation, a new entity, Romeo Power, Inc., became a publicly
listed company. The Company’s ownership in Romeo was reduced to 14%, and the investment no longer
qualified for the measurement alternative under ASC Topic 321 as the investment then had a readily
determinable fair value. During the year ended December 31, 2020, the Company recorded a net gain of
$382 million, which primarily related to adjusting the Company’s investment carrying value to fair value.
The investment is recorded at fair value on an ongoing basis with changes in fair value being recognized
in Unrealized (loss) gain on equity securities in the Consolidated Statements of Operations. During the
year ended December 31, 2021, the Company recorded a loss of $362 million to adjust the carrying value
of the Company’s investment to fair value. As of December 31, 2021 and 2020, the investment’s fair
value was $70 million and $432 million, respectively, which is reflected in Investments and long-term
receivables in the Company’s Consolidated Balance Sheets.
In September 2019, the Company and Romeo contributed total equity of $10 million and formed a new
joint venture, BorgWarner Romeo Power LLC (“Romeo JV”), in which the Company owned a 60%
interest. Romeo JV is a variable interest entity focusing on producing battery module and pack
technology. The Company was the primary beneficiary of Romeo JV and has consolidated Romeo JV in
its consolidated financial statements. On October 25, 2021, the Company delivered written notice to
Romeo that the Company was electing to exercise its right to put its ownership stake in Romeo JV to
Romeo. Based on an independent appraisal, the Company’s interest in Romeo JV was valued at
$30 million. As the estimated fair value, less costs to sell, of the Company’s investment exceeded its
carrying value, no adjustment to the carrying value was required at December 31, 2021. In February
2022, the Company completed the sale of its 60% interest in Romeo JV for $29 million, the fair value of
$30 million reduced by a 5% discount pursuant to the joint venture agreement. As a result of the sale, the
Company has no further rights in or involvement with Romeo JV. The exercise of the Romeo JV put
option has no bearing on the Company’s ownership stake in Romeo.
Rinehart Motion Systems LLC and AM Racing LLC
On January 2, 2019, the Company acquired Rinehart Motion Systems LLC and AM Racing LLC, two
established companies in the specialty electric and hybrid propulsion market, for approximately $15
million, of which $10 million was paid in the first quarter of 2019, $2 million was paid during each of the
first quarter 2020 and 2021, the remaining $1 million will be paid in the first quarter of 2022.
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. In December 2021, the
Company entered into a definitive agreement to sell its Water Valley, Mississippi manufacturing facility
(“Water Valley”) and the associated solenoid, transmission control module and stop/start accumulator
system business for an estimated $57 million. The consideration consisted of $39 million in cash and
notes and up to $30 million in potential earn out payments. The Company included $18 million as
contingent consideration in the proceeds, which reflects its current estimate of the payout pursuant to the
earn out. The contingent consideration and promissory note were included in Investments and long-term
receivables on the Consolidated Balance Sheet.
Water Valley had net sales of $177 million during the year ended December 31, 2021 and was included in
the Company’s e-Propulsion & Drivetrain segment. On December 31, 2021, upon the closing of the
transaction, based upon the final transaction priced agreed to in the fourth quarter of 2021, the Company
recorded a loss on divestiture of $22 million. As a result of this transaction, assets of $99 million,
including allocated goodwill of $12 million, and liabilities of $20 million were removed from the Company’s
Consolidated Balance Sheet as of December 31, 2021.
Subsequent Event
On February 15, 2022, the Company announced that it signed an equity transfer agreement under which
BorgWarner will acquire Santroll Automotive Components, a carve-out of Santroll Electric Auto’s eMotor
business, for up to ¥1.4 billion ($220 million), comprised of a closing payment of ¥1.1 billion ($173 million)
and an earn out of ¥0.3 billion ($47 million). The transaction is expected to close in the first quarter of
2022.
NOTE 3
REVENUE FROM CONTRACTS WITH CUSTOMERS
The Company manufactures and sells products, primarily to OEMs of light vehicles and, to a lesser
extent, to other OEMs of commercial vehicles 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. The Company has evaluated the
terms of its 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 $17 million and $16 million at December 31,
2021 and 2020, respectively, for these arrangements. These amounts are reflected in Prepayments and
other current assets in the Company’s 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 Consolidated Balance Sheets
and were $21 million and $1 million at December 31, 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.
80
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Romeo Power, Inc.
Water Valley Divestiture
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.
On December 29, 2020, through the business combination of Romeo Systems, Inc. and special purpose
acquisition company RMG Acquisition Corporation, a new entity, Romeo Power, Inc., became a publicly
listed company. The Company’s ownership in Romeo was reduced to 14%, and the investment no longer
qualified for the measurement alternative under ASC Topic 321 as the investment then had a readily
determinable fair value. During the year ended December 31, 2020, the Company recorded a net gain of
$382 million, which primarily related to adjusting the Company’s investment carrying value to fair value.
The investment is recorded at fair value on an ongoing basis with changes in fair value being recognized
in Unrealized (loss) gain on equity securities in the Consolidated Statements of Operations. During the
year ended December 31, 2021, the Company recorded a loss of $362 million to adjust the carrying value
of the Company’s investment to fair value. As of December 31, 2021 and 2020, the investment’s fair
value was $70 million and $432 million, respectively, which is reflected in Investments and long-term
receivables in the Company’s Consolidated Balance Sheets.
In September 2019, the Company and Romeo contributed total equity of $10 million and formed a new
joint venture, BorgWarner Romeo Power LLC (“Romeo JV”), in which the Company owned a 60%
interest. Romeo JV is a variable interest entity focusing on producing battery module and pack
technology. The Company was the primary beneficiary of Romeo JV and has consolidated Romeo JV in
its consolidated financial statements. On October 25, 2021, the Company delivered written notice to
Romeo that the Company was electing to exercise its right to put its ownership stake in Romeo JV to
Romeo. Based on an independent appraisal, the Company’s interest in Romeo JV was valued at
$30 million. As the estimated fair value, less costs to sell, of the Company’s investment exceeded its
carrying value, no adjustment to the carrying value was required at December 31, 2021. In February
2022, the Company completed the sale of its 60% interest in Romeo JV for $29 million, the fair value of
$30 million reduced by a 5% discount pursuant to the joint venture agreement. As a result of the sale, the
Company has no further rights in or involvement with Romeo JV. The exercise of the Romeo JV put
option has no bearing on the Company’s ownership stake in Romeo.
Rinehart Motion Systems LLC and AM Racing LLC
On January 2, 2019, the Company acquired Rinehart Motion Systems LLC and AM Racing LLC, two
established companies in the specialty electric and hybrid propulsion market, for approximately $15
million, of which $10 million was paid in the first quarter of 2019, $2 million was paid during each of the
first quarter 2020 and 2021, the remaining $1 million will be paid in the first quarter of 2022.
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. In December 2021, the
Company entered into a definitive agreement to sell its Water Valley, Mississippi manufacturing facility
(“Water Valley”) and the associated solenoid, transmission control module and stop/start accumulator
system business for an estimated $57 million. The consideration consisted of $39 million in cash and
notes and up to $30 million in potential earn out payments. The Company included $18 million as
contingent consideration in the proceeds, which reflects its current estimate of the payout pursuant to the
earn out. The contingent consideration and promissory note were included in Investments and long-term
receivables on the Consolidated Balance Sheet.
Water Valley had net sales of $177 million during the year ended December 31, 2021 and was included in
the Company’s e-Propulsion & Drivetrain segment. On December 31, 2021, upon the closing of the
transaction, based upon the final transaction priced agreed to in the fourth quarter of 2021, the Company
recorded a loss on divestiture of $22 million. As a result of this transaction, assets of $99 million,
including allocated goodwill of $12 million, and liabilities of $20 million were removed from the Company’s
Consolidated Balance Sheet as of December 31, 2021.
Subsequent Event
On February 15, 2022, the Company announced that it signed an equity transfer agreement under which
BorgWarner will acquire Santroll Automotive Components, a carve-out of Santroll Electric Auto’s eMotor
business, for up to ¥1.4 billion ($220 million), comprised of a closing payment of ¥1.1 billion ($173 million)
and an earn out of ¥0.3 billion ($47 million). The transaction is expected to close in the first quarter of
2022.
NOTE 3
REVENUE FROM CONTRACTS WITH CUSTOMERS
The Company manufactures and sells products, primarily to OEMs of light vehicles and, to a lesser
extent, to other OEMs of commercial vehicles 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. The Company has evaluated the
terms of its 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 $17 million and $16 million at December 31,
2021 and 2020, respectively, for these arrangements. These amounts are reflected in Prepayments and
other current assets in the Company’s 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 Consolidated Balance Sheets
and were $21 million and $1 million at December 31, 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.
80
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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
December 31, 2021 and 2020, the Company recorded customer incentive payments of $36 million and
$43 million, respectively, in Prepayments and other current assets, and $137 million and $166 million,
respectively, in Other non-current assets in the Consolidated Balance Sheets.
The following table represents a disaggregation of revenue from contracts with customers by reporting
segment and region and includes the results of Delphi Technologies and AKASOL following the dates of
acquisition, for the years ended December 31, 2021, 2020, and 2019. Refer to Note 24, Reporting
Segments and Related Information to the Consolidated Financial Statements for more information.
(in millions)
North America
Europe
Asia
Other
Total
(in millions)
North America
Europe
Asia
Other
Total
(in millions)
North America
Europe
Asia
Other
Total
Year ended December 31, 2021
Air
Management
e-Propulsion
& Drivetrain
Fuel Injection
Aftermarket
Total
$
1,908 $
1,949 $
58 $
310 $
2,952
2,138
148
906
2,329
25
924
592
63
423
61
52
4,225
5,205
5,120
288
$
7,146 $
5,209 $
1,637 $
846 $
14,838
Year ended December 31, 2020
Air
Management
e-Propulsion
& Drivetrain
Fuel Injection
Aftermarket
Total
$
1,425 $
1,559 $
— $
73 $
2,482
1,596
95
733
1,631
17
253
169
13
91
15
13
3,057
3,559
3,411
138
$
5,598 $
3,940 $
435 $
192 $
10,165
Year ended December 31, 2019
Air
Management
e-Propulsion
& Drivetrain
Fuel Injection
Aftermarket
Total
$
1,584 $
1,791 $
— $
— $
2,980
1,468
121
830
1,365
29
—
—
—
—
—
—
3,375
3,810
2,833
150
$
6,153 $
4,015 $
— $
— $
10,168
NOTE 4 RESTRUCTURING
The Company’s restructuring activities are undertaken as necessary to execute management’s strategy
and streamline operations, consolidate and take advantage of available capacity and resources, and
ultimately achieve net cost reductions. Restructuring activities include efforts to integrate and rationalize
the Company’s business and to relocate operations to best-cost locations.
The Company’s restructuring expenses consist primarily of employee termination benefits (principally
severance and/or other termination benefits) and other costs, which are primarily professional fees and
costs related to facility closures and exits.
(in millions)
Year ended December 31, 2021
Air
Management
e-Propulsion
& Drivetrain
Fuel Injection
Aftermarket
Corporate
Total
Employee termination benefits
34 $
12 $
53 $
Total restructuring expense
52 $
55 $
54 $
18
43
1
— $
—
— $
— $
2
2 $
Year ended December 31, 2020
Employee termination benefits
50 $
54 $
8 $
1 $
44 $
Total restructuring expense
79 $
70 $
8 $
1 $
45 $
29
16
—
—
1
Year ended December 31, 2019
Employee termination benefits
Total restructuring expense
43 $
17
60 $
1 $
5
6 $
— $
—
— $
— $
—
— $
— $
6
6 $
The following table displays a rollforward of the restructuring liability recorded within the Company’s
Consolidated Balance Sheets and the related cash flow activity:
Other
Other
Other
$
$
$
$
$
$
(in millions)
Balance at January 1, 2020
Delphi Technologies acquisition
Restructuring expense, net
Cash payments
Balance at December 31, 2020
Restructuring expense, net
Cash payments
Foreign currency translation adjustment and other
Foreign currency translation adjustment and other
Balance at December 31, 2021
Less: Non-current restructuring liability
Current restructuring liability at December 31, 2021
Employee
termination
benefits
Other
Total
$
34 $
1 $
(113)
73
157
9
160
99
(128)
(5)
(22)
(14)
2
46
13
64
(61)
(3)
$
$
126 $
13 $
41
2
85 $
11 $
99
64
163
157
46
203
44
28
72
35
75
203
(135)
(5)
173
163
(189)
(8)
139
43
96
In February 2020, the Company announced a restructuring plan to address existing structural costs.
During the years ended December 31, 2021, and 2020, the Company recorded $103 million and $148
million of restructuring charges related to this plan, respectively. Cumulatively, the Company has incurred
$251 million of restructuring charges related to this plan. This plan is expected to result in a total of $300
million of restructuring costs through 2022. Nearly all of the restructuring charges are expected to be
cash expenditures.
In 2019, legacy Delphi Technologies announced a restructuring plan to reshape and realign its global
technical center footprint and reduce salaried and contract staff. The Company continued actions under
this program post-acquisition and has recorded cumulative charges of $62 million since October 1, 2020,
82
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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
December 31, 2021 and 2020, the Company recorded customer incentive payments of $36 million and
$43 million, respectively, in Prepayments and other current assets, and $137 million and $166 million,
respectively, in Other non-current assets in the Consolidated Balance Sheets.
The following table represents a disaggregation of revenue from contracts with customers by reporting
segment and region and includes the results of Delphi Technologies and AKASOL following the dates of
acquisition, for the years ended December 31, 2021, 2020, and 2019. Refer to Note 24, Reporting
Segments and Related Information to the Consolidated Financial Statements for more information.
(in millions)
North America
Europe
Asia
Other
Total
Europe
Asia
Other
Total
Europe
Asia
Other
Total
(in millions)
North America
(in millions)
North America
Year ended December 31, 2021
Air
Management
e-Propulsion
& Drivetrain
Fuel Injection
Aftermarket
Total
$
1,908 $
1,949 $
58 $
310 $
$
7,146 $
5,209 $
1,637 $
846 $
14,838
Year ended December 31, 2020
Air
Management
e-Propulsion
& Drivetrain
Fuel Injection
Aftermarket
Total
$
1,425 $
1,559 $
— $
73 $
2,952
2,138
148
906
2,329
25
2,482
1,596
95
733
1,631
17
2,980
1,468
121
830
1,365
29
924
592
63
253
169
13
—
—
—
423
61
52
91
15
13
—
—
—
4,225
5,205
5,120
288
3,057
3,559
3,411
138
3,375
3,810
2,833
150
$
5,598 $
3,940 $
435 $
192 $
10,165
Year ended December 31, 2019
Air
Management
e-Propulsion
& Drivetrain
Fuel Injection
Aftermarket
Total
$
1,584 $
1,791 $
— $
— $
$
6,153 $
4,015 $
— $
— $
10,168
NOTE 4 RESTRUCTURING
The Company’s restructuring activities are undertaken as necessary to execute management’s strategy
and streamline operations, consolidate and take advantage of available capacity and resources, and
ultimately achieve net cost reductions. Restructuring activities include efforts to integrate and rationalize
the Company’s business and to relocate operations to best-cost locations.
The Company’s restructuring expenses consist primarily of employee termination benefits (principally
severance and/or other termination benefits) and other costs, which are primarily professional fees and
costs related to facility closures and exits.
(in millions)
Year ended December 31, 2021
Employee termination benefits
Other
Total restructuring expense
Year ended December 31, 2020
Employee termination benefits
Other
Total restructuring expense
Year ended December 31, 2019
Employee termination benefits
Other
Total restructuring expense
Air
Management
e-Propulsion
& Drivetrain
Fuel Injection
Aftermarket
Corporate
Total
$
$
$
$
$
$
34 $
12 $
53 $
18
43
1
52 $
55 $
54 $
— $
—
— $
— $
2
2 $
50 $
54 $
8 $
1 $
44 $
29
16
—
—
1
79 $
70 $
8 $
1 $
45 $
43 $
17
60 $
1 $
5
6 $
— $
—
— $
— $
—
— $
— $
6
6 $
99
64
163
157
46
203
44
28
72
The following table displays a rollforward of the restructuring liability recorded within the Company’s
Consolidated Balance Sheets and the related cash flow activity:
(in millions)
Balance at January 1, 2020
Delphi Technologies acquisition
Restructuring expense, net
Cash payments
Foreign currency translation adjustment and other
Balance at December 31, 2020
Restructuring expense, net
Cash payments
Foreign currency translation adjustment and other
Balance at December 31, 2021
Less: Non-current restructuring liability
Current restructuring liability at December 31, 2021
Employee
termination
benefits
Other
Total
$
34 $
1 $
73
157
(113)
9
160
99
(128)
(5)
2
46
(22)
(14)
13
64
(61)
(3)
$
$
126 $
13 $
41
2
85 $
11 $
35
75
203
(135)
(5)
173
163
(189)
(8)
139
43
96
In February 2020, the Company announced a restructuring plan to address existing structural costs.
During the years ended December 31, 2021, and 2020, the Company recorded $103 million and $148
million of restructuring charges related to this plan, respectively. Cumulatively, the Company has incurred
$251 million of restructuring charges related to this plan. This plan is expected to result in a total of $300
million of restructuring costs through 2022. Nearly all of the restructuring charges are expected to be
cash expenditures.
In 2019, legacy Delphi Technologies announced a restructuring plan to reshape and realign its global
technical center footprint and reduce salaried and contract staff. The Company continued actions under
this program post-acquisition and has recorded cumulative charges of $62 million since October 1, 2020,
82
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
including approximately $60 million in restructuring charges during the year ended December 31, 2021.
The majority of the actions under this program have been completed.
• During the year ended December 31, 2019, the segment recorded $6 million primarily related to
professional fees for actions to reduce structural costs and severance costs.
Additionally, the Company recorded approximately $54 million in restructuring charges during the three
months ended December 31, 2020, for acquisition-related restructuring charges. In conjunction with the
acquisition,
required severance and post-combination stock-based
compensation cash payments to legacy Delphi Technologies executive officers and other employee
termination benefits.
there were contractually
In April 2019, the Company announced a restructuring plan including several actions to reduce existing
structural costs. These actions were primarily completed by the fourth quarter 2019 and resulted in
approximately $50 million of restructuring expense.
In 2017, the Company initiated actions designed to improve future profitability and competitiveness and
started exploring strategic options for the non-core product lines. As a continuation of these actions, the
Company recorded restructuring expense of $18 million in the year ended December 31, 2019
The following provides details of restructuring expense incurred by the Company’s reporting segments
during the years ended December 31, 2021, 2020 and 2019, related to the plans discussed above:
Air Management
• During the year ended December 31, 2021, the segment recorded $52 million of restructuring
costs, of which $23 million primarily related to a voluntary termination program where
approximately 140 employees accepted termination packages in 2021, $25 million related to
specific actions to reduce structural costs, and $4 million primarily related to severance costs
under the legacy Delphi Technologies plan.
• During the year ended December 31, 2020, the segment recorded $79 million of restructuring
costs, of which $27 million related to a voluntary termination program where approximately 200
employees accepted termination packages in 2020, $33 million related to severance costs and
professional fees for specific actions to reduce structural costs, and $19 million related to
employee termination benefits related to the announced closure of a facility in Europe affecting
approximately 200 employees.
• During the year ended December 31, 2019, the segment recorded $60 million of restructuring
costs, of which $37 million related to a voluntary termination program where approximately 130
employees accepted termination packages in 2019, and $18 million related to actions related to
improving future profitability and competitiveness, which includes professional fees, employee
termination benefits and relocation costs. The segment also recorded $5 million primarily related
to severance costs and professional fees for actions to reduce structural costs.
e-Propulsion & Drivetrain
• During the year ended December 31, 2021, the segment recorded $55 million of restructuring
costs, of which $19 million primarily related to severance costs, equipment relocation and
professional fees to reduce existing structural costs, and $35 million related to contractual
settlements, professional fees and other costs associated with the announced closure of a facility
in Europe.
• During the year ended December 31, 2020, the segment recorded $70 million of restructuring
costs, of which $55 million related to the announced closure of a facility in Europe affecting
approximately 350 employees, primarily for the statutory minimum benefits and incremental one-
time termination benefits negotiated with local labor authorities, and $15 million primarily related to
severance costs, equipment relocation and professional fees to reduce existing structural costs.
Fuel Injection
• During the year ended December 31, 2021, the segment recorded $54 million of restructuring
costs, primarily for the statutory minimum benefits and incremental one-time termination benefits
negotiated with local labor authorities related to the legacy Delphi Technologies restructuring plan.
• During the year ended December 31, 2020, following the Delphi Technologies acquisition, the
segment recorded $8 million of restructuring costs related to the legacy Delphi Technologies
restructuring plan.
Corporate
• During the year ended December 31, 2021, $2 million of net restructuring costs were recorded for
various corporate restructuring actions.
• During the year ended December 31, 2020, $45 million of restructuring costs were recorded
primarily related to contractually required severance and stock-based compensation cash
payments associated with Delphi Technologies executive officers and other employee termination
benefits.
• During the year ended December 31, 2019, $6 million of restructuring costs were recorded for
various corporate restructuring actions.
Estimates of restructuring expense are based on information available at the time such charges are
recorded. Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts
paid for such activities may differ from amounts initially recorded. Accordingly, the Company may record
revisions of previous estimates by adjusting previously established accruals.
The Company continues to evaluate different options across its operations to reduce existing structural
costs over the next few years. The Company will recognize restructuring expense associated with any
future actions at the time they are approved and become probable or are incurred. Any future actions
could result in significant restructuring expense.
NOTE 5
RESEARCH AND DEVELOPMENT COSTS
The Company’s net Research & Development (“R&D”) expenditures are primarily included in Selling,
general and administrative expenses of the Consolidated Statements of Operations. Customer
reimbursements are netted against gross R&D expenditures as they are considered a recovery of cost.
Customer reimbursements for prototypes are recorded net of prototype costs based on customer
contracts, typically either when the prototype is shipped or when it is accepted by the customer.
Customer reimbursements for engineering services are recorded when performance obligations are
satisfied in accordance with the contract. Financial risks and rewards transfer upon shipment, acceptance
of a prototype component by the customer or upon completion of the performance obligation as stated in
the respective customer agreement. The Company has various customer arrangements relating to R&D
activities that it performs at its various R&D locations.
84
85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
including approximately $60 million in restructuring charges during the year ended December 31, 2021.
• During the year ended December 31, 2019, the segment recorded $6 million primarily related to
The majority of the actions under this program have been completed.
professional fees for actions to reduce structural costs and severance costs.
Additionally, the Company recorded approximately $54 million in restructuring charges during the three
months ended December 31, 2020, for acquisition-related restructuring charges. In conjunction with the
acquisition,
there were contractually
required severance and post-combination stock-based
compensation cash payments to legacy Delphi Technologies executive officers and other employee
termination benefits.
Fuel Injection
• During the year ended December 31, 2021, the segment recorded $54 million of restructuring
costs, primarily for the statutory minimum benefits and incremental one-time termination benefits
negotiated with local labor authorities related to the legacy Delphi Technologies restructuring plan.
In April 2019, the Company announced a restructuring plan including several actions to reduce existing
structural costs. These actions were primarily completed by the fourth quarter 2019 and resulted in
approximately $50 million of restructuring expense.
• During the year ended December 31, 2020, following the Delphi Technologies acquisition, the
segment recorded $8 million of restructuring costs related to the legacy Delphi Technologies
restructuring plan.
In 2017, the Company initiated actions designed to improve future profitability and competitiveness and
started exploring strategic options for the non-core product lines. As a continuation of these actions, the
Company recorded restructuring expense of $18 million in the year ended December 31, 2019
The following provides details of restructuring expense incurred by the Company’s reporting segments
during the years ended December 31, 2021, 2020 and 2019, related to the plans discussed above:
Air Management
• During the year ended December 31, 2021, the segment recorded $52 million of restructuring
costs, of which $23 million primarily related to a voluntary termination program where
approximately 140 employees accepted termination packages in 2021, $25 million related to
specific actions to reduce structural costs, and $4 million primarily related to severance costs
under the legacy Delphi Technologies plan.
• During the year ended December 31, 2020, the segment recorded $79 million of restructuring
costs, of which $27 million related to a voluntary termination program where approximately 200
employees accepted termination packages in 2020, $33 million related to severance costs and
professional fees for specific actions to reduce structural costs, and $19 million related to
employee termination benefits related to the announced closure of a facility in Europe affecting
approximately 200 employees.
• During the year ended December 31, 2019, the segment recorded $60 million of restructuring
costs, of which $37 million related to a voluntary termination program where approximately 130
employees accepted termination packages in 2019, and $18 million related to actions related to
improving future profitability and competitiveness, which includes professional fees, employee
termination benefits and relocation costs. The segment also recorded $5 million primarily related
to severance costs and professional fees for actions to reduce structural costs.
e-Propulsion & Drivetrain
• During the year ended December 31, 2021, the segment recorded $55 million of restructuring
costs, of which $19 million primarily related to severance costs, equipment relocation and
professional fees to reduce existing structural costs, and $35 million related to contractual
settlements, professional fees and other costs associated with the announced closure of a facility
in Europe.
• During the year ended December 31, 2020, the segment recorded $70 million of restructuring
costs, of which $55 million related to the announced closure of a facility in Europe affecting
approximately 350 employees, primarily for the statutory minimum benefits and incremental one-
time termination benefits negotiated with local labor authorities, and $15 million primarily related to
severance costs, equipment relocation and professional fees to reduce existing structural costs.
Corporate
• During the year ended December 31, 2021, $2 million of net restructuring costs were recorded for
various corporate restructuring actions.
• During the year ended December 31, 2020, $45 million of restructuring costs were recorded
primarily related to contractually required severance and stock-based compensation cash
payments associated with Delphi Technologies executive officers and other employee termination
benefits.
• During the year ended December 31, 2019, $6 million of restructuring costs were recorded for
various corporate restructuring actions.
Estimates of restructuring expense are based on information available at the time such charges are
recorded. Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts
paid for such activities may differ from amounts initially recorded. Accordingly, the Company may record
revisions of previous estimates by adjusting previously established accruals.
The Company continues to evaluate different options across its operations to reduce existing structural
costs over the next few years. The Company will recognize restructuring expense associated with any
future actions at the time they are approved and become probable or are incurred. Any future actions
could result in significant restructuring expense.
NOTE 5
RESEARCH AND DEVELOPMENT COSTS
The Company’s net Research & Development (“R&D”) expenditures are primarily included in Selling,
general and administrative expenses of the Consolidated Statements of Operations. Customer
reimbursements are netted against gross R&D expenditures as they are considered a recovery of cost.
Customer reimbursements for prototypes are recorded net of prototype costs based on customer
contracts, typically either when the prototype is shipped or when it is accepted by the customer.
Customer reimbursements for engineering services are recorded when performance obligations are
satisfied in accordance with the contract. Financial risks and rewards transfer upon shipment, acceptance
of a prototype component by the customer or upon completion of the performance obligation as stated in
the respective customer agreement. The Company has various customer arrangements relating to R&D
activities that it performs at its various R&D locations.
84
85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents the Company’s gross and net expenditures on R&D activities:
purchase price adjustments related to the sale, the Company recognized an additional loss on sale of $7
(in millions)
Gross R&D expenditures
Customer reimbursements
Net R&D expenditures
Year Ended December 31,
2021
2020
2019
$
$
930 $
(223)
707 $
533 $
(57)
476 $
498
(85)
413
million.
Net R&D expenditures as a percentage of net sales were 4.8%, 4.7% and 4.1% for the years ended
December 31, 2021, 2020 and 2019, respectively. The increase in gross and net R&D expenditures was
primarily due to the Delphi Technologies acquisition.
NOTE 6 OTHER OPERATING EXPENSE (INCOME), NET
Items included in Other operating expense (income), net consist of:
(in millions)
Year Ended December 31,
2021
2020
2019
Asset impairments: During the year ended December 31, 2021, the Company recorded a $14 million
impairment charge on an indefinite-lived trade name in the e-Propulsion & Drivetrain segment. Refer to
Note 12 “Goodwill and Other Intangibles,” to the Consolidated Financial Statement for more information.
During the year ended December 31, 2020, the Company recorded asset impairment charges of $17
million. The impairment charges consist of $9 million in the Air Management segment and $8 million in
the e-Propulsion & Drivetrain segment, related to the write down of property, plant and equipment
associated with the announced closures of two European facilities.
Net gain on insurance recovery: On April 13, 2020, a tornado struck the Company’s facility in Seneca,
South Carolina (the “Seneca Plant”) causing damage to the Company’s assets. The Seneca Plant is one
of the Company’s largest e-Propulsion & Drivetrain plants. During the years ended December 31, 2021
and 2020, the Company recorded a net gain of $3 million and $9 million, respectively, from insurance
recovery proceeds, which primarily represents the amount received for replacement cost in excess of
carrying value (net of deductible expense of $1 million in 2020). In addition, all clean-up and repair costs
incurred through December 31, 2021 have been fully recovered through these insurance proceeds, and
the insurance claim has been fully settled. During the years ended December 31, 2021 and
December 31, 2020, the Company received $22 million and $145 million, respectively, in cash proceeds
from insurance carriers related to this event.
Unfavorable arbitration loss: During the year ended December 31, 2019, the Company recorded $14
million of expense related to the receipt of a final unfavorable arbitration decision associated with the
resolution of a matter related to a previous acquisition.
Merger, acquisition and divestiture expense
$
50 $
96 $
Loss on sales of businesses
Asset impairments
Net gain on insurance recovery for property damage
Intangible asset accelerated amortization (Note 12)
Gain on derecognition of subsidiary (Note 21)
Unfavorable arbitration loss
Other income, net
Other operating expense (income), net
$
29
14
(3)
—
—
—
(9)
81 $
11
7
—
—
—
(177)
14
(2)
—
17
(9)
38
—
—
(4)
138 $
(147)
Merger, acquisition and divestiture expense: During the years ended December 31, 2021, 2020 and
2019, the Company recorded $50 million, $96 million and $11 million of merger, acquisition and
divestiture expenses. The merger, acquisition and divestiture expense incurred during the year ended
December 31, 2021 was primarily related to professional fees associated with the acquisition of AKASOL,
professional fees for integration and other support associated with the Company’s acquisition of Delphi
Technologies and the Company’s strategic acquisition and disposition targets. The merger, acquisition
and divestiture expense in the year ended December 31, 2020 was comprised primarily of professional
fees associated with the Company’s acquisition of Delphi Technologies. The merger, acquisition and
divestiture expense in the year ended December 31, 2019 was comprised primarily of professional fees
related to the Company’s strategic acquisition and disposition activities, including the transfer of
BorgWarner Morse TEC LLC (“Morse TEC”), the future acquisition of Delphi Technologies, the 20%
equity interest in Romeo Systems, Inc. and the divestiture of the non-core pipes and thermostat product
lines.
Loss on sales of businesses: During the year ended December 31, 2021, the Company recorded a
pre-tax loss of $29 million, which included a $22 million loss in connection with the sale of the Company’s
Water Valley facility and a $7 million loss on the sale of an e-Propulsion & Drivetrain technical center in
Europe. Refer to Note 2 “Acquisitions and Dispositions,” to the Consolidated Financial Statements for
more information.
In December 2018, the Company reached an agreement to sell its thermostat product lines for
approximately $28 million. All closing conditions were satisfied, and the sale was closed on April 1, 2019.
Based on an agreement reached in the fourth quarter of 2019 regarding the finalization of certain
86
87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
purchase price adjustments related to the sale, the Company recognized an additional loss on sale of $7
million.
Asset impairments: During the year ended December 31, 2021, the Company recorded a $14 million
impairment charge on an indefinite-lived trade name in the e-Propulsion & Drivetrain segment. Refer to
Note 12 “Goodwill and Other Intangibles,” to the Consolidated Financial Statement for more information.
During the year ended December 31, 2020, the Company recorded asset impairment charges of $17
million. The impairment charges consist of $9 million in the Air Management segment and $8 million in
the e-Propulsion & Drivetrain segment, related to the write down of property, plant and equipment
associated with the announced closures of two European facilities.
Net gain on insurance recovery: On April 13, 2020, a tornado struck the Company’s facility in Seneca,
South Carolina (the “Seneca Plant”) causing damage to the Company’s assets. The Seneca Plant is one
of the Company’s largest e-Propulsion & Drivetrain plants. During the years ended December 31, 2021
and 2020, the Company recorded a net gain of $3 million and $9 million, respectively, from insurance
recovery proceeds, which primarily represents the amount received for replacement cost in excess of
carrying value (net of deductible expense of $1 million in 2020). In addition, all clean-up and repair costs
incurred through December 31, 2021 have been fully recovered through these insurance proceeds, and
the insurance claim has been fully settled. During the years ended December 31, 2021 and
December 31, 2020, the Company received $22 million and $145 million, respectively, in cash proceeds
from insurance carriers related to this event.
Unfavorable arbitration loss: During the year ended December 31, 2019, the Company recorded $14
million of expense related to the receipt of a final unfavorable arbitration decision associated with the
resolution of a matter related to a previous acquisition.
The following table presents the Company’s gross and net expenditures on R&D activities:
(in millions)
Gross R&D expenditures
Customer reimbursements
Net R&D expenditures
Year Ended December 31,
2021
2020
2019
$
$
930 $
(223)
707 $
533 $
(57)
476 $
498
(85)
413
Net R&D expenditures as a percentage of net sales were 4.8%, 4.7% and 4.1% for the years ended
December 31, 2021, 2020 and 2019, respectively. The increase in gross and net R&D expenditures was
primarily due to the Delphi Technologies acquisition.
NOTE 6 OTHER OPERATING EXPENSE (INCOME), NET
Items included in Other operating expense (income), net consist of:
(in millions)
Merger, acquisition and divestiture expense
Loss on sales of businesses
Asset impairments
Net gain on insurance recovery for property damage
Intangible asset accelerated amortization (Note 12)
Gain on derecognition of subsidiary (Note 21)
Unfavorable arbitration loss
Other income, net
Year Ended December 31,
2021
2020
2019
$
50 $
96 $
—
17
38
—
—
(4)
11
7
—
—
—
(177)
14
(2)
(3)
(9)
29
14
—
—
—
(9)
81 $
Other operating expense (income), net
$
138 $
(147)
Merger, acquisition and divestiture expense: During the years ended December 31, 2021, 2020 and
2019, the Company recorded $50 million, $96 million and $11 million of merger, acquisition and
divestiture expenses. The merger, acquisition and divestiture expense incurred during the year ended
December 31, 2021 was primarily related to professional fees associated with the acquisition of AKASOL,
professional fees for integration and other support associated with the Company’s acquisition of Delphi
Technologies and the Company’s strategic acquisition and disposition targets. The merger, acquisition
and divestiture expense in the year ended December 31, 2020 was comprised primarily of professional
fees associated with the Company’s acquisition of Delphi Technologies. The merger, acquisition and
divestiture expense in the year ended December 31, 2019 was comprised primarily of professional fees
related to the Company’s strategic acquisition and disposition activities, including the transfer of
BorgWarner Morse TEC LLC (“Morse TEC”), the future acquisition of Delphi Technologies, the 20%
equity interest in Romeo Systems, Inc. and the divestiture of the non-core pipes and thermostat product
lines.
Loss on sales of businesses: During the year ended December 31, 2021, the Company recorded a
pre-tax loss of $29 million, which included a $22 million loss in connection with the sale of the Company’s
Water Valley facility and a $7 million loss on the sale of an e-Propulsion & Drivetrain technical center in
Europe. Refer to Note 2 “Acquisitions and Dispositions,” to the Consolidated Financial Statements for
more information.
In December 2018, the Company reached an agreement to sell its thermostat product lines for
approximately $28 million. All closing conditions were satisfied, and the sale was closed on April 1, 2019.
Based on an agreement reached in the fourth quarter of 2019 regarding the finalization of certain
86
87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 7
INCOME TAXES
The following table provides a reconciliation of tax expense based on the U.S. statutory tax rate to final
Earnings before income taxes and the provision for income taxes are presented in the following table.
(in millions)
Earnings (loss) before income taxes:
U.S.1
Non-U.S.1
Total
Provision for income taxes:
Current:
Federal
State
Foreign
Total current expense
Deferred:
Federal
State
Foreign
Total deferred (benefit) expense
Total provision for income taxes
Year Ended December 31,
2021
2020
2019
(423) $
437 $
1,212
527
310
955
789 $
964 $
1,265
43 $
19 $
7
276
326
(98)
(13)
(65)
(176)
150 $
2
252
273
70
11
43
124
397 $
32
4
245
281
150
23
14
187
468
$
$
$
$
__________________________
1 In 2021, the U.S. loss before income taxes was primarily related to the $362 million unrealized loss related to the Company’s
investment in Romeo Power, Inc. In 2020, the Company recognized a $382 million unrealized gain related to its investment in
Romeo Power, Inc.
The provision for income taxes resulted in an effective tax rate of approximately 19%, 41% and 37% for
the years ended December 31, 2021, 2020 and 2019, respectively.
tax expense.
(in millions)
Income taxes at U.S. statutory rate of 21%
Increases (decreases) resulting from:
Valuation allowance adjustments, net
Net tax on remittance of foreign earnings
Foreign rate differentials
U.S. tax on non-U.S. earnings
State taxes, net of federal benefit
Derecognition of Morse TEC
Tax credits
Affiliates' earnings
Changes in accounting methods and filing positions
Reserve adjustments, settlements and claims
Impact of tax law and rate change
Tax holidays
Other, net
Research and development super deduction
Year Ended December 31,
2021
2020
2019
$
166 $
203 $
266
39
43
36
12
5
—
(5)
(10)
(18)
(17)
(20)
(76)
(27)
22
53
93
21
11
12
—
(12)
(4)
(18)
45
—
(36)
(9)
38
(2)
22
35
15
3
137
(17)
(7)
(7)
46
—
(26)
(5)
8
468
Provision for income taxes, as reported
$
150 $
397 $
In 2021, the Company recognized a $55 million tax benefit related to a reduction in certain unrecognized
tax benefits and accrued interest for a matter in which the statute of limitations had lapsed. The Company
also recognized a discrete tax benefit of $20 million related to an increase in its deferred tax assets as a
result of an increase in the United Kingdom (“UK”) tax rate from 19% to 25%. This rate change was
enacted in June 2021 and is effective April 2023. Further, a net discrete tax benefit of $36 million was
recognized, primarily related to changes to certain withholding rates applied to unremitted earnings. In
the fourth quarter of 2021, the Company received approval for tax holiday status reducing the statutory
tax rate for two of its legal entities. This resulted in a reduction in tax expense of $28 million in 2021.
In 2020, the Company recognized $49 million of income tax expense, which primarily related to final U.S.
Department of Treasury regulations issued in the third quarter of 2020, which impacted the net tax on
remittance of foreign earnings, and certain tax law changes in India effective in the first quarter of 2020.
In addition, the Company recognized incremental valuation allowances of $53 million in 2020.
In 2019, the Company recognized an increase in income tax expense of $173 million related to the
derecognition of the Morse TEC asbestos-related deferred tax assets and $22 million due to the U.S.
Department of the Treasury’s issuance of the final regulations in the first quarter of 2019 related to the
calculation of the one-time transition tax. The 2019 effective tax rate also included reductions of income
tax expense of $19 million related to restructuring expense, $11 million for a global realignment plan, $8
million related to other one-time adjustments and $6 million related to pension settlement loss.
88
89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table provides a reconciliation of tax expense based on the U.S. statutory tax rate to final
tax expense.
Earnings before income taxes and the provision for income taxes are presented in the following table.
$
$
$
Year Ended December 31,
2021
2020
2019
(423) $
437 $
1,212
527
310
955
789 $
964 $
1,265
43 $
19 $
7
276
326
(98)
(13)
(65)
(176)
150 $
2
252
273
70
11
43
124
$
397 $
32
4
245
281
150
23
14
187
468
(in millions)
Income taxes at U.S. statutory rate of 21%
Increases (decreases) resulting from:
Valuation allowance adjustments, net
Net tax on remittance of foreign earnings
Foreign rate differentials
U.S. tax on non-U.S. earnings
State taxes, net of federal benefit
Derecognition of Morse TEC
Tax credits
Affiliates' earnings
Changes in accounting methods and filing positions
Reserve adjustments, settlements and claims
Impact of tax law and rate change
Tax holidays
Research and development super deduction
Other, net
NOTE 7
INCOME TAXES
Earnings (loss) before income taxes:
(in millions)
U.S.1
Non-U.S.1
Total
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Provision for income taxes:
Total current expense
Total deferred (benefit) expense
Total provision for income taxes
__________________________
Romeo Power, Inc.
The provision for income taxes resulted in an effective tax rate of approximately 19%, 41% and 37% for
the years ended December 31, 2021, 2020 and 2019, respectively.
Year Ended December 31,
2021
2020
2019
$
166 $
203 $
266
39
43
36
12
5
—
(5)
(10)
(18)
(17)
(20)
(76)
(27)
22
53
93
21
11
12
—
(12)
(4)
(18)
45
—
(36)
(9)
38
(2)
22
35
15
3
137
(17)
(7)
(7)
46
—
(26)
(5)
8
468
1 In 2021, the U.S. loss before income taxes was primarily related to the $362 million unrealized loss related to the Company’s
investment in Romeo Power, Inc. In 2020, the Company recognized a $382 million unrealized gain related to its investment in
Provision for income taxes, as reported
$
150 $
397 $
In 2021, the Company recognized a $55 million tax benefit related to a reduction in certain unrecognized
tax benefits and accrued interest for a matter in which the statute of limitations had lapsed. The Company
also recognized a discrete tax benefit of $20 million related to an increase in its deferred tax assets as a
result of an increase in the United Kingdom (“UK”) tax rate from 19% to 25%. This rate change was
enacted in June 2021 and is effective April 2023. Further, a net discrete tax benefit of $36 million was
recognized, primarily related to changes to certain withholding rates applied to unremitted earnings. In
the fourth quarter of 2021, the Company received approval for tax holiday status reducing the statutory
tax rate for two of its legal entities. This resulted in a reduction in tax expense of $28 million in 2021.
In 2020, the Company recognized $49 million of income tax expense, which primarily related to final U.S.
Department of Treasury regulations issued in the third quarter of 2020, which impacted the net tax on
remittance of foreign earnings, and certain tax law changes in India effective in the first quarter of 2020.
In addition, the Company recognized incremental valuation allowances of $53 million in 2020.
In 2019, the Company recognized an increase in income tax expense of $173 million related to the
derecognition of the Morse TEC asbestos-related deferred tax assets and $22 million due to the U.S.
Department of the Treasury’s issuance of the final regulations in the first quarter of 2019 related to the
calculation of the one-time transition tax. The 2019 effective tax rate also included reductions of income
tax expense of $19 million related to restructuring expense, $11 million for a global realignment plan, $8
million related to other one-time adjustments and $6 million related to pension settlement loss.
88
89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A roll forward of the Company’s total gross unrecognized tax benefits is presented below:
The components of deferred tax assets and liabilities consist of the following:
(in millions)
Balance, January 1
Additions based on tax positions related to current year
Acquisitions
Additions for tax positions of prior years
Reductions for lapse in statute of limitations
Translation adjustment
Balance, December 31
2021
2020
2019
$
231 $
146 $
120
23
8
—
(36)
(5)
14
54
9
(5)
13
7
—
26
(6)
(1)
$
221 $
231 $
146
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax
expense. For the years ended December 31, 2021, 2020 and 2019, the Company recognized $16 million,
$21 million and $15 million, respectively. In addition, the Company recorded a reduction in tax expense of
$34 million for previously recorded interest. The Company has an accrual of approximately $51 million
and $69 million for the payment of interest and penalties at December 31, 2021 and 2020, respectively.
As of December 31, 2021, approximately $242 million represents the amount that, if recognized, would
affect the Company's effective income tax rate in future periods. This amount includes a decrease in
U.S. federal income taxes that would occur upon recognition of the state tax benefits and U.S. foreign tax
credits included therein. The Company estimates that it is reasonably possible there could be a decrease
of approximately $21 million in unrecognized tax benefits and interest in the next 12 months related to the
closure of an audit and the lapse in statute of limitations subsequent to the reporting period from certain
taxing jurisdictions.
The Company and/or one of its subsidiaries files income tax returns in the U.S. federal, various state
jurisdictions and various foreign jurisdictions. In certain tax jurisdictions, the Company may have more
than one taxpayer. The Company is no longer subject to income tax examinations by tax authorities in its
major tax jurisdictions as follows:
Tax jurisdiction
U.S. Federal
Barbados
China
France
Germany
Hungary
Years no longer subject to audit
Tax jurisdiction
Years no longer subject to audit
2013 and prior
Japan
2016 and prior
Luxembourg
2015 and prior
2015 and prior
Mexico
Poland
2011 and prior
South Korea
2015 and prior
United Kingdom
2018 and prior
2016 and prior
2015 and prior
2016 and prior
2016 and prior
2015 and prior
In the U.S., certain tax attributes created in years prior to 2017 were subsequently utilized. Even though
the U.S. federal statute of limitations may have expired for years prior to 2017, the years in which these
tax attributes were created could still be subject to examination, limited to only the examination of the
creation of the tax attribute.
(in millions)
Deferred tax assets:
Interest limitation carryforwards
Research and development capitalization
Employee compensation
Pension and other postretirement benefits
Other comprehensive loss
Unrecognized tax benefits
Warranty
State tax credits
Foreign tax credits
Other
Total deferred tax assets
Valuation allowance
Net deferred tax asset
Deferred tax liabilities:
Goodwill and intangible assets
Unremitted foreign earnings
Fixed assets
Other
Unrealized gain on equity securities
Total deferred tax liabilities
Net deferred taxes
Net operating loss and capital loss carryforwards
$
634 $
December 31,
2021
2020
123
91
44
41
39
32
31
28
8
167
1,238 $
(554)
684 $
(274)
(146)
(123)
(5)
(88)
(636) $
48 $
656
111
106
57
39
93
47
27
28
16
161
1,341
(529)
812
(279)
(156)
(176)
(91)
(95)
(797)
15
$
$
$
$
At December 31, 2021, certain non-U.S. subsidiaries have net operating loss carryforwards totaling $2.4
billion available to offset future taxable income. Of the total $2.4 billion, $1.5 billion expire at various dates
from 2022 through 2041, and the remaining $870 million have no expiration date. The Company has a
valuation allowance recorded of $474 million against the $2.4 billion of non-U.S. net operating loss
carryforwards. Certain U.S. subsidiaries have state net operating loss carryforwards totaling $619 million,
of which the Company has a valuation allowance of $16 million recorded against the carryforwards. The
state net operating loss carryforwards expire at various dates from 2022 to 2041. Certain U.S.
subsidiaries also have state tax credit carryforwards of $28 million, which are offset by a valuation
allowance of $28 million. Certain non-U.S. subsidiaries located in China had tax exemptions or tax
holidays, which reduced local tax expense approximately $76 million and $36 million in 2021 and 2020,
respectively. The tax holidays for these subsidiaries are issued in three-year terms with expirations for
certain subsidiaries ranging from 2021 to 2023.
The Company reviews the likelihood that the benefit of its deferred tax assets will be realized and,
therefore, the need for valuation allowances on a quarterly basis. The Company assesses existing
deferred tax assets, net operating loss carryforwards, and tax credit carryforwards by jurisdiction and
expectations of its ability to utilize these tax attributes through a review of past, current, and estimated
future taxable income and tax planning strategies. If, based upon the weight of available evidence, it is
more likely than not the deferred tax assets will not be realized, a valuation allowance is recorded. Due to
recent restructurings, the Company concluded that the weight of the negative evidence outweighs the
positive evidence in certain foreign jurisdictions. As a result, the Company believes it is more likely than
90
91
(in millions)
Balance, January 1
Acquisitions
Additions based on tax positions related to current year
Additions for tax positions of prior years
Reductions for lapse in statute of limitations
Translation adjustment
Balance, December 31
2021
2020
2019
$
231 $
146 $
120
23
8
—
(36)
(5)
14
54
9
(5)
13
7
—
26
(6)
(1)
$
221 $
231 $
146
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax
expense. For the years ended December 31, 2021, 2020 and 2019, the Company recognized $16 million,
$21 million and $15 million, respectively. In addition, the Company recorded a reduction in tax expense of
$34 million for previously recorded interest. The Company has an accrual of approximately $51 million
and $69 million for the payment of interest and penalties at December 31, 2021 and 2020, respectively.
As of December 31, 2021, approximately $242 million represents the amount that, if recognized, would
affect the Company's effective income tax rate in future periods. This amount includes a decrease in
U.S. federal income taxes that would occur upon recognition of the state tax benefits and U.S. foreign tax
credits included therein. The Company estimates that it is reasonably possible there could be a decrease
of approximately $21 million in unrecognized tax benefits and interest in the next 12 months related to the
closure of an audit and the lapse in statute of limitations subsequent to the reporting period from certain
taxing jurisdictions.
The Company and/or one of its subsidiaries files income tax returns in the U.S. federal, various state
jurisdictions and various foreign jurisdictions. In certain tax jurisdictions, the Company may have more
than one taxpayer. The Company is no longer subject to income tax examinations by tax authorities in its
major tax jurisdictions as follows:
Years no longer subject to audit
Tax jurisdiction
Years no longer subject to audit
Tax jurisdiction
U.S. Federal
Barbados
China
France
Germany
Hungary
2013 and prior
Japan
2016 and prior
Luxembourg
2015 and prior
2015 and prior
Mexico
Poland
2011 and prior
South Korea
2015 and prior
United Kingdom
2018 and prior
2016 and prior
2015 and prior
2016 and prior
2016 and prior
2015 and prior
In the U.S., certain tax attributes created in years prior to 2017 were subsequently utilized. Even though
the U.S. federal statute of limitations may have expired for years prior to 2017, the years in which these
tax attributes were created could still be subject to examination, limited to only the examination of the
creation of the tax attribute.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A roll forward of the Company’s total gross unrecognized tax benefits is presented below:
The components of deferred tax assets and liabilities consist of the following:
(in millions)
Deferred tax assets:
December 31,
2021
2020
Net operating loss and capital loss carryforwards
$
634 $
Interest limitation carryforwards
Research and development capitalization
Employee compensation
Pension and other postretirement benefits
Other comprehensive loss
Unrecognized tax benefits
Warranty
State tax credits
Foreign tax credits
Other
Total deferred tax assets
Valuation allowance
Net deferred tax asset
Deferred tax liabilities:
Goodwill and intangible assets
Unremitted foreign earnings
Fixed assets
Unrealized gain on equity securities
Other
Total deferred tax liabilities
Net deferred taxes
123
91
44
41
39
32
31
28
8
167
1,238 $
(554)
684 $
(274)
(146)
(123)
(5)
(88)
(636) $
48 $
$
$
$
$
656
111
57
39
93
106
47
27
28
16
161
1,341
(529)
812
(279)
(156)
(176)
(91)
(95)
(797)
15
At December 31, 2021, certain non-U.S. subsidiaries have net operating loss carryforwards totaling $2.4
billion available to offset future taxable income. Of the total $2.4 billion, $1.5 billion expire at various dates
from 2022 through 2041, and the remaining $870 million have no expiration date. The Company has a
valuation allowance recorded of $474 million against the $2.4 billion of non-U.S. net operating loss
carryforwards. Certain U.S. subsidiaries have state net operating loss carryforwards totaling $619 million,
of which the Company has a valuation allowance of $16 million recorded against the carryforwards. The
state net operating loss carryforwards expire at various dates from 2022 to 2041. Certain U.S.
subsidiaries also have state tax credit carryforwards of $28 million, which are offset by a valuation
allowance of $28 million. Certain non-U.S. subsidiaries located in China had tax exemptions or tax
holidays, which reduced local tax expense approximately $76 million and $36 million in 2021 and 2020,
respectively. The tax holidays for these subsidiaries are issued in three-year terms with expirations for
certain subsidiaries ranging from 2021 to 2023.
The Company reviews the likelihood that the benefit of its deferred tax assets will be realized and,
therefore, the need for valuation allowances on a quarterly basis. The Company assesses existing
deferred tax assets, net operating loss carryforwards, and tax credit carryforwards by jurisdiction and
expectations of its ability to utilize these tax attributes through a review of past, current, and estimated
future taxable income and tax planning strategies. If, based upon the weight of available evidence, it is
more likely than not the deferred tax assets will not be realized, a valuation allowance is recorded. Due to
recent restructurings, the Company concluded that the weight of the negative evidence outweighs the
positive evidence in certain foreign jurisdictions. As a result, the Company believes it is more likely than
90
91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
not that the net deferred tax assets in certain foreign jurisdictions that include entities in Luxembourg,
Sweden, Hungary, France, Ireland and the U.K. will not be realized in the future.
NOTE 9
INVENTORIES, NET
As of December 31, 2021, the Company recorded deferred tax liabilities of $146 million with respect to
foreign unremitted earnings. The Company did not provide deferred tax liabilities with respect to certain
book versus tax basis differences not represented by undistributed earnings of approximately $1.1 billion
as of December 31, 2021, because the Company continues to assert indefinite reinvestment of these
basis differences. These basis differences would become taxable upon the sale or liquidation of the
foreign subsidiaries. The Company’s best estimate of the unrecognized deferred tax liability on these
basis differences is approximately $70 million as of December 31, 2021.
NOTE 8 RECEIVABLES, NET
(in millions)
Raw material and supplies
Work-in-progress
Finished goods
FIFO inventories
LIFO reserve
Inventories, net
A summary of Inventories, net is presented below:
The table below provides details of receivables as of December 31, 2021 and 2020:
NOTE 10 OTHER CURRENT AND NON-CURRENT ASSETS
(in millions)
Receivables, net:
Customers
Indirect taxes
Other
Gross receivables
Allowance for credit losses
Total receivables, net
December 31,
2021
2020
Additional detail related to assets is presented below:
$
2,522 $
2,636
(in millions)
240
149
2,911
(13)
$
2,898 $
177
117
2,930
(11)
2,919
The table below summarizes the activity in the allowance for credit losses for the years ended
December 31, 2021, 2020 and 2019:
Total prepayments and other current assets
321 $
312
(in millions)
Beginning balance, January 1
Provision
Write-offs
Translation adjustment and other
Ending balance, December 31
Factoring
Year Ended December 31,
2021
2020
2019
$
(11) $
(3)
—
1
(6) $
(11)
7
(1)
$
(13) $
(11) $
(7)
(1)
2
—
(6)
The Company assumed arrangements entered into by Delphi Technologies with various financial
institutions to sell eligible trade receivables from certain Aftermarket customers in North America and
Europe. These arrangements can be terminated at any time subject to prior written notice. The
receivables under these arrangements are sold without recourse to the Company and are therefore
accounted for as true sales. During the year ended December 31, 2021 and fourth quarter ended
December 31, 2020, $156 million and $41 million of receivables were sold under these arrangements,
and expenses of $3 million and $1 million, respectively, were recognized within interest expense.
December 31,
2021
2020
$
1,057 $
175
327
1,559
(25)
827
150
324
1,301
(15)
$
1,534 $
1,286
December 31,
2021
2020
$
81 $
64
36
27
17
96
298 $
130
102
530 $
254 $
185
137
107
$
$
$
$
$
683 $
84
64
43
33
16
72
297
472
51
820
291
211
166
60
728
Prepayments and other current assets:
Customer incentive payments (Note 3)
Prepaid tooling
Prepaid taxes
Prepaid engineering
Contract assets (Note 3)
Other
Investments and long-term receivables:
Investment in equity affiliates
Equity securities
Long-term receivables
Total investments and long-term receivables
Other non-current assets:
Deferred income taxes (Note 7)
Operating leases (Note 22)
Customer incentive payments (Note 3)
Other
Total other non-current assets
92
93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
not that the net deferred tax assets in certain foreign jurisdictions that include entities in Luxembourg,
NOTE 9
INVENTORIES, NET
Sweden, Hungary, France, Ireland and the U.K. will not be realized in the future.
A summary of Inventories, net is presented below:
As of December 31, 2021, the Company recorded deferred tax liabilities of $146 million with respect to
foreign unremitted earnings. The Company did not provide deferred tax liabilities with respect to certain
book versus tax basis differences not represented by undistributed earnings of approximately $1.1 billion
as of December 31, 2021, because the Company continues to assert indefinite reinvestment of these
basis differences. These basis differences would become taxable upon the sale or liquidation of the
foreign subsidiaries. The Company’s best estimate of the unrecognized deferred tax liability on these
basis differences is approximately $70 million as of December 31, 2021.
NOTE 8 RECEIVABLES, NET
(in millions)
Receivables, net:
Customers
Indirect taxes
Other
Gross receivables
Allowance for credit losses
Total receivables, net
(in millions)
Beginning balance, January 1
Provision
Write-offs
Translation adjustment and other
Ending balance, December 31
Factoring
(in millions)
Raw material and supplies
Work-in-progress
Finished goods
FIFO inventories
LIFO reserve
Inventories, net
The table below provides details of receivables as of December 31, 2021 and 2020:
NOTE 10 OTHER CURRENT AND NON-CURRENT ASSETS
December 31,
2021
2020
Additional detail related to assets is presented below:
$
2,522 $
2,636
(in millions)
240
149
2,911
(13)
$
2,898 $
177
117
2,930
(11)
2,919
Year Ended December 31,
2021
2020
2019
$
(11) $
(3)
—
1
(6) $
(11)
7
(1)
$
(13) $
(11) $
(7)
(1)
2
—
(6)
Prepayments and other current assets:
Prepaid tooling
Prepaid taxes
Customer incentive payments (Note 3)
Prepaid engineering
Contract assets (Note 3)
Other
Total prepayments and other current assets
Investments and long-term receivables:
Investment in equity affiliates
Equity securities
Long-term receivables
Total investments and long-term receivables
Other non-current assets:
Deferred income taxes (Note 7)
Operating leases (Note 22)
Customer incentive payments (Note 3)
Other
Total other non-current assets
The table below summarizes the activity in the allowance for credit losses for the years ended
December 31, 2021, 2020 and 2019:
The Company assumed arrangements entered into by Delphi Technologies with various financial
institutions to sell eligible trade receivables from certain Aftermarket customers in North America and
Europe. These arrangements can be terminated at any time subject to prior written notice. The
receivables under these arrangements are sold without recourse to the Company and are therefore
accounted for as true sales. During the year ended December 31, 2021 and fourth quarter ended
December 31, 2020, $156 million and $41 million of receivables were sold under these arrangements,
and expenses of $3 million and $1 million, respectively, were recognized within interest expense.
92
93
December 31,
2021
2020
$
1,057 $
175
327
1,559
(25)
827
150
324
1,301
(15)
$
1,534 $
1,286
December 31,
2021
2020
$
81 $
64
36
27
17
96
84
64
43
33
16
72
321 $
312
$
$
$
$
298 $
130
102
530 $
254 $
185
137
107
297
472
51
820
291
211
166
60
728
$
683 $
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 11 PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net is stated at cost less accumulated depreciation and amortization, and
consisted of:
(in millions)
Land, land use rights and buildings
Machinery and equipment
Finance lease assets
Construction in progress
Total property, plant and equipment, gross
Less: accumulated depreciation
Property, plant and equipment, net, excluding tooling
Tooling, net of amortization
Property, plant and equipment, net
December 31,
2021
2020
$
1,358 $
4,462
13
471
6,304
2,222
4,082
313
$
4,395 $
1,375
4,333
13
432
6,153
1,925
4,228
363
4,591
Interest costs capitalized for the years ended December 31, 2021, 2020 and 2019 were $12 million, $8
million and $16 million, respectively.
NOTE 12 GOODWILL AND OTHER INTANGIBLES
During the fourth quarter of 2021, the Company performed an analysis on each reporting unit. Given the
macroeconomic environment, the Company performed quantitative goodwill impairment analyses for the
majority of reporting units to refresh their respective fair values. This requires the Company to make
significant assumptions and estimates about the extent and timing of future cash flows, discount rates
and growth rates. The basis of this goodwill impairment analysis is the Company’s annual budget and
long-range plan (“LRP”). The annual budget and LRP includes a five-year projection of future cash flows
based on actual new products and customer commitments. Because the projections are estimated over a
significant future period of time, those estimates and assumptions are subject to uncertainty. Further, the
market valuation models and other financial ratios used by the Company require certain assumptions and
estimates regarding the applicability of those models to the Company’s facts and circumstances.
The Company believes the assumptions and estimates used to determine the estimated fair value are
reasonable. Different assumptions could materially affect the estimated fair value. The primary
assumptions affecting the Company’s 2021 goodwill quantitative impairment review are as follows:
• Discount rates: the Company used a range of 12.4% to 13.6% weighted average cost of capital
(“WACC”) as the discount rates for future cash flows. The WACC is intended to represent a rate
of return that would be expected by a market participant.
• Operating income margin: the Company used historical and expected operating income
margins, which may vary based on the projections of the reporting unit being evaluated.
• Revenue growth rate: the Company used a global automotive market industry growth rate
forecast adjusted to estimate its own market participation for product lines.
In addition to the above primary assumptions, the Company notes the following risks to volume and
operating income assumptions that could have an impact on the discounted cash flow models:
•
•
•
•
The automotive industry is cyclical, and the Company’s results of operations would be adversely
affected by industry downturns.
The automotive industry is evolving, and if the Company does not respond appropriately, its
results of operations would be adversely affected.
The Company is dependent on market segments that use its key products and would be affected
by decreasing demand in those segments.
The Company is subject to risks related to international operations.
Based on the assumptions outlined above, the impairment testing conducted in the fourth quarter of 2021
indicated the Company’s goodwill assigned to the respective reporting units was not impaired. 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. Due to the
Company’s recent acquisitions, there is less headroom (the difference between the carrying value and
the fair value) associated with several of the Company’s reporting units. An increase in discount rates, a
reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated
fair values, which may result in impairment charges that could materially affect the Company’s financial
statements in any given year.
A summary of the changes in the carrying amount of goodwill is as follows:
(in millions)
Gross goodwill balance, January 1
Accumulated impairment losses, January 1
Net goodwill balance, January 1
Goodwill during the year:
Acquisitions1 (Note 2)
Measurement period adjustments (Note 2)
Disposition2 (Note 2)
Other, primarily translation adjustment
Net goodwill balance, December 31
(in millions)
Gross goodwill balance, January 1
Accumulated impairment losses, January 1
Net goodwill balance, January 1
Goodwill during the year:
Acquisitions1 (Note 2)
Other, primarily translation adjustment
Net goodwill balance, December 31
_____________________________
$
$
$
$
Air
Management
e-Propulsion
& Drivetrain
Aftermarket
Total
1,517 $
1,313 $
299 $
3,129
(502)
—
—
(502)
1,015 $
1,313 $
299 $
2,627
707
(4)
—
(51)
—
16
—
(4)
707
41
(12)
(84)
$
1,667 $
1,301 $
311 $
3,279
2021
—
29
(12)
(29)
2020
Air
Management
e-Propulsion
& Drivetrain
Aftermarket
Total
1,337 $
1,007 $
— $
2,344
(502)
—
—
(502)
835 $
1,007 $
— $
1,842
151
29
272
34
287
12
710
75
$
1,015 $
1,313 $
299 $
2,627
1 Acquisitions relate to the Company’s 2021 purchase of AKASOL and 2020 purchase of Delphi Technologies.
2 Disposition relates to the Company’s 2021 sale of Water Valley.
94
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 11 PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net is stated at cost less accumulated depreciation and amortization, and
In addition to the above primary assumptions, the Company notes the following risks to volume and
operating income assumptions that could have an impact on the discounted cash flow models:
consisted of:
(in millions)
Land, land use rights and buildings
Machinery and equipment
Finance lease assets
Construction in progress
Total property, plant and equipment, gross
Less: accumulated depreciation
Property, plant and equipment, net, excluding tooling
Tooling, net of amortization
Property, plant and equipment, net
December 31,
2021
2020
$
1,358 $
4,462
13
471
6,304
2,222
4,082
313
$
4,395 $
1,375
4,333
13
432
6,153
1,925
4,228
363
4,591
Interest costs capitalized for the years ended December 31, 2021, 2020 and 2019 were $12 million, $8
million and $16 million, respectively.
NOTE 12 GOODWILL AND OTHER INTANGIBLES
During the fourth quarter of 2021, the Company performed an analysis on each reporting unit. Given the
macroeconomic environment, the Company performed quantitative goodwill impairment analyses for the
majority of reporting units to refresh their respective fair values. This requires the Company to make
significant assumptions and estimates about the extent and timing of future cash flows, discount rates
and growth rates. The basis of this goodwill impairment analysis is the Company’s annual budget and
long-range plan (“LRP”). The annual budget and LRP includes a five-year projection of future cash flows
based on actual new products and customer commitments. Because the projections are estimated over a
significant future period of time, those estimates and assumptions are subject to uncertainty. Further, the
market valuation models and other financial ratios used by the Company require certain assumptions and
estimates regarding the applicability of those models to the Company’s facts and circumstances.
The Company believes the assumptions and estimates used to determine the estimated fair value are
reasonable. Different assumptions could materially affect the estimated fair value. The primary
assumptions affecting the Company’s 2021 goodwill quantitative impairment review are as follows:
• Discount rates: the Company used a range of 12.4% to 13.6% weighted average cost of capital
(“WACC”) as the discount rates for future cash flows. The WACC is intended to represent a rate
of return that would be expected by a market participant.
• Operating income margin: the Company used historical and expected operating income
margins, which may vary based on the projections of the reporting unit being evaluated.
•
•
•
•
The automotive industry is cyclical, and the Company’s results of operations would be adversely
affected by industry downturns.
The automotive industry is evolving, and if the Company does not respond appropriately, its
results of operations would be adversely affected.
The Company is dependent on market segments that use its key products and would be affected
by decreasing demand in those segments.
The Company is subject to risks related to international operations.
Based on the assumptions outlined above, the impairment testing conducted in the fourth quarter of 2021
indicated the Company’s goodwill assigned to the respective reporting units was not impaired. 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. Due to the
Company’s recent acquisitions, there is less headroom (the difference between the carrying value and
the fair value) associated with several of the Company’s reporting units. An increase in discount rates, a
reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated
fair values, which may result in impairment charges that could materially affect the Company’s financial
statements in any given year.
A summary of the changes in the carrying amount of goodwill is as follows:
(in millions)
Gross goodwill balance, January 1
Accumulated impairment losses, January 1
Net goodwill balance, January 1
Goodwill during the year:
Acquisitions1 (Note 2)
Measurement period adjustments (Note 2)
Disposition2 (Note 2)
Other, primarily translation adjustment
Net goodwill balance, December 31
(in millions)
Gross goodwill balance, January 1
Accumulated impairment losses, January 1
Net goodwill balance, January 1
Goodwill during the year:
Acquisitions1 (Note 2)
Other, primarily translation adjustment
Net goodwill balance, December 31
2021
Air
Management
e-Propulsion
& Drivetrain
Aftermarket
Total
$
$
1,517 $
1,313 $
299 $
3,129
(502)
—
—
(502)
1,015 $
1,313 $
299 $
2,627
707
(4)
—
(51)
—
29
(12)
(29)
—
16
—
(4)
707
41
(12)
(84)
$
1,667 $
1,301 $
311 $
3,279
2020
Air
Management
e-Propulsion
& Drivetrain
Aftermarket
Total
$
$
1,337 $
1,007 $
— $
2,344
(502)
—
—
(502)
835 $
1,007 $
— $
1,842
151
29
272
34
287
12
710
75
$
1,015 $
1,313 $
299 $
2,627
• Revenue growth rate: the Company used a global automotive market industry growth rate
forecast adjusted to estimate its own market participation for product lines.
_____________________________
1 Acquisitions relate to the Company’s 2021 purchase of AKASOL and 2020 purchase of Delphi Technologies.
2 Disposition relates to the Company’s 2021 sale of Water Valley.
94
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company’s other intangible assets, primarily from acquisitions, consist of the following:
NOTE 13 PRODUCT WARRANTY
(in millions)
Amortized intangible assets:
Patented and unpatented
technology
Customer relationships
Miscellaneous
Total amortized intangible assets
Unamortized trade names
December 31, 2021
December 31, 2020
Estimated
useful lives
(years)
Gross
carrying
amount
Accumulated
amortization
Net
carrying
amount
Gross
carrying
amount
Accumulated
amortization
Net
carrying
amount
5 - 15
7 - 15
2 - 13
$
443 $
105 $
338 $
383 $
77 $
877
14
1,334
179
310
7
422
—
567
7
912
179
893
10
1,286
166
272
7
356
—
306
621
3
930
166
Total other intangible assets
$
1,513 $
422 $
1,091 $
1,452 $
356 $
1,096
Amortization of other intangible assets was $88 million, $89 million and $39 million for the years ended
December 31, 2021, 2020 and 2019, respectively. Amortization for the year ended December 31, 2020
includes $38 million related to accelerated amortization for certain intangibles, discussed further below.
The Company utilizes the straight-line method of amortization recognized over the estimated useful lives
of the assets. The estimated future annual amortization expense, primarily for acquired intangible assets,
is as follows: $94 million in 2022, $87 million in 2023, $86 million in 2024, $85 million in 2025, $77 million
in 2026 and $483 million thereafter.
A roll forward of the gross carrying amounts and related accumulated amortization of the Company’s
other intangible assets is presented below:
(in millions)
Beginning balance, January 1
Acquisitions1 (Note 2)
Impairment/Abandonment2
Amortization2
Translation adjustment
Ending balance, December 31
Gross carrying amounts
Accumulated amortization
2021
2020
2021
2020
$
1,452 $
700 $
356 $
130
(14)
—
(55)
760
(56)
—
48
$
1,513 $
1,452 $
—
—
88
(22)
422 $
298
—
(56)
89
25
356
_____________________________
1 Acquisitions relate to the Company’s 2021 purchase of AKASOL and 2020 purchase of Delphi Technologies
2 In 2021, the Company performed a quantitative impairment test over its indefinite-lived trade names, which indicated that for
one trade name the fair value was less than the carrying value. Therefore, the Company recorded an impairment charge to
reduce the carrying value to the fair value. In 2020, as a result of an evaluation of the underlying technologies and
management of the business subsequent to the acquisition of Delphi Technologies, the Company reduced the useful life of
certain intangible assets during the fourth quarter of 2020 as they no longer provided future economic benefit. This resulted in
accelerated amortization expense of $38 million and the removal of the related gross carrying amount and accumulated
amortization of these assets.
The following table summarizes the activity in the product warranty accrual accounts:
(in millions)
Beginning balance, January 1
Acquisitions/dispositions
Provisions for current period sales
Adjustments of prior estimates1
Payments1
Other, primarily translation adjustment
Ending balance, December 31
_____________________________
(in millions)
Other current liabilities
Other non-current liabilities
Total product warranty liability
1 In December 2021, the Company settled and paid a warranty claim for $130 million. This resulted in an adjustment to prior
estimates of $124 million during the year ended December 31, 2021. Refer to Note 21, “Contingencies,” to the Consolidated
Financial Statements for more information.
The product warranty liability is classified in the Consolidated Balance Sheets as follows:
NOTE 14 NOTES PAYABLE AND DEBT
The Company had short-term and long-term debt outstanding as follows:
(in millions)
Short-term debt
Short-term borrowings
Long-term debt
1.800% Senior notes due 11/07/22 (€500 million par value)
3.375% Senior notes due 03/15/25 ($500 million par value)
5.000% Senior notes due 10/01/25 ($800 million par value)1
2.650% Senior notes due 07/01/27 ($1,100 million par value)
7.125% Senior notes due 02/15/29 ($121 million par value)
1.000% Senior notes due 05/19/31 (€1,000 million par value)
4.375% Senior notes due 03/15/45 ($500 million par value)
Term loan facilities, finance leases and other
Total long-term debt
Less: current portion
Long-term debt, net of current portion
_____________________________
2021
2020
$
253 $
4
83
142
(240)
(6)
$
236 $
116
110
83
22
(86)
8
253
December 31,
2021
2020
$
$
128 $
108
236 $
164
89
253
December 31,
2021
2020
$
62 $
45
—
498
889
1,092
119
1,117
494
56
4,265
4
1,088
609
498
912
119
—
494
22
3,742
4
3,738
$
4,261 $
96
97
1 These notes are reflected at their fair value as of the date of the acquisition. The fair value step-up was calculated 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company’s other intangible assets, primarily from acquisitions, consist of the following:
NOTE 13 PRODUCT WARRANTY
The following table summarizes the activity in the product warranty accrual accounts:
(in millions)
Beginning balance, January 1
Acquisitions/dispositions
Provisions for current period sales
Adjustments of prior estimates1
Payments1
Other, primarily translation adjustment
Ending balance, December 31
2021
2020
$
253 $
4
83
142
(240)
(6)
$
236 $
116
110
83
22
(86)
8
253
_____________________________
1 In December 2021, the Company settled and paid a warranty claim for $130 million. This resulted in an adjustment to prior
estimates of $124 million during the year ended December 31, 2021. Refer to Note 21, “Contingencies,” to the Consolidated
Financial Statements for more information.
The product warranty liability is classified in the Consolidated Balance Sheets as follows:
December 31, 2021
December 31, 2020
Estimated
useful lives
(years)
Gross
carrying
amount
Accumulated
amortization
Net
carrying
amount
Gross
carrying
amount
Accumulated
amortization
Net
carrying
amount
(in millions)
Amortized intangible assets:
Patented and unpatented
technology
Customer relationships
Miscellaneous
Total amortized intangible assets
Unamortized trade names
5 - 15
7 - 15
2 - 13
$
443 $
105 $
338 $
383 $
77 $
877
14
1,334
179
310
7
422
—
567
7
912
179
893
10
1,286
166
272
7
356
—
306
621
3
930
166
Total other intangible assets
$
1,513 $
422 $
1,091 $
1,452 $
356 $
1,096
Amortization of other intangible assets was $88 million, $89 million and $39 million for the years ended
December 31, 2021, 2020 and 2019, respectively. Amortization for the year ended December 31, 2020
includes $38 million related to accelerated amortization for certain intangibles, discussed further below.
The Company utilizes the straight-line method of amortization recognized over the estimated useful lives
of the assets. The estimated future annual amortization expense, primarily for acquired intangible assets,
(in millions)
Beginning balance, January 1
Acquisitions1 (Note 2)
Impairment/Abandonment2
Amortization2
Translation adjustment
Ending balance, December 31
_____________________________
Gross carrying amounts
Accumulated amortization
2021
2020
2021
2020
$
1,452 $
700 $
356 $
130
(14)
—
(55)
760
(56)
—
48
$
1,513 $
1,452 $
—
—
88
(22)
422 $
298
—
(56)
89
25
356
1 Acquisitions relate to the Company’s 2021 purchase of AKASOL and 2020 purchase of Delphi Technologies
2 In 2021, the Company performed a quantitative impairment test over its indefinite-lived trade names, which indicated that for
one trade name the fair value was less than the carrying value. Therefore, the Company recorded an impairment charge to
reduce the carrying value to the fair value. In 2020, as a result of an evaluation of the underlying technologies and
management of the business subsequent to the acquisition of Delphi Technologies, the Company reduced the useful life of
certain intangible assets during the fourth quarter of 2020 as they no longer provided future economic benefit. This resulted in
accelerated amortization expense of $38 million and the removal of the related gross carrying amount and accumulated
amortization of these assets.
is as follows: $94 million in 2022, $87 million in 2023, $86 million in 2024, $85 million in 2025, $77 million
(in millions)
in 2026 and $483 million thereafter.
A roll forward of the gross carrying amounts and related accumulated amortization of the Company’s
other intangible assets is presented below:
Other current liabilities
Other non-current liabilities
Total product warranty liability
NOTE 14 NOTES PAYABLE AND DEBT
The Company had short-term and long-term debt outstanding as follows:
(in millions)
Short-term debt
Short-term borrowings
Long-term debt
1.800% Senior notes due 11/07/22 (€500 million par value)
3.375% Senior notes due 03/15/25 ($500 million par value)
5.000% Senior notes due 10/01/25 ($800 million par value)1
2.650% Senior notes due 07/01/27 ($1,100 million par value)
7.125% Senior notes due 02/15/29 ($121 million par value)
1.000% Senior notes due 05/19/31 (€1,000 million par value)
4.375% Senior notes due 03/15/45 ($500 million par value)
Term loan facilities, finance leases and other
Total long-term debt
Less: current portion
December 31,
2021
2020
$
$
128 $
108
236 $
164
89
253
December 31,
2021
2020
$
62 $
45
—
498
889
1,092
119
1,117
494
56
4,265
4
609
498
912
1,088
119
—
494
22
3,742
4
3,738
96
97
_____________________________
1 These notes are reflected at their fair value as of the date of the acquisition. The fair value step-up was calculated 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.
Long-term debt, net of current portion
$
4,261 $
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company may utilize uncommitted lines of credit for short-term working capital requirements. As of
December 31, 2021 and 2020, the Company had $62 million and $45 million, respectively, in borrowings
under these facilities, which are reported in Notes payable and short-term debt on the Consolidated
Balance Sheets.
The Company’s commercial paper program allows the Company to issue $2 billion of short-term,
unsecured commercial paper notes under the limits of its multi-currency revolving credit facility. Under
this program, the Company may issue notes from time to time and use the proceeds for general
corporate purposes. The Company had no outstanding borrowings under this program as of
December 31, 2021 and 2020.
The total current combined borrowing capacity under the multi-currency revolving credit facility and
commercial paper program cannot exceed $2 billion.
As of December 31, 2021 and 2020, the estimated fair values of the Company’s senior unsecured notes
totaled $4,421 million and $4,052 million, respectively. The estimated fair values were $212 million higher
than carrying value at December 31, 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, commercial paper program
and other debt facilities approximate fair value. The fair value estimates do not necessarily reflect the
values the Company could realize in the current markets.
The Company had outstanding letters of credit of $35 million and $33 million at December 31, 2021 and
2020, respectively. The letters of credit typically act as guarantees of payment to certain third parties in
accordance with specified terms and conditions.
The weighted average interest rate on short-term borrowings outstanding as of December 31, 2021 and
2020 was 1.0% and 1.7%, respectively. The weighted average interest rate on all borrowings outstanding,
including the effects of outstanding swaps, as of December 31, 2021 and 2020 was 2.5% and 2.8%,
respectively. The following table provides details on Interest expense, net included in the Consolidated
Statements of Operations:
(in millions)
Interest expense
Interest income
Interest expense, net
Year Ended December 31,
2021
2020
2019
$
$
105 $
(12)
93 $
73 $
(12)
61 $
55
(12)
43
On May 19, 2021, in anticipation of the acquisition of AKASOL and to refinance the Company’s €500
million 1.8% senior notes due in November 2022, the Company issued €1.0 billion in 1.0% senior notes
due May 2031. Interest is payable annually in arrears on May 19 of each year. These senior notes are not
guaranteed by any of the Company’s subsidiaries. On June 18, 2021, the Company repaid its €500
million 1.8% senior notes due November 2022 and incurred a loss on debt extinguishment of $20 million,
which is reflected in Interest expense, net in the Consolidated Statement of Operations.
On February 19, 2021, the Company entered into a $900 million, 364-day delayed-draw term loan facility
to satisfy certain cash confirmation requirements in support of the proposed acquisition of AKASOL. The
facility was cancelled on May 19, 2021 in accordance with its terms, following the Company’s issuance of
the €1.0 billion in senior notes.
Annual principal payments required as of December 31, 2021 are as follows:
(in millions)
2022
2023
2024
2025
2026
After 2026
Total payments
Add: unamortized premiums, net of discount
Total
$
$
$
66
41
3
1,302
2
2,863
4,277
50
4,327
The Company’s long-term debt includes various covenants, none of which are expected to restrict future
operations.
The Company has a $2 billion multi-currency revolving credit facility that allows the Company the ability to
increase the facility by $1 billion with bank group approval. This facility matures in March 2025. The credit
agreement contains customary events of default and one key financial covenant, which is a debt-to-
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) ratio. The Company was in
compliance with the financial covenant at December 31, 2021. At December 31, 2021 and 2020, the
Company had no outstanding borrowings under this facility.
98
99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company’s commercial paper program allows the Company to issue $2 billion of short-term,
unsecured commercial paper notes under the limits of its multi-currency revolving credit facility. Under
this program, the Company may issue notes from time to time and use the proceeds for general
corporate purposes. The Company had no outstanding borrowings under this program as of
December 31, 2021 and 2020.
The total current combined borrowing capacity under the multi-currency revolving credit facility and
commercial paper program cannot exceed $2 billion.
As of December 31, 2021 and 2020, the estimated fair values of the Company’s senior unsecured notes
totaled $4,421 million and $4,052 million, respectively. The estimated fair values were $212 million higher
than carrying value at December 31, 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, commercial paper program
and other debt facilities approximate fair value. The fair value estimates do not necessarily reflect the
values the Company could realize in the current markets.
The Company had outstanding letters of credit of $35 million and $33 million at December 31, 2021 and
2020, respectively. The letters of credit typically act as guarantees of payment to certain third parties in
accordance with specified terms and conditions.
The Company may utilize uncommitted lines of credit for short-term working capital requirements. As of
December 31, 2021 and 2020, the Company had $62 million and $45 million, respectively, in borrowings
under these facilities, which are reported in Notes payable and short-term debt on the Consolidated
Balance Sheets.
The weighted average interest rate on short-term borrowings outstanding as of December 31, 2021 and
2020 was 1.0% and 1.7%, respectively. The weighted average interest rate on all borrowings outstanding,
including the effects of outstanding swaps, as of December 31, 2021 and 2020 was 2.5% and 2.8%,
respectively. The following table provides details on Interest expense, net included in the Consolidated
Statements of Operations:
(in millions)
Interest expense
Interest income
Interest expense, net
Year Ended December 31,
2021
2020
2019
$
$
105 $
(12)
93 $
73 $
(12)
61 $
55
(12)
43
On May 19, 2021, in anticipation of the acquisition of AKASOL and to refinance the Company’s €500
million 1.8% senior notes due in November 2022, the Company issued €1.0 billion in 1.0% senior notes
due May 2031. Interest is payable annually in arrears on May 19 of each year. These senior notes are not
guaranteed by any of the Company’s subsidiaries. On June 18, 2021, the Company repaid its €500
million 1.8% senior notes due November 2022 and incurred a loss on debt extinguishment of $20 million,
which is reflected in Interest expense, net in the Consolidated Statement of Operations.
On February 19, 2021, the Company entered into a $900 million, 364-day delayed-draw term loan facility
to satisfy certain cash confirmation requirements in support of the proposed acquisition of AKASOL. The
facility was cancelled on May 19, 2021 in accordance with its terms, following the Company’s issuance of
the €1.0 billion in senior notes.
Annual principal payments required as of December 31, 2021 are as follows:
(in millions)
2022
2023
2024
2025
2026
After 2026
Total payments
Total
operations.
Add: unamortized premiums, net of discount
The Company’s long-term debt includes various covenants, none of which are expected to restrict future
The Company has a $2 billion multi-currency revolving credit facility that allows the Company the ability to
increase the facility by $1 billion with bank group approval. This facility matures in March 2025. The credit
agreement contains customary events of default and one key financial covenant, which is a debt-to-
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) ratio. The Company was in
compliance with the financial covenant at December 31, 2021. At December 31, 2021 and 2020, the
Company had no outstanding borrowings under this facility.
$
$
$
66
41
3
1,302
2
2,863
4,277
50
4,327
98
99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 15
OTHER CURRENT AND NON-CURRENT LIABILITIES
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting
Additional detail related to liabilities is presented in the table below:
(in millions)
Other current liabilities:
Payroll and employee related
Customer related
Product warranties (Note 13)
Indirect taxes
Income taxes payable
Employee termination benefits (Note 4)
Mandatorily redeemable noncontrolling interest liability (Note 2)
Accrued freight
Deferred engineering
Operating leases (Note 22)
Interest
Other non-income taxes
Contract liabilities (Note 3)
Insurance
Dividends payable
Supplier related
Retirement related (Note 18)
Other
Total other current liabilities
Other non-current liabilities:
Other income tax liabilities
Deferred income taxes (Note 7)
Operating leases (Note 22)
Product warranties (Note 13)
Deferred income
Derivative instruments (Note 17)
Employee termination benefits (Note 4)
Other
Total other non-current liabilities
December 31,
2021
2020
$
330 $
220
128
106
105
85
58
46
44
43
23
22
21
19
18
18
16
154
301
198
164
69
102
101
—
41
62
47
18
15
22
20
6
6
16
221
$
1,456 $
1,409
$
274 $
206
152
108
68
54
41
61
300
276
172
89
55
162
59
68
$
964 $
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
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
B. Cost approach: Amount that would be required to replace the service capacity of an asset
as a business.
(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
December 31, 2021 and 2020:
Basis of fair value measurements
Quoted prices
Significant
in active
markets for
identical items
(Level 1)
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Valuation
technique
Balance at
December 31, 2021
$
$
$
$
$
$
$
$
$
$
35 $
70 $
13 $
8 $
8 $
54 $
— $
70 $
— $
— $
— $
— $
17 $
— $
13 $
8 $
8 $
54 $
432 $
5 $
6 $
161 $
432 $
— $
—
5 $
— $
— $
6 $
161 $
18
—
—
—
—
—
—
—
—
C
A
A
A
A
A
A
A
A
A
Basis of fair value measurements
Quoted prices
Significant
in active
markets for
identical items
(Level 1)
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Valuation
technique
Balance at
December 31, 2020
(in millions)
Assets:
Long-term receivables
Investment in equity securities
Foreign currency contracts
Net investment hedge contracts
Liabilities:
Foreign currency contracts
Net investment hedge contracts
(in millions)
Assets:
Liabilities:
Investment in equity securities
Foreign currency contracts
Foreign currency contracts
Net investment hedge contracts
recurring basis:
The following tables classify the Company’s defined benefit plan assets measured at fair value on a
100
101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 15
OTHER CURRENT AND NON-CURRENT LIABILITIES
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting
entity to develop its own assumptions.
Assets and liabilities measured at fair value are based on one or more of the following three valuation
techniques noted in ASC Topic 820:
A. Market approach: Prices and other relevant information generated by market transactions
involving identical or comparable assets, liabilities or a group of assets or liabilities, such
as a business.
B. Cost approach: Amount that would be required to replace the service capacity of an asset
C.
(replacement cost).
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
December 31, 2021 and 2020:
(in millions)
Assets:
Long-term receivables
Investment in equity securities
Foreign currency contracts
Net investment hedge contracts
Liabilities:
Foreign currency contracts
Net investment hedge contracts
(in millions)
Assets:
Investment in equity securities
Foreign currency contracts
Liabilities:
Foreign currency contracts
Net investment hedge contracts
Basis of fair value measurements
Significant
other
observable
inputs
(Level 2)
Quoted prices
in active
markets for
identical items
(Level 1)
Significant
unobservable
inputs
(Level 3)
Valuation
technique
Balance at
December 31, 2021
$
$
$
$
$
$
35 $
70 $
13 $
8 $
8 $
54 $
— $
70 $
— $
— $
— $
— $
17 $
— $
13 $
8 $
8 $
54 $
18
—
—
—
—
—
C
A
A
A
A
A
Basis of fair value measurements
Quoted prices
in active
markets for
identical items
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Valuation
technique
Balance at
December 31, 2020
$
$
$
$
432 $
5 $
6 $
161 $
432 $
— $
—
5 $
— $
— $
6 $
161 $
A
A
A
A
—
—
—
The following tables classify the Company’s defined benefit plan assets measured at fair value on a
recurring basis:
101
Additional detail related to liabilities is presented in the table below:
Employee termination benefits (Note 4)
Mandatorily redeemable noncontrolling interest liability (Note 2)
(in millions)
Other current liabilities:
Payroll and employee related
Customer related
Product warranties (Note 13)
Indirect taxes
Income taxes payable
Accrued freight
Deferred engineering
Operating leases (Note 22)
Interest
Other non-income taxes
Contract liabilities (Note 3)
Insurance
Dividends payable
Supplier related
Retirement related (Note 18)
Other
Total other current liabilities
Other non-current liabilities:
Other income tax liabilities
Deferred income taxes (Note 7)
Operating leases (Note 22)
Product warranties (Note 13)
Deferred income
Derivative instruments (Note 17)
Employee termination benefits (Note 4)
Other
Total other non-current liabilities
December 31,
2021
2020
$
330 $
220
128
106
105
85
58
46
44
43
23
22
21
19
18
18
16
154
206
152
108
68
54
41
61
301
198
164
69
102
101
—
41
62
47
18
15
22
20
6
6
16
221
300
276
172
89
55
162
59
68
$
1,456 $
1,409
$
274 $
$
964 $
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
100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Basis of fair value measurements
The reconciliation of Level 3 defined benefit plans assets was as follows:
(in millions)
U.S. Plans:
Balance at
December 31,
2021
Quoted prices
in active
markets for
identical items
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Valuation
technique
Assets
measured
at NAV3
Fixed income securities
$
129 $
— $
— $
Equity securities
Alternative credit fund
Cash
Non-U.S. Plans:
Fixed income securities
Equity securities
Cash1
Insurance contract2
Real estate and other
(in millions)
U.S. Plans:
Fixed income securities
Equity securities
Alternative credit fund
Cash
Non-U.S. Plans:
Fixed income securities
Equity securities
Cash
Insurance contract2
Real estate and other
$
$
28
19
1
—
—
1
—
—
—
177 $
1 $
— $
710 $
116 $
— $
412
338
108
481
363
338
—
124
—
—
—
18
$
2,049 $
941 $
18 $
—
—
—
A
A
A
A
C
A,C
—
—
—
—
—
—
—
—
108
127
235
$
129
28
19
—
176
594
49
—
—
212
855
$
$
$
Basis of fair value measurements
Balance at
December 31,
2020
Quoted prices
in active
markets for
identical items
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Valuation
technique
Assets
measured
at NAV3
$
$
$
81 $
— $
— $
64
22
20
—
—
20
—
—
—
187 $
20 $
— $
1,123 $
51 $
— $
283
130
113
392
—
130
—
—
—
—
—
—
$
2,041 $
181 $
— $
—
—
—
A
A
—
A
C
C
—
—
—
—
—
—
—
—
113
86
199
$
81
64
22
—
$
167
$
1,072
283
—
—
306
$
1,661
_____________________________
1 As of December 31, 2021, £122 million in the Company’s non-U.S. plans was deemed cash in-transit and classified as a Level
1 investment.
2 A BorgWarner defined benefit plan in the United Kingdom owns an insurance contract that guarantees payment of specified
pension liabilities. The Company measures the fair value of the insurance asset by projecting expected future cash flows from
the contract and discounting them to present value based on current market rates, including an assessment for non-
performance risk of the insurance company. The assumptions used to project expected future cash flows are based on actuarial
estimates and are unobservable; therefore, the contract is categorized within Level 3 of the hierarchy.
3 Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been
classified in the fair value hierarchy. These amounts represent investments in commingled and managed funds that have
underlying assets in fixed income securities, equity securities, and other assets.
102
103
(in millions)
Balance at January 1, 2020
Delphi Technologies acquisition
Purchases, sales and settlements
Realized gains
Benefits paid
Translation adjustment
Balance at December 31, 2020
Purchases, sales and settlements
Realized gains
Benefits paid
Translation adjustment
Balance at December 31, 2021
Unrealized gains (losses) on assets still held at the reporting date
Unrealized gains (losses) on assets still held at the reporting date
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
Insurance
contract
Real estate
trust fund
Hedge
funds
$
110 $
— $
(6)
—
—
—
6
3
—
—
(4)
1
(2)
(2)
6
82
—
—
—
36
—
—
7
(2)
—
103
(114)
3
—
—
8
—
—
—
—
—
—
—
$
108 $
127 $
$
113 $
86 $
Refer to Note 18, “Retirement Benefit Plans,” to the Consolidated Financial Statements for more detail
surrounding the defined benefit plan’s asset investment policies and strategies, target allocation
percentages and expected return on plan asset assumptions.
NOTE 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 include long-term debt, investments in equity
securities, interest rate and cross-currency swaps, commodity derivative contracts and foreign currency
derivative contracts. All derivative contracts are placed with counterparties that have an S&P, or
equivalent, investment grade credit rating at the time of the contracts’ placement. An adjustment for non-
performance risk is considered in the estimate of fair value in derivative assets based on the counterparty
credit default swap (“CDS”) rate. When the Company is in a net derivative liability position, the non-
performance risk adjustment is based on its CDS rate. At December 31, 2021 and 2020, the Company
had no derivative contracts that contained credit-risk-related contingent features.
The Company occasionally uses certain commodity derivative contracts to protect against commodity
price changes related to forecasted raw material and component purchases. The Company had no
outstanding commodity contracts at December 31, 2021 and 2020. The Company primarily utilizes
forward and option contracts, which are designated as cash flow hedges.
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 occasionally uses interest rate swaps to reduce
market value risk associated with changes in interest rates (fair value hedges and cash flow hedges). At
December 31, 2021 and 2020, the Company had no outstanding interest rate swaps or options.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Basis of fair value measurements
The reconciliation of Level 3 defined benefit plans assets was as follows:
Balance at
December 31,
2021
Quoted prices
Significant
in active
markets for
identical items
(Level 1)
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Valuation
technique
Assets
measured
at NAV3
Fixed income securities
$
129 $
— $
— $
$
129
(in millions)
Balance at January 1, 2020
Delphi Technologies acquisition
Purchases, sales and settlements
Realized gains
Benefits paid
177 $
1 $
— $
Unrealized gains (losses) on assets still held at the reporting date
Translation adjustment
Balance at December 31, 2020
Purchases, sales and settlements
Realized gains
Benefits paid
Unrealized gains (losses) on assets still held at the reporting date
Translation adjustment
Balance at December 31, 2021
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
Insurance
contract
Real estate
trust fund
Hedge
funds
$
110 $
— $
—
—
—
(6)
6
3
82
—
—
—
(2)
6
$
113 $
86 $
—
—
(4)
1
(2)
36
—
—
7
(2)
$
108 $
127 $
—
103
(114)
3
—
—
8
—
—
—
—
—
—
—
81 $
— $
— $
$
NOTE 17 FINANCIAL INSTRUMENTS
Refer to Note 18, “Retirement Benefit Plans,” to the Consolidated Financial Statements for more detail
surrounding the defined benefit plan’s asset investment policies and strategies, target allocation
percentages and expected return on plan asset assumptions.
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 include long-term debt, investments in equity
securities, interest rate and cross-currency swaps, commodity derivative contracts and foreign currency
derivative contracts. All derivative contracts are placed with counterparties that have an S&P, or
equivalent, investment grade credit rating at the time of the contracts’ placement. An adjustment for non-
performance risk is considered in the estimate of fair value in derivative assets based on the counterparty
credit default swap (“CDS”) rate. When the Company is in a net derivative liability position, the non-
performance risk adjustment is based on its CDS rate. At December 31, 2021 and 2020, the Company
had no derivative contracts that contained credit-risk-related contingent features.
The Company occasionally uses certain commodity derivative contracts to protect against commodity
price changes related to forecasted raw material and component purchases. The Company had no
outstanding commodity contracts at December 31, 2021 and 2020. The Company primarily utilizes
forward and option contracts, which are designated as cash flow hedges.
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 occasionally uses interest rate swaps to reduce
market value risk associated with changes in interest rates (fair value hedges and cash flow hedges). At
December 31, 2021 and 2020, the Company had no outstanding interest rate swaps or options.
102
103
Fixed income securities
710 $
116 $
— $
(in millions)
U.S. Plans:
Equity securities
Alternative credit fund
Cash
Non-U.S. Plans:
Equity securities
Cash1
Insurance contract2
Real estate and other
(in millions)
U.S. Plans:
Fixed income securities
Equity securities
Alternative credit fund
Cash
Non-U.S. Plans:
Equity securities
Cash
Insurance contract2
Real estate and other
_____________________________
1 investment.
$
2,049 $
941 $
18 $
Basis of fair value measurements
Quoted prices
Significant
Balance at
December 31,
2020
in active
markets for
identical items
(Level 1)
other
Significant
observable
unobservable
inputs
(Level 2)
inputs
(Level 3)
Valuation
technique
Assets
measured
at NAV3
$
$
$
$
$
28
19
1
412
338
108
481
64
22
20
283
130
113
392
—
—
1
363
338
—
124
—
—
20
—
130
—
—
—
—
—
—
—
—
18
—
—
—
—
—
—
—
—
—
—
A
A
A
A
C
A,C
—
—
—
A
A
—
A
C
C
—
—
—
—
—
—
—
—
108
127
235
—
—
—
—
—
—
—
—
113
86
199
$
$
$
28
19
—
176
594
49
—
—
212
855
81
64
22
—
283
—
—
306
Fixed income securities
1,123 $
51 $
— $
$
1,072
187 $
20 $
— $
$
167
$
2,041 $
181 $
— $
$
1,661
1 As of December 31, 2021, £122 million in the Company’s non-U.S. plans was deemed cash in-transit and classified as a Level
2 A BorgWarner defined benefit plan in the United Kingdom owns an insurance contract that guarantees payment of specified
pension liabilities. The Company measures the fair value of the insurance asset by projecting expected future cash flows from
the contract and discounting them to present value based on current market rates, including an assessment for non-
performance risk of the insurance company. The assumptions used to project expected future cash flows are based on actuarial
estimates and are unobservable; therefore, the contract is categorized within Level 3 of the hierarchy.
3 Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been
classified in the fair value hierarchy. These amounts represent investments in commingled and managed funds that have
underlying assets in fixed income securities, equity securities, and other assets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company uses foreign currency forward and option contracts to protect against exchange rate
movements for forecasted cash flows, including capital expenditures, purchases, operating expenses or
sales transactions designated in currencies other than the functional currency of the operating unit. In
addition, the Company uses foreign currency forward contracts to hedge exposure associated with 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. The following foreign currency derivative contracts were outstanding and mature
through the ending duration noted below:
Functional currency
Traded currency
Brazilian Real
British Pound
U.S. Dollar
Euro
Chinese Renminbi
British Pound
Chinese Renminbi
U.S. Dollar
Chinese Renminbi
Euro
Euro
Euro
U.S. Dollar
U.S. Dollar
U.S. Dollar
U.S. Dollar
U.S. Dollar
U.S. Dollar
Polish Zloty
U.S. Dollar
British Pound
Euro
Korean Won
Singapore Dollar
Thailand Baht
Mexico Peso
Foreign currency derivatives (in millions)1
Notional in traded currency
December 31, 2021
Notional in traded currency
December 31, 2020
Ending duration
23
42
26
185
26
394
86
13
28
49,919
27
1,720
2,619
4
97
—
113
—
147
41
6
55
15,000
47
—
1,178
Dec-22
Dec-22
Dec-22
Dec-22
Dec-22
Dec-22
Dec-22
Dec-22
Dec-22
Dec-22
Dec-22
May-22
Dec-22
_____________________________
1 Table above excludes non-significant traded currency pairings with total notional amounts less than $10 million U.S. Dollar
equivalent as of December 31, 2021 or 2020.
The Company selectively uses cross-currency swaps to hedge the foreign currency exposure associated
with its net investment in certain foreign operations (net investment hedges). At December 31, 2021 and
2020, the following cross-currency swap contracts were outstanding:
(in millions)
U.S. Dollar to Euro:
Fixed receiving notional
Fixed paying notional
U.S. Dollar to Euro:
Fixed receiving notional
Fixed paying notional
U.S. Dollar to Japanese Yen:
Fixed receiving notional
Fixed paying notional
Cross-currency swaps
December 31, 2021
December 31, 2020
Ending duration
be recognized in AOCI.
1,100 $
976 €
500 $
450 €
100 $
10,978 ¥
1,100
976
500
450
100
10,978
Jul - 27
Jul - 27
Mar - 25
Mar - 25
Feb - 23
Feb - 23
$
€
$
€
$
¥
104
At December 31, 2021 and 2020, the following amounts were recorded in the Consolidated Balance
Sheets as being payable to or receivable from counterparties under ASC Topic 815:
Assets
Liabilities
Balance Sheet Location
2021
2020
Balance Sheet Location
2021
2020
December 31,
December 31,
December 31,
December 31,
Prepayments and other
current assets
Other non-current
Net investment
Other non-current
hedges
assets
assets
$
$
$
7 $
1 Other current liabilities
— $
8 $
—
—
Other non-current
liabilities
Other non-current
liabilities
$
$
$
8 $
— $
4
1
54 $
161
(in millions)
Derivatives
designated as
hedging
instruments Under
Topic 815:
Foreign currency
Foreign currency
Derivatives not
designated as
hedging
instruments:
Foreign currency
current assets
$
6 $
4
$
— $
1
Other current liabilities
Prepayments and other
Effectiveness for cash flow hedges is assessed at the inception of the hedging relationship and quarterly,
thereafter. Gains and losses arising from these contracts that are included in the assessment of
effectiveness are deferred into accumulated other comprehensive income (loss) (“AOCI”) and reclassified
into income as the underlying operating transactions are recognized. These realized gains or losses
offset the hedged transaction and are recorded on the same line in the statement of operations. The initial
value of any component excluded from the assessment of effectiveness will 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
During the year ended December 31, 2021, the Company repaid its €500 million 1.8% senior notes due
November 2022, which were designated as a net investment hedge, resulting in a deferred loss of
$50 million that will remain in accumulated other comprehensive loss until the net investment is sold,
completely liquidated or substantially liquidated. The Company has designated the €1 billion in 1.0%
senior notes due May 2031, issued in May 2021, as a net investment hedge of the Company’s investment
in its European subsidiaries.
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 December 31, 2021 market rates.
105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company uses foreign currency forward and option contracts to protect against exchange rate
movements for forecasted cash flows, including capital expenditures, purchases, operating expenses or
sales transactions designated in currencies other than the functional currency of the operating unit. In
addition, the Company uses foreign currency forward contracts to hedge exposure associated with 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. The following foreign currency derivative contracts were outstanding and mature
through the ending duration noted below:
Functional currency
Traded currency
December 31, 2021
December 31, 2020
Ending duration
Notional in traded currency
Notional in traded currency
Foreign currency derivatives (in millions)1
Brazilian Real
British Pound
U.S. Dollar
Euro
Chinese Renminbi
British Pound
Chinese Renminbi
U.S. Dollar
Chinese Renminbi
Euro
Euro
Euro
U.S. Dollar
U.S. Dollar
U.S. Dollar
U.S. Dollar
U.S. Dollar
U.S. Dollar
Polish Zloty
U.S. Dollar
British Pound
Euro
Korean Won
Singapore Dollar
Thailand Baht
Mexico Peso
23
42
26
185
26
394
86
13
28
27
1,720
2,619
4
97
—
113
—
147
41
6
55
47
—
1,178
Dec-22
Dec-22
Dec-22
Dec-22
Dec-22
Dec-22
Dec-22
Dec-22
Dec-22
Dec-22
Dec-22
May-22
Dec-22
49,919
15,000
1 Table above excludes non-significant traded currency pairings with total notional amounts less than $10 million U.S. Dollar
_____________________________
equivalent as of December 31, 2021 or 2020.
The Company selectively uses cross-currency swaps to hedge the foreign currency exposure associated
with its net investment in certain foreign operations (net investment hedges). At December 31, 2021 and
2020, the following cross-currency swap contracts were outstanding:
(in millions)
U.S. Dollar to Euro:
Fixed receiving notional
Fixed paying notional
U.S. Dollar to Euro:
Fixed receiving notional
Fixed paying notional
U.S. Dollar to Japanese Yen:
Fixed receiving notional
Fixed paying notional
Cross-currency swaps
December 31, 2021
December 31, 2020
Ending duration
1,100 $
976 €
500 $
450 €
100 $
10,978 ¥
1,100
976
500
450
100
10,978
Jul - 27
Jul - 27
Mar - 25
Mar - 25
Feb - 23
Feb - 23
$
€
$
€
$
¥
104
At December 31, 2021 and 2020, the following amounts were recorded in the Consolidated Balance
Sheets as being payable to or receivable from counterparties under ASC Topic 815:
(in millions)
Derivatives
designated as
hedging
instruments Under
Topic 815:
Foreign currency
Balance Sheet Location
Prepayments and other
current assets
Foreign currency
Net investment
hedges
Other non-current
assets
Other non-current
assets
Derivatives not
designated as
hedging
instruments:
Assets
Liabilities
December 31,
2021
December 31,
2020
Balance Sheet Location
December 31,
2021
December 31,
2020
$
$
$
7 $
1 Other current liabilities
— $
8 $
—
—
Other non-current
liabilities
Other non-current
liabilities
$
$
$
8 $
— $
4
1
54 $
161
Foreign currency
Prepayments and other
current assets
$
6 $
4
Other current liabilities
$
— $
1
Effectiveness for cash flow hedges is assessed at the inception of the hedging relationship and quarterly,
thereafter. Gains and losses arising from these contracts that are included in the assessment of
effectiveness are deferred into accumulated other comprehensive income (loss) (“AOCI”) and reclassified
into income as the underlying operating transactions are recognized. These realized gains or losses
offset the hedged transaction and are recorded on the same line in the statement of operations. The initial
value of any component excluded from the assessment of effectiveness will be recognized in income
using a systematic and rational method over the life of the hedging instrument. Any difference between
the change in fair value of the excluded component and amounts recognized in income under that
systematic and rational method will be recognized in AOCI.
Effectiveness for net investment hedges is assessed at the inception of the hedging relationship and
quarterly, thereafter. Gains and losses arising from these contracts that are included in the assessment
of effectiveness are deferred into foreign currency translation adjustments and only released when the
subsidiary being hedged is sold or substantially liquidated. The initial value of any component excluded
from the assessment of effectiveness will be recognized in income using a systematic and rational
method over the life of the hedging instrument. Any difference between the change in fair value of the
excluded component and amounts recognized in income under that systematic and rational method will
be recognized in AOCI.
During the year ended December 31, 2021, the Company repaid its €500 million 1.8% senior notes due
November 2022, which were designated as a net investment hedge, resulting in a deferred loss of
$50 million that will remain in accumulated other comprehensive loss until the net investment is sold,
completely liquidated or substantially liquidated. The Company has designated the €1 billion in 1.0%
senior notes due May 2031, issued in May 2021, as a net investment hedge of the Company’s investment
in its European subsidiaries.
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 December 31, 2021 market rates.
105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(in millions)
Contract Type
Net investment hedges:
Foreign currency
Cross-currency swaps
Foreign currency denominated debt
Total
Deferred gain (loss) in AOCI at
December 31, 2021
December 31, 2020
Gain (loss)
expected to be
reclassified to
income in one
year or less
$
$
(10) $
(1) $
(46)
66
10
(161)
(68)
$
(230) $
—
—
—
—
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)
Net investment hedges
Foreign currency
Cross-currency swaps
Foreign currency denominated debt
Year Ended December 31,
2021
2020
2019
(9) $
115
84
$
$
(2) $
(155) $
(51) $
1
4
13
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:
Derivatives designated as net investment hedge instruments as defined by ASC Topic 815 held during the
period resulted in the following gains and (losses) recorded in Interest expense on components excluded
from the assessment of effectiveness:
Year ended December 31, 2021
Net sales
Cost of sales
Selling, general and
administrative expenses
Other comprehensive
income
$
14,838
$
11,983
$
1,460
$
100
(in millions)
Net investment hedges
Foreign currency
Cross-currency swaps
Year Ended December 31,
2021
2020
2019
—
22
$
$
—
18
$
$
—
11
Gain (loss) reclassified from AOCI to income
$
1
$
(4)
$
$
$
(1)
(4)
—
periods presented.
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
Year ended December 31, 2020
Net sales
Cost of sales
Selling, general and
administrative expenses
Other comprehensive
income
Derivatives not designated as hedging instruments are used to hedge remeasurement exposures of
monetary assets and liabilities denominated in currencies other than the operating units' functional
currency. These derivatives resulted in the following gains and (losses) recorded in income:
$
10,165
$
8,255
$
951
$
76
Contract Type
Location
(in millions)
Foreign
Currency
Selling, general and administrative expenses
$
13
$
3
$
(3)
Year Ended December 31,
2021
2020
2019
$
$
$
$
$
NOTE 18
RETIREMENT BENEFIT PLANS
The Company sponsors various defined contribution savings plans, primarily in the U.S., that allow
employees to contribute a portion of their pre-tax and/or after-tax income in accordance with plan
specified guidelines. Under specified conditions, the Company will make contributions to the plans and/or
match a percentage of the employee contributions up to certain limits. Total expense related to the
defined contribution plans was $58 million, $38 million and $37 million in the years ended December 31,
2021, 2020 and 2019, respectively.
The Company has a number of defined benefit pension plans and other postretirement employee benefit
plans covering eligible salaried and hourly employees and their dependents. The defined pension
benefits provided are primarily based on (i) years of service and (ii) average compensation or a monthly
retirement benefit amount. The Company provides defined benefit pension plans in France, Germany,
Ireland, Italy, Japan, Mexico, South Korea, Sweden, U.K. and the U.S. The other postretirement
employee benefit plans, which provide medical benefits, are unfunded plans. The Company’s U.S. and
U.K. defined benefit plans are frozen, and no additional service cost is being accrued. All pension and
other postretirement employee benefit plans in the U.S. have been closed to new employees. The
measurement date for all plans is December 31.
Gain (loss) reclassified from AOCI to income
$
—
$
1
$
$
$
(2)
(1)
—
Year ended December 31, 2019
Net sales
Cost of sales
Selling, general and
administrative expenses
Other comprehensive
income
$
10,168
$
8,067
$
873
$
(53)
Gain (loss) reclassified from AOCI to income
$
(5)
$
(1)
$
$
$
3
(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.
106
107
(in millions)
Total amounts of earnings and other
comprehensive income line items in which the
effects of cash flow hedges are recorded
Gain (loss) on cash flow hedging relationships:
Foreign currency
Gain (loss) recognized in other
comprehensive income
(in millions)
Total amounts of earnings and other
comprehensive income line items in which the
effects of cash flow hedges are recorded
Gain (loss) on cash flow hedging relationships:
Foreign currency
Gain (loss) recognized in other
comprehensive income
(in millions)
Total amounts of earnings and other
comprehensive income line items in which the
effects of cash flow hedges are recorded
Gain (loss) on cash flow hedging relationships:
Foreign currency
Gain (loss) recognized in other
comprehensive income
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(in millions)
Contract Type
Net investment hedges:
Foreign currency
Cross-currency swaps
Foreign currency denominated debt
Total
Deferred gain (loss) in AOCI at
December 31, 2021
December 31, 2020
Gain (loss)
expected to be
reclassified to
income in one
year or less
$
$
(10) $
(1) $
(46)
66
10
(161)
(68)
$
(230) $
—
—
—
—
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)
Net investment hedges
Foreign currency
Cross-currency swaps
Foreign currency denominated debt
Year Ended December 31,
2021
2020
2019
$
$
$
(9) $
115
84
$
$
(2) $
(155) $
(51) $
1
4
13
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:
Derivatives designated as net investment hedge instruments as defined by ASC Topic 815 held during the
period resulted in the following gains and (losses) recorded in Interest expense on components excluded
from the assessment of effectiveness:
Year ended December 31, 2021
Net sales
Cost of sales
Selling, general and
administrative expenses
Other comprehensive
income
$
14,838
$
11,983
$
1,460
$
100
(in millions)
Net investment hedges
Foreign currency
Cross-currency swaps
Year Ended December 31,
2021
2020
2019
$
$
—
22
$
$
—
18
$
$
—
11
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 and (losses) recorded in income:
(in millions)
Contract Type
Location
Year Ended December 31,
2021
2020
2019
Foreign
Currency
Selling, general and administrative expenses
$
13
$
3
$
(3)
NOTE 18
RETIREMENT BENEFIT PLANS
The Company sponsors various defined contribution savings plans, primarily in the U.S., that allow
employees to contribute a portion of their pre-tax and/or after-tax income in accordance with plan
specified guidelines. Under specified conditions, the Company will make contributions to the plans and/or
match a percentage of the employee contributions up to certain limits. Total expense related to the
defined contribution plans was $58 million, $38 million and $37 million in the years ended December 31,
2021, 2020 and 2019, respectively.
The Company has a number of defined benefit pension plans and other postretirement employee benefit
plans covering eligible salaried and hourly employees and their dependents. The defined pension
benefits provided are primarily based on (i) years of service and (ii) average compensation or a monthly
retirement benefit amount. The Company provides defined benefit pension plans in France, Germany,
Ireland, Italy, Japan, Mexico, South Korea, Sweden, U.K. and the U.S. The other postretirement
employee benefit plans, which provide medical benefits, are unfunded plans. The Company’s U.S. and
U.K. defined benefit plans are frozen, and no additional service cost is being accrued. All pension and
other postretirement employee benefit plans in the U.S. have been closed to new employees. The
measurement date for all plans is December 31.
106
107
(in millions)
Total amounts of earnings and other
comprehensive income line items in which the
effects of cash flow hedges are recorded
Gain (loss) on cash flow hedging relationships:
Foreign currency
Gain (loss) recognized in other
comprehensive income
(in millions)
Total amounts of earnings and other
comprehensive income line items in which the
effects of cash flow hedges are recorded
Gain (loss) on cash flow hedging relationships:
Foreign currency
Gain (loss) recognized in other
comprehensive income
(in millions)
Total amounts of earnings and other
comprehensive income line items in which the
effects of cash flow hedges are recorded
Gain (loss) on cash flow hedging relationships:
Foreign currency
Gain (loss) recognized in other
comprehensive income
Gain (loss) reclassified from AOCI to income
$
1
$
(4)
$
Year ended December 31, 2020
Net sales
Cost of sales
Selling, general and
administrative expenses
Other comprehensive
income
$
10,165
$
8,255
$
951
$
76
$
$
(1)
$
$
(2)
(4)
—
(1)
—
Year ended December 31, 2019
Net sales
Cost of sales
Selling, general and
administrative expenses
Other comprehensive
income
$
10,168
$
8,067
$
873
$
(53)
Gain (loss) reclassified from AOCI to income
$
—
$
1
$
Gain (loss) reclassified from AOCI to income
$
(5)
$
(1)
$
$
$
3
(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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On October 1, 2020, as a result of the acquisition of Delphi Technologies, the Company assumed all of
the retirement-related liabilities of Delphi Technologies, the most significant of which was the Delphi
Technologies Pension Scheme (the “Scheme”) in the United Kingdom. On December 12, 2020, the
Company entered into a Heads of Terms Agreement (the “Agreement”) with the Trustees of the Scheme
related to the future funding of the Scheme. Under the Agreement, the Company eliminated the prior
schedule of contributions between Delphi Technologies and the Scheme in exchange for a $137 million
(£100 million) one-time contribution into the Scheme Plan by December 31, 2020, which was paid on
December 15, 2020. The Agreement also contained other provisions regarding the implementation of a
revised asset investment strategy as well as a funding progress test that will be performed every three
years to determine if additional contributions need to be made into the Scheme by the Company. At this
time, the Company anticipates that no additional contributions will need to be made into the Scheme until
2026 at the earliest.
During the year ended December 31, 2019, the Company settled approximately $50 million of its U.S.
pension projected benefit obligation by liquidating approximately $50 million in plan assets through a
lump-sum disbursement made to an insurance company. Pursuant to this agreement, the insurance
company unconditionally and irrevocably guaranteed all future payments to certain participants that were
receiving payments from the U.S. pension plan. The insurance company assumed all investment risk
associated with the assets that were delivered as part of this transaction. Additionally, during the year
ended December 31, 2019, the Company discharged certain U.S. pension plan obligations by making
lump-sum payments of $15 million to former employees of the Company. As a result, the Company
settled $65 million of projected benefit obligation by liquidating pension plan assets and recorded a non-
cash settlement loss of $27 million related to the accelerated recognition of unamortized losses.
The following table summarizes the expenses for the Company’s defined contribution and defined benefit
pension plans and the other postretirement defined employee benefit plans:
(in millions)
Defined contribution expense
Defined benefit pension (income) expense
Other postretirement employee benefit income
Total
Year Ended December 31,
2021
2020
2019
$
$
58 $
(19)
(1)
38 $
38 $
15
(1)
52 $
37
45
—
82
The following provides a roll forward of the plans’ benefit obligations, plan assets, funded status and
recognition in the Consolidated Balance Sheets:
(in millions)
U.S.
Non-U.S.
U.S.
Non-U.S.
2021
2020
Change in projected benefit obligation:
Projected benefit obligation, January 1
$
202 $ 2,527 $
198 $
695 $
65 $
Pension benefits
Year Ended December 31,
Other postretirement
employee benefits
2021
2020
Year Ended December 31,
Projected benefit obligation, December 312
$
183 $ 2,227 $
202 $ 2,527 $
(11)
(76)
(15)
(36)
Fair value of plan assets, January 1
$
187 $ 2,041 $
176 $
Service cost
Interest cost
Plan amendments
Settlement and curtailment
Actuarial (gain) loss
Currency translation
Delphi Technologies acquisition1
Benefits paid
Change in plan assets:
Actual return on plan assets
Employer contribution
Settlements
Currency translation
Delphi Technologies acquisition1
Benefits paid
Funded status
consist of:
Non-current assets
Current liabilities
Non-current liabilities
Net amount
loss consist of:
Net actuarial loss
Net prior service (credit) cost
Net amount
Amounts in accumulated other comprehensive
—
1
—
—
—
—
(6)
(6)
54 $
—
3
—
(4)
(7)
—
—
5
—
—
—
(4)
25
30
1
(13)
(208)
(59)
—
110
24
(11)
(39)
—
—
5
—
—
14
—
—
16
10
—
—
—
21
16
—
(19)
161
147
1,542
505
83
164
(18)
115
1,228
$
$
$
$
$
— $
68 $
— $
26 $
— $
(2)
(4)
(7)
(1)
(6)
(239)
(14)
(506)
(7)
(47)
$
(6) $
(178) $
(15) $
(486) $
(54) $
84 $
74 $
86 $
330 $
(3)
2
(4)
2
81 $
76 $
82 $
332 $
10 $
(13)
(3) $
81
—
2
(12)
—
1
—
1
(8)
65
—
(9)
(56)
(65)
16
(16)
—
Fair value of plan assets, December 31
177 $ 2,049 $
187 $ 2,041
(11)
(76)
(15)
(36)
(6) $
(178) $
(15) $
(486) $
(54) $
(65)
Amounts in the Consolidated Balance Sheets
Total accumulated benefit obligation for all plans $
183 $ 2,183 $
202 $ 2,471
_____________________________
1 Balances are based on actuarial valuations as of October 1, 2020, the date of the Delphi Technologies acquisition. All
subsequent activity is included elsewhere within the table.
2 The decrease in the projected benefit obligation was primarily due to actuarial gains during the period. The main driver of these
gains was the increase of 0.53% in the weighted average discount rate for Non-U.S. plans.
108
109
On October 1, 2020, as a result of the acquisition of Delphi Technologies, the Company assumed all of
the retirement-related liabilities of Delphi Technologies, the most significant of which was the Delphi
Technologies Pension Scheme (the “Scheme”) in the United Kingdom. On December 12, 2020, the
Company entered into a Heads of Terms Agreement (the “Agreement”) with the Trustees of the Scheme
related to the future funding of the Scheme. Under the Agreement, the Company eliminated the prior
schedule of contributions between Delphi Technologies and the Scheme in exchange for a $137 million
(£100 million) one-time contribution into the Scheme Plan by December 31, 2020, which was paid on
December 15, 2020. The Agreement also contained other provisions regarding the implementation of a
revised asset investment strategy as well as a funding progress test that will be performed every three
years to determine if additional contributions need to be made into the Scheme by the Company. At this
time, the Company anticipates that no additional contributions will need to be made into the Scheme until
2026 at the earliest.
During the year ended December 31, 2019, the Company settled approximately $50 million of its U.S.
pension projected benefit obligation by liquidating approximately $50 million in plan assets through a
lump-sum disbursement made to an insurance company. Pursuant to this agreement, the insurance
company unconditionally and irrevocably guaranteed all future payments to certain participants that were
receiving payments from the U.S. pension plan. The insurance company assumed all investment risk
associated with the assets that were delivered as part of this transaction. Additionally, during the year
ended December 31, 2019, the Company discharged certain U.S. pension plan obligations by making
lump-sum payments of $15 million to former employees of the Company. As a result, the Company
settled $65 million of projected benefit obligation by liquidating pension plan assets and recorded a non-
cash settlement loss of $27 million related to the accelerated recognition of unamortized losses.
The following table summarizes the expenses for the Company’s defined contribution and defined benefit
pension plans and the other postretirement defined employee benefit plans:
(in millions)
Defined contribution expense
Defined benefit pension (income) expense
Other postretirement employee benefit income
Total
Year Ended December 31,
2021
2020
2019
$
$
58 $
(19)
(1)
38 $
38 $
15
(1)
52 $
37
45
—
82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following provides a roll forward of the plans’ benefit obligations, plan assets, funded status and
recognition in the Consolidated Balance Sheets:
(in millions)
U.S.
Non-U.S.
U.S.
Non-U.S.
2021
2020
Pension benefits
Year Ended December 31,
Other postretirement
employee benefits
2021
2020
Year Ended December 31,
Change in projected benefit obligation:
Projected benefit obligation, January 1
$
202 $ 2,527 $
198 $
695 $
65 $
Service cost
Interest cost
Plan amendments
Settlement and curtailment
Actuarial (gain) loss
Currency translation
Delphi Technologies acquisition1
Benefits paid
—
3
—
(4)
(7)
—
—
25
30
1
(13)
(208)
(59)
—
—
5
—
—
14
—
—
21
16
—
(19)
161
147
1,542
(11)
(76)
(15)
(36)
Projected benefit obligation, December 312
$
183 $ 2,227 $
202 $ 2,527 $
—
1
—
—
(6)
—
—
(6)
54 $
81
—
2
(12)
—
1
—
1
(8)
65
Change in plan assets:
Fair value of plan assets, January 1
$
187 $ 2,041 $
176 $
Actual return on plan assets
Employer contribution
Settlements
Currency translation
Delphi Technologies acquisition1
Benefits paid
Fair value of plan assets, December 31
Funded status
$
$
Amounts in the Consolidated Balance Sheets
consist of:
5
—
(4)
—
—
110
24
(11)
(39)
—
16
10
—
—
—
505
83
164
(18)
115
1,228
(11)
(76)
(15)
(36)
177 $ 2,049 $
187 $ 2,041
(6) $
(178) $
(15) $
(486) $
(54) $
(65)
Non-current assets
Current liabilities
Non-current liabilities
Net amount
$
— $
68 $
— $
26 $
— $
(2)
(4)
(7)
(1)
(6)
(239)
(14)
(506)
(7)
(47)
$
(6) $
(178) $
(15) $
(486) $
(54) $
Amounts in accumulated other comprehensive
loss consist of:
Net actuarial loss
Net prior service (credit) cost
Net amount
$
$
84 $
74 $
86 $
330 $
(3)
2
(4)
2
81 $
76 $
82 $
332 $
10 $
(13)
(3) $
—
(9)
(56)
(65)
16
(16)
—
Total accumulated benefit obligation for all plans $
183 $ 2,183 $
202 $ 2,471
_____________________________
1 Balances are based on actuarial valuations as of October 1, 2020, the date of the Delphi Technologies acquisition. All
subsequent activity is included elsewhere within the table.
2 The decrease in the projected benefit obligation was primarily due to actuarial gains during the period. The main driver of these
gains was the increase of 0.53% in the weighted average discount rate for Non-U.S. plans.
108
109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The funded status of pension plans with accumulated benefit obligations in excess of plan assets is as
follows:
(in millions)
Accumulated benefit obligation
Plan assets
Deficiency
Pension deficiency by country:
United States
United Kingdom
Germany
Other
$
$
$
Total pension deficiency
$
(216) $
The funded status of pension plans with projected benefit obligations in excess of plan assets is as
follows:
(in millions)
Projected benefit obligation
Plan assets
Deficiency
Pension deficiency by country:
United States
United Kingdom
Germany
Other
$
$
$
Total pension deficiency
$
(253) $
December 31,
2021
2020
(658) $
(2,401)
442
(216) $
1,924
(477)
(6) $
(11)
(89)
(110)
(15)
(202)
(139)
(121)
(477)
December 31,
2021
2020
(731) $
(2,500)
478
(253) $
1,973
(527)
(6) $
(11)
(95)
(141)
Expected return on plan assets
(10)
(83)
(10)
(36)
(11)
(22)
(15)
(202)
(147)
(163)
(527)
Settlements, curtailments and other
Amortization of unrecognized prior
service (credit) cost
Amortization of unrecognized loss
Net periodic cost (income)
$
(2) $
(17) $
(2) $
17 $
27 $
18 $
(1) $
(1) $ —
The weighted average asset allocations of the Company’s funded pension plans and target allocations by
asset category are as follows:
The components of net periodic benefit cost other than the service cost component are included in Other
postretirement income in the Consolidated Statements of Operations.
U.S. Plans:
Alternative credit, real estate, cash and other
Fixed income securities
Equity securities
Non-U.S. Plans:
Insurance contract, real estate, cash and other1
Fixed income securities1
Equity securities
December 31,
2021
2020
Target
Allocation
12 %
72 %
16 %
23 %
3% - 23%
43 % 66% - 76%
34 % 11% - 21%
100 %
100 %
45 %
35 %
20 %
31 % 19% - 39%
55 % 47% - 57%
14 % 14% - 24%
100 %
100 %
_____________________________
1 As of December 31, 2021, £122 million in the Company’s non-U.S. plans was deemed cash in-transit, driving the variances
between actual allocation and target allocation.
The Company’s investment strategy is to maintain actual asset weightings within a preset range of target
allocations. The Company believes these ranges represent an appropriate risk profile for the planned
benefit payments of the plans based on the timing of the estimated benefit payments. In each asset
1 Includes 1.91% and 1.39% for the U.K. pension plans for December 31, 2021 and 2020, respectively.
110
111
category, separate portfolios are maintained for additional diversification. Investment managers are
retained in each asset category to manage each portfolio against its benchmark. Each investment
manager has appropriate investment guidelines. In addition, the entire portfolio is evaluated against a
relevant peer group. The defined benefit pension plans did not hold any Company securities as
investments as of December 31, 2021 and 2020. A portion of pension assets is invested in common and
commingled trusts.
The Company expects to contribute a total of $20 million to $30 million into its defined benefit pension
plans during 2022. Of the $20 million to $30 million in projected 2022 contributions, $7 million are
contractually obligated, while any remaining payments would be discretionary.
Refer to Note 16, “Fair Value Measurements,” to the Consolidated Financial Statements for more detail
surrounding the fair value of each major category of plan assets, as well as the inputs and valuation
techniques used to develop the fair value measurements of the plans’ assets at December 31, 2021 and
See the table below for a breakout of net periodic benefit cost between U.S. and non-U.S. pension plans:
Pension benefits
Year Ended December 31,
Other postretirement employee
benefits
2021
2020
2019
Year Ended December 31,
U.S.
Non-U.S.
U.S.
Non-U.S.
U.S.
Non-U.S.
2021
2020
2019
$ — $
25 $ — $
21 $ — $
18 $ — $ — $ —
3
2
4
(1)
(2)
30
—
13
5
—
—
3
16
5
—
11
8
27
(1)
4
12
1
—
9
1
—
—
2
—
—
(3)
(4)
1
1
3
—
—
(4)
1
2020.
(in millions)
Service cost
Interest cost
The Company’s weighted-average assumptions used to determine the benefit obligations for its defined
benefit pension and other postretirement employee benefit plans were as follows:
(percent)
U.S. pension plans:
Discount rate
Rate of compensation increase
U.S. other postretirement employee benefit plans:
Discount rate
Rate of compensation increase
Non-U.S. pension plans:
Discount rate1
Rate of compensation increase
________________
December 31,
2021
2020
2.73
N/A
2.46
N/A
1.97
3.21
2.31
N/A
1.93
N/A
1.44
3.23
follows:
(in millions)
Plan assets
Deficiency
Accumulated benefit obligation
Pension deficiency by country:
United States
United Kingdom
Germany
Other
Total pension deficiency
follows:
(in millions)
Plan assets
Deficiency
Projected benefit obligation
Pension deficiency by country:
United States
United Kingdom
Germany
Other
Total pension deficiency
U.S. Plans:
Alternative credit, real estate, cash and other
Fixed income securities
Equity securities
Non-U.S. Plans:
Insurance contract, real estate, cash and other1
Fixed income securities1
Equity securities
_____________________________
$
$
$
$
$
$
December 31,
2021
2020
(658) $
(2,401)
442
(216) $
1,924
(477)
(6) $
(11)
(89)
(110)
$
(216) $
(15)
(202)
(139)
(121)
(477)
December 31,
2021
2020
(731) $
(2,500)
478
(253) $
1,973
(527)
(6) $
(11)
(95)
(141)
$
(253) $
(15)
(202)
(147)
(163)
(527)
December 31,
2021
2020
Target
Allocation
100 %
100 %
12 %
72 %
16 %
45 %
35 %
20 %
23 %
3% - 23%
43 % 66% - 76%
34 % 11% - 21%
31 % 19% - 39%
55 % 47% - 57%
14 % 14% - 24%
100 %
100 %
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The funded status of pension plans with accumulated benefit obligations in excess of plan assets is as
The funded status of pension plans with projected benefit obligations in excess of plan assets is as
category, separate portfolios are maintained for additional diversification. Investment managers are
retained in each asset category to manage each portfolio against its benchmark. Each investment
manager has appropriate investment guidelines. In addition, the entire portfolio is evaluated against a
relevant peer group. The defined benefit pension plans did not hold any Company securities as
investments as of December 31, 2021 and 2020. A portion of pension assets is invested in common and
commingled trusts.
The Company expects to contribute a total of $20 million to $30 million into its defined benefit pension
plans during 2022. Of the $20 million to $30 million in projected 2022 contributions, $7 million are
contractually obligated, while any remaining payments would be discretionary.
Refer to Note 16, “Fair Value Measurements,” to the Consolidated Financial Statements for more detail
surrounding the fair value of each major category of plan assets, as well as the inputs and valuation
techniques used to develop the fair value measurements of the plans’ assets at December 31, 2021 and
2020.
See the table below for a breakout of net periodic benefit cost between U.S. and non-U.S. pension plans:
Pension benefits
Year Ended December 31,
Other postretirement employee
benefits
2021
2020
2019
Year Ended December 31,
(in millions)
Service cost
Interest cost
Expected return on plan assets
Settlements, curtailments and other
Amortization of unrecognized prior
service (credit) cost
Amortization of unrecognized loss
Net periodic cost (income)
U.S.
Non-U.S.
Non-U.S.
Non-U.S.
2021
2020
2019
$ — $
3
(10)
2
U.S.
25 $ — $
30
(83)
(2)
5
(10)
—
U.S.
21 $ — $
16
(36)
5
8
(11)
27
18 $ — $ — $ —
3
12
—
(22)
—
1
2
—
—
1
—
—
(1)
4
(2) $
—
13
(17) $
—
3
(2) $
—
11
17 $
(1)
4
—
9
27 $
18 $
(3)
1
(1) $
(4)
(4)
1
1
(1) $ —
$
The weighted average asset allocations of the Company’s funded pension plans and target allocations by
asset category are as follows:
The components of net periodic benefit cost other than the service cost component are included in Other
postretirement income in the Consolidated Statements of Operations.
The Company’s weighted-average assumptions used to determine the benefit obligations for its defined
benefit pension and other postretirement employee benefit plans were as follows:
(percent)
U.S. pension plans:
Discount rate
Rate of compensation increase
U.S. other postretirement employee benefit plans:
Discount rate
Rate of compensation increase
Non-U.S. pension plans:
Discount rate1
Rate of compensation increase
December 31,
2021
2020
2.73
N/A
2.46
N/A
1.97
3.21
2.31
N/A
1.93
N/A
1.44
3.23
110
111
________________
1 Includes 1.91% and 1.39% for the U.K. pension plans for December 31, 2021 and 2020, respectively.
1 As of December 31, 2021, £122 million in the Company’s non-U.S. plans was deemed cash in-transit, driving the variances
between actual allocation and target allocation.
The Company’s investment strategy is to maintain actual asset weightings within a preset range of target
allocations. The Company believes these ranges represent an appropriate risk profile for the planned
benefit payments of the plans based on the timing of the estimated benefit payments. In each asset
The Company has granted restricted common stock and restricted stock units (collectively, “restricted
stock”) and performance share units as long-term incentive awards to employees and non-employee
directors under the BorgWarner Inc. 2018 Stock Incentive Plan (“2018 Plan”). The Company’s Board of
Directors adopted the 2018 Plan in February 2018, and the Company’s stockholders approved the 2018
Plan at the annual meeting of stockholders on April 25, 2018. The 2018 Plan authorizes the issuance of a
total of 7 million shares, of which approximately 4 million shares were available for future issuance as of
December 31, 2021.
Restricted Stock: The value of restricted stock is determined by the market value of the Company’s
common stock at the date of grant. In 2021, restricted stock in the amount of 1.2 million shares and less
than 0.1 million shares were granted to employees and non-employee directors, respectively. The value
of the awards is recognized as compensation expense ratably over the restriction periods. As of
December 31, 2021, there was $45 million of unrecognized compensation expense related to restricted
stock that will be recognized over a weighted average period of approximately 1.2 years.
Restricted stock compensation expense recorded in the Consolidated Statements of Operations is as
follows:
(in millions, except per share data)
Restricted stock compensation expense
Restricted stock compensation expense, net of tax
Year Ended December 31,
2021
2020
2019
$
$
37 $
28 $
31 $
23 $
30
23
A summary of the status of the Company’s nonvested restricted stock for employees and non-employee
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company’s weighted-average assumptions used to determine the net periodic benefit cost/(income)
for its defined benefit pension and other postretirement employee benefit plans were as follows:
NOTE 19 STOCK-BASED COMPENSATION
(percent)
U.S. pension plans:
Discount rate
Effective interest rate on benefit obligation
Expected long-term rate of return on assets
Average rate of increase in compensation
U.S. other postretirement plans:
Discount rate
Effective interest rate on benefit obligation
Expected long-term rate of return on assets
Average rate of increase in compensation
Non-U.S. pension plans:
Discount rate1
Effective interest rate on benefit obligation
Expected long-term rate of return on assets2
Average rate of increase in compensation
Year Ended December 31,
2021
2020
2.31
1.62
5.75
N/A
1.93
1.21
N/A
N/A
1.44
1.24
4.10
3.23
3.17
2.73
6.00
N/A
2.95
2.50
N/A
N/A
1.69
2.19
4.75
3.10
________________
1 Includes 1.39% and 1.82% for the U.K. pension plans for December 31, 2021 and 2020, respectively.
2 Includes 4.00% and 3.97% for the U.K. pension plans for December 31, 2021 and 2020, respectively.
The Company's approach to establishing the discount rate is based upon the market yields of high-quality
corporate bonds, with appropriate consideration of each plan's defined benefit payment terms and
duration of the liabilities. In determining the discount rate, the Company utilizes a full-yield approach in
the estimation of service and interest components by applying the specific spot rates along the yield
curve used in the determination of the benefit obligation to the relevant projected cash flows.
The Company determines its expected return on plan asset assumptions by evaluating estimates of
future market returns and the plans’ asset allocation. The Company also considers the impact of active
management of the plans’ invested assets.
The estimated future benefit payments for the pension and other postretirement employee benefits are as
follows:
(in millions)
Year
2022
2023
2024
2025
2026
2027-2031
Pension benefits
U.S.
Non-U.S.
Other
postretirement
employee
benefits
$
19 $
73 $
14
13
13
13
55
75
74
77
81
462
7
6
6
5
5
16
directors is as follows:
Nonvested at January 1, 2019
Nonvested at December 31, 2019
Granted
Vested
Forfeited
Granted
Vested
Forfeited
Converted1
Granted
Vested
Forfeited
Nonvested at December 31, 2020
Nonvested at December 31, 2021
________________
The weighted-average rate of increase in the per capita cost of covered health care benefits is projected
to range from 6.25% in 2022 down to an ultimate trend rate of 4.75%
.
112
113
1 Represents outstanding Delphi Technologies restricted stock converted to BorgWarner restricted stock. The Delphi
Technologies awards were converted using an exchange ratio of 0.4307 at the close of the acquisition.
Performance share units: The Company grants performance share units to members of senior
management that vest at the end of three-year periods based the following metrics:
Shares subject
to restriction
(thousands)
Weighted
average grant
date fair value
1,516 $
1,082 $
(724) $
(210) $
1,664 $
810 $
(600) $
(80) $
346 $
2,140 $
1,175 $
(845) $
(107) $
2,363 $
42.97
41.66
36.81
44.82
44.26
33.94
44.85
40.20
39.54
39.58
43.66
43.34
39.86
40.24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company’s weighted-average assumptions used to determine the net periodic benefit cost/(income)
NOTE 19 STOCK-BASED COMPENSATION
for its defined benefit pension and other postretirement employee benefit plans were as follows:
Year Ended December 31,
2021
2020
(percent)
U.S. pension plans:
Discount rate
Effective interest rate on benefit obligation
Expected long-term rate of return on assets
Average rate of increase in compensation
U.S. other postretirement plans:
Discount rate
Effective interest rate on benefit obligation
Expected long-term rate of return on assets
Average rate of increase in compensation
Non-U.S. pension plans:
Discount rate1
Effective interest rate on benefit obligation
Expected long-term rate of return on assets2
Average rate of increase in compensation
________________
2.31
1.62
5.75
N/A
1.93
1.21
N/A
N/A
1.44
1.24
4.10
3.23
3.17
2.73
6.00
N/A
2.95
2.50
N/A
N/A
1.69
2.19
4.75
3.10
7
6
6
5
5
16
1 Includes 1.39% and 1.82% for the U.K. pension plans for December 31, 2021 and 2020, respectively.
2 Includes 4.00% and 3.97% for the U.K. pension plans for December 31, 2021 and 2020, respectively.
The Company's approach to establishing the discount rate is based upon the market yields of high-quality
corporate bonds, with appropriate consideration of each plan's defined benefit payment terms and
duration of the liabilities. In determining the discount rate, the Company utilizes a full-yield approach in
the estimation of service and interest components by applying the specific spot rates along the yield
curve used in the determination of the benefit obligation to the relevant projected cash flows.
The Company determines its expected return on plan asset assumptions by evaluating estimates of
future market returns and the plans’ asset allocation. The Company also considers the impact of active
management of the plans’ invested assets.
The estimated future benefit payments for the pension and other postretirement employee benefits are as
follows:
(in millions)
Year
2022
2023
2024
2025
2026
2027-2031
Pension benefits
Other
postretirement
employee
benefits
U.S.
Non-U.S.
$
19 $
73 $
14
13
13
13
55
.
75
74
77
81
462
The weighted-average rate of increase in the per capita cost of covered health care benefits is projected
to range from 6.25% in 2022 down to an ultimate trend rate of 4.75%
The Company has granted restricted common stock and restricted stock units (collectively, “restricted
stock”) and performance share units as long-term incentive awards to employees and non-employee
directors under the BorgWarner Inc. 2018 Stock Incentive Plan (“2018 Plan”). The Company’s Board of
Directors adopted the 2018 Plan in February 2018, and the Company’s stockholders approved the 2018
Plan at the annual meeting of stockholders on April 25, 2018. The 2018 Plan authorizes the issuance of a
total of 7 million shares, of which approximately 4 million shares were available for future issuance as of
December 31, 2021.
Restricted Stock: The value of restricted stock is determined by the market value of the Company’s
common stock at the date of grant. In 2021, restricted stock in the amount of 1.2 million shares and less
than 0.1 million shares were granted to employees and non-employee directors, respectively. The value
of the awards is recognized as compensation expense ratably over the restriction periods. As of
December 31, 2021, there was $45 million of unrecognized compensation expense related to restricted
stock that will be recognized over a weighted average period of approximately 1.2 years.
Restricted stock compensation expense recorded in the Consolidated Statements of Operations is as
follows:
(in millions, except per share data)
Restricted stock compensation expense
Restricted stock compensation expense, net of tax
Year Ended December 31,
2021
2020
2019
$
$
37 $
28 $
31 $
23 $
30
23
A summary of the status of the Company’s nonvested restricted stock for employees and non-employee
directors is as follows:
Shares subject
to restriction
(thousands)
Weighted
average grant
date fair value
Nonvested at January 1, 2019
Granted
Vested
Forfeited
Nonvested at December 31, 2019
Granted
Vested
Forfeited
Converted1
Nonvested at December 31, 2020
Granted
Vested
Forfeited
1,516 $
1,082 $
(724) $
(210) $
1,664 $
810 $
(600) $
(80) $
346 $
2,140 $
1,175 $
(845) $
(107) $
Nonvested at December 31, 2021
________________
1 Represents outstanding Delphi Technologies restricted stock converted to BorgWarner restricted stock. The Delphi
Technologies awards were converted using an exchange ratio of 0.4307 at the close of the acquisition.
2,363 $
Performance share units: The Company grants performance share units to members of senior
management that vest at the end of three-year periods based the following metrics:
112
113
42.97
41.66
36.81
44.82
44.26
33.94
44.85
40.20
39.54
39.58
43.66
43.34
39.86
40.24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
•
Total Stockholder Return Units: This performance metric is based on the Company’s market
performance in terms of total shareholder return relative to a peer group of automotive and
industrial companies. Based on the Company’s relative ranking within the performance peer
group, it is possible for none of the awards to vest or for a range of up to 200% of the target
shares to vest.
The Company recognizes compensation expense relating to this performance share plan ratably
over the performance period regardless of whether the market conditions are expected to be
achieved. Compensation expense associated with the performance share plans is calculated
using a lattice model (Monte Carlo simulation).
As of December 31, 2021, there was $8 million of unrecognized compensation expense related to
total stockholder return units that will be recognized over a weighted average period of
approximately 1.8 years.
• Relative Revenue Growth Units: This performance metric is based on the Company’s
performance in terms of revenue growth relative to the vehicle market over three-year
performance periods. Based on the Company’s relative revenue growth in excess of the industry
vehicle production, it is possible for none of the awards to vest or for a range of up to 200% of the
target shares to vest.
The value of this performance share award is determined by the market value of the Company’s
common stock at the date of grant. The Company recognizes compensation expense relating to
this performance share plan over the performance period based on the number of shares
expected to vest at the end of each reporting period. The actual performance of the Company is
evaluated quarterly and the expense is adjusted according to the new projections.
As of December 31, 2021, there was $3 million of unrecognized compensation expense related to
relative revenue growth units that will be recognized over a weighted average period of
approximately 1.0 years. The unrecognized amount of compensation expense is based on
projected performance as of December 31, 2021.
• Adjusted Earnings Per Share Units: Introduced in the first quarter of 2020, this performance
metric is based on the Company’s earnings per share adjusted for certain one-time items and
non-operating gains and losses against a pre-defined target measured in the third year of the
performance period.
The value of this performance share award is determined by the adjusted earnings per share
performance. The Company recognizes compensation expense relating to this performance share
plan over the performance period based on the number of shares expected to vest at the end of
each reporting period. The actual performance of the Company is evaluated quarterly, and the
expense is adjusted according to the new projections.
As of December 31, 2021, there was $1 million of unrecognized compensation expense related to
adjusted earnings per share units that will be recognized over a weighted average period of
approximately 1 years.
•
eProducts Revenue Mix: Introduced in the first quarter of 2021, this performance metric is based
on the Company’s total revenue derived from eProducts in relation to its total proforma revenue in
2023. Based on the Company’s eProducts revenue mix, it is possible for none of the awards to
vest or for a range of up to 200% of the target shares to vest.
The value of this performance share award is determined by the market value of the Company’s
common stock at the date of grant. The Company recognizes compensation expense relating to
this performance share plan over the performance period based on the number of shares
expected to vest at the end of each reporting period. The actual performance of the Company is
evaluated quarterly and the expense is adjusted according to the new projections.
As of December 31, 2021, there was $9 million of unrecognized compensation expense related to
the eProducts revenue mix units that will be recognized over a weighted average period of
approximately 2.0 years. The unrecognized amount of compensation expense is based on
projected performance as of December 31, 2021.
• Cumulative Free Cash Flow: Introduced in the first quarter of 2021, this performance metric is
based on the Company’s performance in terms of its operating cash flow, less capital
expenditures, for the 3-year period from 2021-2023. Based on the Company’s cumulative free
cash flow, it is possible for none of the awards to vest or for a range of up to 200% of the target
shares to vest.
The value of this performance share award is determined by the market value of the Company’s
common stock at the date of grant. The Company recognizes compensation expense relating to
this performance share plan over the performance period based on the number of shares
expected to vest at the end of each reporting period. The actual performance of the Company is
evaluated quarterly and the expense is adjusted according to the new projections.
As of December 31, 2021, there was $4 million of unrecognized compensation expense related to
the cumulative free cash flow units that will be recognized over a weighted average period of
approximately 2.0 years. The unrecognized amount of compensation expense is based on
projected performance as of December 31, 2021.
The amounts expensed and common stock issued for performance share units for the years ended
December 31, 2021, 2020 and 2019 were as follows:
Year Ended December 31,
2021
2020
2019
Expense (in
millions)
Number of
shares issued
(in thousands)
Expense (in
millions)
Number of
shares issued
(in thousands)
Expense (in
millions)
Number of
shares issued
(in thousands)
Total Stockholder Return
Other Performance-Based
Total
$
$
6
18
24
— $
148
148 $
5
5
10
165 $
340
505 $
5
7
12
—
315
315
A summary of the status of the Company’s nonvested performance share units for the years ended
December 31, 2021, 2020 and 2019 were as follows:
Nonvested at January 1, 2019
Nonvested at December 31, 2019
Nonvested at December 31, 2020
Nonvested at December 31, 2021
Granted
Vested
Forfeited
Granted
Vested
Forfeited
Granted
Vested
Forfeited
Total Stockholder Return
Other Performance-Based
Number of
shares (in
thousands)
Weighted
average grant
date fair value
Number of
shares (in
thousands)
Weighted
average grant
date fair value
297 $
196 $
(160) $
(93) $
240 $
137 $
(89) $
(17) $
271 $
135 $
(143) $
(4) $
259 $
60.35
51.52
45.78
55.82
64.61
28.55
69.75
57.36
45.20
70.39
47.93
37.28
56.90
297
196
$
$
(160) $
(93) $
240
253
$
$
(89) $
(19) $
385
404
$
$
(143) $
(6) $
640
$
47.03
41.90
40.10
44.30
48.52
34.15
51.29
44.19
38.66
45.30
41.92
36.79
42.14
114
115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
•
Total Stockholder Return Units: This performance metric is based on the Company’s market
performance in terms of total shareholder return relative to a peer group of automotive and
industrial companies. Based on the Company’s relative ranking within the performance peer
group, it is possible for none of the awards to vest or for a range of up to 200% of the target
shares to vest.
The Company recognizes compensation expense relating to this performance share plan ratably
over the performance period regardless of whether the market conditions are expected to be
achieved. Compensation expense associated with the performance share plans is calculated
using a lattice model (Monte Carlo simulation).
As of December 31, 2021, there was $8 million of unrecognized compensation expense related to
total stockholder return units that will be recognized over a weighted average period of
approximately 1.8 years.
• Relative Revenue Growth Units: This performance metric is based on the Company’s
performance in terms of revenue growth relative to the vehicle market over three-year
performance periods. Based on the Company’s relative revenue growth in excess of the industry
vehicle production, it is possible for none of the awards to vest or for a range of up to 200% of the
target shares to vest.
The value of this performance share award is determined by the market value of the Company’s
common stock at the date of grant. The Company recognizes compensation expense relating to
this performance share plan over the performance period based on the number of shares
expected to vest at the end of each reporting period. The actual performance of the Company is
evaluated quarterly and the expense is adjusted according to the new projections.
As of December 31, 2021, there was $3 million of unrecognized compensation expense related to
relative revenue growth units that will be recognized over a weighted average period of
approximately 1.0 years. The unrecognized amount of compensation expense is based on
projected performance as of December 31, 2021.
• Adjusted Earnings Per Share Units: Introduced in the first quarter of 2020, this performance
metric is based on the Company’s earnings per share adjusted for certain one-time items and
non-operating gains and losses against a pre-defined target measured in the third year of the
performance period.
The value of this performance share award is determined by the adjusted earnings per share
performance. The Company recognizes compensation expense relating to this performance share
plan over the performance period based on the number of shares expected to vest at the end of
each reporting period. The actual performance of the Company is evaluated quarterly, and the
expense is adjusted according to the new projections.
As of December 31, 2021, there was $1 million of unrecognized compensation expense related to
adjusted earnings per share units that will be recognized over a weighted average period of
approximately 1 years.
•
eProducts Revenue Mix: Introduced in the first quarter of 2021, this performance metric is based
on the Company’s total revenue derived from eProducts in relation to its total proforma revenue in
2023. Based on the Company’s eProducts revenue mix, it is possible for none of the awards to
vest or for a range of up to 200% of the target shares to vest.
The value of this performance share award is determined by the market value of the Company’s
common stock at the date of grant. The Company recognizes compensation expense relating to
this performance share plan over the performance period based on the number of shares
expected to vest at the end of each reporting period. The actual performance of the Company is
evaluated quarterly and the expense is adjusted according to the new projections.
As of December 31, 2021, there was $9 million of unrecognized compensation expense related to
the eProducts revenue mix units that will be recognized over a weighted average period of
approximately 2.0 years. The unrecognized amount of compensation expense is based on
projected performance as of December 31, 2021.
• Cumulative Free Cash Flow: Introduced in the first quarter of 2021, this performance metric is
based on the Company’s performance in terms of its operating cash flow, less capital
expenditures, for the 3-year period from 2021-2023. Based on the Company’s cumulative free
cash flow, it is possible for none of the awards to vest or for a range of up to 200% of the target
shares to vest.
The value of this performance share award is determined by the market value of the Company’s
common stock at the date of grant. The Company recognizes compensation expense relating to
this performance share plan over the performance period based on the number of shares
expected to vest at the end of each reporting period. The actual performance of the Company is
evaluated quarterly and the expense is adjusted according to the new projections.
As of December 31, 2021, there was $4 million of unrecognized compensation expense related to
the cumulative free cash flow units that will be recognized over a weighted average period of
approximately 2.0 years. The unrecognized amount of compensation expense is based on
projected performance as of December 31, 2021.
The amounts expensed and common stock issued for performance share units for the years ended
December 31, 2021, 2020 and 2019 were as follows:
Year Ended December 31,
2021
2020
2019
Expense (in
millions)
Number of
shares issued
(in thousands)
Expense (in
millions)
Number of
shares issued
(in thousands)
Expense (in
millions)
Number of
shares issued
(in thousands)
Total Stockholder Return
Other Performance-Based
Total
$
$
6
18
24
— $
148
148 $
5
5
10
165 $
340
505 $
5
7
12
—
315
315
A summary of the status of the Company’s nonvested performance share units for the years ended
December 31, 2021, 2020 and 2019 were as follows:
Nonvested at January 1, 2019
Granted
Vested
Forfeited
Nonvested at December 31, 2019
Granted
Vested
Forfeited
Nonvested at December 31, 2020
Granted
Vested
Forfeited
Nonvested at December 31, 2021
Total Stockholder Return
Other Performance-Based
Number of
shares (in
thousands)
Weighted
average grant
date fair value
Number of
shares (in
thousands)
Weighted
average grant
date fair value
297 $
196 $
(160) $
(93) $
240 $
137 $
(89) $
(17) $
271 $
135 $
(143) $
(4) $
259 $
60.35
51.52
45.78
55.82
64.61
28.55
69.75
57.36
45.20
70.39
47.93
37.28
56.90
297
196
$
$
(160) $
(93) $
240
253
$
$
(89) $
(19) $
385
404
$
$
(143) $
(6) $
640
$
47.03
41.90
40.10
44.30
48.52
34.15
51.29
44.19
38.66
45.30
41.92
36.79
42.14
114
115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 20 ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table summarizes the activity within accumulated other comprehensive loss:
(in millions)
Foreign
currency
translation
adjustments
Hedge
instruments
Defined benefit
postretirement
plans
Other
Total
Beginning Balance, January 1, 2019
$
(442) $
— $
(234) $
2 $
(674)
Comprehensive (loss) income before
reclassifications
Income taxes associated with comprehensive
(loss) income before reclassifications
Reclassification from accumulated other
comprehensive (loss) income
Income taxes reclassified into net earnings
(51)
(4)
—
—
(1)
—
1
—
(29)
4
37
(8)
(2)
—
—
—
(83)
—
38
(8)
Ending Balance December 31, 2019
$
(497) $
— $
(230) $
— $
(727)
Comprehensive (loss) income before
reclassifications
Income taxes associated with comprehensive
(loss) income before reclassifications
Reclassification from accumulated other
comprehensive (loss) income
Income taxes reclassified into net earnings
133
43
—
—
(1)
—
1
—
(131)
18
16
(3)
—
—
—
—
1
61
17
(3)
Ending Balance December 31, 2020
$
(321) $
— $
(330) $
— $
(651)
Comprehensive (loss) income before
reclassifications1
Income taxes associated with comprehensive
(loss) income before reclassifications
Reclassification from accumulated other
comprehensive (loss) income
Income taxes reclassified into net earnings
(59)
(43)
—
—
(4)
—
4
—
255
(64)
14
(3)
—
—
—
—
192
(107)
18
(3)
Ending Balance December 31, 2021
$
(423) $
— $
(128) $
— $
(551)
_____________________________
1 The increase in the defined benefit postretirement plans comprehensive income before reclassifications is primarily due to
actuarial gains during the period. Refer to Note 18 “Retirement Benefit Plans,” for more information.
The change in other comprehensive income for the Company’s noncontrolling interest entities is related
to foreign currency translation.
Asbestos-related Activity
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 various other risks. It is not possible to predict with certainty whether or not the Company will
ultimately be successful in any of these commercial and legal matters or, if not, what the impact might be.
The Company’s 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.
116
117
The Company previously disclosed a warranty claim that an OEM customer asserted. The claim was
related to certain combustion-related products, and the Company and the customer continued to work
through the warranty process in the fourth quarter of 2021. In December 2021, as a result of discussions
that occurred in the fourth quarter, the Company (without any admission of liability) and the customer
reached an agreement to fully resolve the claim for $130 million, which the Company paid in 2021. For
the year ended December 31, 2021, the Company recorded cumulative charges of $124 million in
connection with the warranty claim. The Company is pursuing a partial recovery of this claim through its
insurance coverage. However, there is no assurance that there will be any recovery.
Environmental
The Company and certain of its current and former direct and indirect corporate predecessors,
subsidiaries and divisions have been identified by the United States Environmental Protection Agency
and certain state environmental agencies and private parties as potentially responsible parties (“PRPs”)
at various hazardous waste disposal sites under the Comprehensive Environmental Response,
Compensation and Liability Act (“Superfund”) and equivalent state laws and, as such, may be presently
liable for the cost of clean-up and other remedial activities at 26 such sites as of December 31, 2021 and
2020. Responsibility for clean-up and other remedial activities at a Superfund site is typically shared
among PRPs based on an allocation formula.
The Company believes that none of these matters, individually or in the aggregate, will have a material
adverse effect on its results of operations, financial position or cash flows. Generally, this is because
either the estimates of the maximum potential liability at a site are not material or the liability will be
shared with other PRPs, although no assurance can be given with respect to the ultimate outcome of any
such matter.
The Company has an accrual for environmental liabilities of $7 million as of December 31, 2021 and
2020, included in Other current and Other non-current liabilities in the Consolidated Balance Sheets. This
accrual is based on information available to the Company (which in most cases includes an estimate of
allocation of liability among PRPs; the probability that other PRPs, many of which 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).
Like many other industrial companies that have historically operated in the United States, the Company,
or parties that the Company is obligated to indemnify, has been named as one of many defendants in
asbestos-related personal injury actions. Morse TEC, a former wholly-owned subsidiary of the Company,
was the obligor for the Company’s previously recorded asbestos-related liabilities and the policyholder of
the related insurance assets.
Derecognition of Morse TEC
On October 30, 2019, the Company entered into a Membership Interest Purchase Agreement (the
“Purchase Agreement”) with Enstar. Pursuant to the Purchase Agreement, the Company transferred
100% of the equity interests of Morse TEC to Enstar. In connection with this transfer, the Company
contributed approximately $172 million in cash to Morse TEC. As Morse TEC was the obligor for the
Company’s asbestos-related liabilities and policyholder of the related insurance assets, the rights and
obligations related to these items transferred upon the sale, and pursuant to the Purchase Agreement,
Morse TEC indemnified the Company and its affiliates for asbestos-related liabilities as more specifically
described in the Purchase Agreement. This indemnification obligation with respect to Asbestos-Related
Liabilities (as such terms are defined in the Purchase Agreement) is not subject to any cap or time
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 20 ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table summarizes the activity within accumulated other comprehensive loss:
(in millions)
Foreign
currency
translation
adjustments
Hedge
instruments
Defined benefit
postretirement
plans
Other
Total
Beginning Balance, January 1, 2019
$
(442) $
— $
(234) $
2 $
(674)
Ending Balance December 31, 2019
$
(497) $
— $
(230) $
— $
(727)
Comprehensive (loss) income before
reclassifications
Income taxes associated with comprehensive
(loss) income before reclassifications
Reclassification from accumulated other
comprehensive (loss) income
Income taxes reclassified into net earnings
Comprehensive (loss) income before
reclassifications
Income taxes associated with comprehensive
(loss) income before reclassifications
Reclassification from accumulated other
comprehensive (loss) income
Income taxes reclassified into net earnings
Comprehensive (loss) income before
reclassifications1
Income taxes associated with comprehensive
(loss) income before reclassifications
Reclassification from accumulated other
comprehensive (loss) income
Income taxes reclassified into net earnings
(51)
(4)
—
—
133
43
—
—
(59)
(43)
—
—
(1)
—
1
—
(1)
—
1
—
(4)
—
4
—
(29)
4
37
(8)
(131)
18
16
(3)
255
(64)
14
(3)
(2)
—
—
—
—
—
—
—
—
—
—
—
(83)
—
38
(8)
1
61
17
(3)
192
(107)
18
(3)
Ending Balance December 31, 2020
$
(321) $
— $
(330) $
— $
(651)
Ending Balance December 31, 2021
$
(423) $
— $
(128) $
— $
(551)
_____________________________
1 The increase in the defined benefit postretirement plans comprehensive income before reclassifications is primarily due to
actuarial gains during the period. Refer to Note 18 “Retirement Benefit Plans,” for more information.
The change in other comprehensive income for the Company’s noncontrolling interest entities is related
to foreign currency translation.
NOTE 21 CONTINGENCIES
In the normal course of business, the Company is party to various commercial and legal claims, actions
and complaints, including matters involving warranty claims, intellectual property claims, general liability
and various other risks. It is not possible to predict with certainty whether or not the Company will
ultimately be successful in any of these commercial and legal matters or, if not, what the impact might be.
The Company’s 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.
The Company previously disclosed a warranty claim that an OEM customer asserted. The claim was
related to certain combustion-related products, and the Company and the customer continued to work
through the warranty process in the fourth quarter of 2021. In December 2021, as a result of discussions
that occurred in the fourth quarter, the Company (without any admission of liability) and the customer
reached an agreement to fully resolve the claim for $130 million, which the Company paid in 2021. For
the year ended December 31, 2021, the Company recorded cumulative charges of $124 million in
connection with the warranty claim. The Company is pursuing a partial recovery of this claim through its
insurance coverage. However, there is no assurance that there will be any recovery.
Environmental
The Company and certain of its current and former direct and indirect corporate predecessors,
subsidiaries and divisions have been identified by the United States Environmental Protection Agency
and certain state environmental agencies and private parties as potentially responsible parties (“PRPs”)
at various hazardous waste disposal sites under the Comprehensive Environmental Response,
Compensation and Liability Act (“Superfund”) and equivalent state laws and, as such, may be presently
liable for the cost of clean-up and other remedial activities at 26 such sites as of December 31, 2021 and
2020. Responsibility for clean-up and other remedial activities at a Superfund site is typically shared
among PRPs based on an allocation formula.
The Company believes that none of these matters, individually or in the aggregate, will have a material
adverse effect on its results of operations, financial position or cash flows. Generally, this is because
either the estimates of the maximum potential liability at a site are not material or the liability will be
shared with other PRPs, although no assurance can be given with respect to the ultimate outcome of any
such matter.
The Company has an accrual for environmental liabilities of $7 million as of December 31, 2021 and
2020, included in Other current and Other non-current liabilities in the Consolidated Balance Sheets. This
accrual is based on information available to the Company (which in most cases includes an estimate of
allocation of liability among PRPs; the probability that other PRPs, many of which are large, solvent public
companies, will fully pay the cost apportioned to them; currently available information from PRPs and/or
federal or state environmental agencies concerning the scope of contamination and estimated
remediation and consulting costs; and remediation alternatives).
Asbestos-related Activity
Like many other industrial companies that have historically operated in the United States, the Company,
or parties that the Company is obligated to indemnify, has been named as one of many defendants in
asbestos-related personal injury actions. Morse TEC, a former wholly-owned subsidiary of the Company,
was the obligor for the Company’s previously recorded asbestos-related liabilities and the policyholder of
the related insurance assets.
Derecognition of Morse TEC
On October 30, 2019, the Company entered into a Membership Interest Purchase Agreement (the
“Purchase Agreement”) with Enstar. Pursuant to the Purchase Agreement, the Company transferred
100% of the equity interests of Morse TEC to Enstar. In connection with this transfer, the Company
contributed approximately $172 million in cash to Morse TEC. As Morse TEC was the obligor for the
Company’s asbestos-related liabilities and policyholder of the related insurance assets, the rights and
obligations related to these items transferred upon the sale, and pursuant to the Purchase Agreement,
Morse TEC indemnified the Company and its affiliates for asbestos-related liabilities as more specifically
described in the Purchase Agreement. This indemnification obligation with respect to Asbestos-Related
Liabilities (as such terms are defined in the Purchase Agreement) is not subject to any cap or time
116
117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
limitation. Following the completion of this transfer, the Company has no obligation with respect to
previously recorded asbestos-related liabilities. During the year ended December 31, 2019, in
accordance with ASC Topic 810, this subsidiary was derecognized as the Company ceased to control the
entity, and the Company removed the associated assets and liabilities from the Consolidated Balance
Sheet, resulting in a pre-tax gain of $177 million. In addition, the Company recorded tax expense as a
result of the reversal of the previously recorded deferred tax assets related to the asbestos liabilities of
$173 million, resulting in an after-tax gain of $4 million.
The Company had certain insurance coverage applicable to asbestos-related claims. The rights to this
insurance were transferred with Morse TEC upon the sale of its membership interests. Prior to the
derecognition, the coverage was the subject of litigation that remained pending at the time of the
derecognition.
During the year ended December 31, 2019, the Company paid $38 million in asbestos-related claim
resolution costs and associated defense costs. Asbestos-related claim resolution costs and associated
defense costs were reflected in the Company’s operating cash flows.
NOTE 22 LEASES AND COMMITMENTS
The Company’s lease agreements primarily consist of real estate property, such as manufacturing
facilities, warehouses, and office buildings, in addition to personal property, such as vehicles,
manufacturing and information technology equipment. The Company determines whether a contract is or
contains a lease at contract inception. The majority of the Company's lease arrangements are comprised
of fixed payments and a limited number of these arrangements include a variable payment component
based on certain index fluctuations. As of December 31, 2021, a significant portion of the Company’s
leases were classified as operating leases.
Generally, the Company’s operating leases have renewal options that extend the lease terms, and some
include options to terminate the agreement or purchase the leased asset. The amortizable life of these
assets is the lesser of its useful life or the lease term, including renewal periods reasonably assured of
being exercised at lease inception.
All leases with an initial term of 12 months or less without an option to extend or purchase the underlying
asset that the Company is reasonably certain to exercise (“short-term leases”) are not recorded on the
Consolidated Balance Sheet and lease expense is recognized on a straight-line basis over the lease
term.
The following table presents the lease assets and lease liabilities as of December 31, 2021 and 2020:
(in millions)
Assets
Operating leases
Finance leases
Total lease assets
Liabilities
Current
Operating leases
Finance leases
Non-current
Operating leases
Finance leases
Balance Sheet Location
Other non-current assets
Property, plant and equipment, net
December 31,
2021
2020
$
$
185 $
11
196 $
Other current liabilities
$
43 $
Notes payable and other short-term debt
Other non-current liabilities
Long-term debt
2
152
11
Total lease liabilities
$
208 $
The following table presents lease obligations arising from obtaining leased assets for the years ended
December 31, 2021 and 2020. For the years ended December 31, 2021 and 2020, approximately
$6 million and $159 million of these lease obligations were assumed in the acquisition of AKASOL on
June 4, 2021 and Delphi Technologies on October 1, 2020, respectively.
The following table presents the maturity of lease liabilities as of December 31, 2021:
211
12
223
47
2
172
12
233
3
2
2
2
2
4
15
2
13
December 31,
2021
2020
$
$
27 $
1
28 $
152
14
166
Operating leases
Finance leases
$
47 $
33
29
26
23
54
17
212 $
195 $
$
$
(in millions)
Operating leases
Finance leases
Total lease obligations
(in millions)
2022
2023
2024
2025
2026
After 2026
Total (undiscounted) lease payments
Less: Imputed interest
Present value of lease liabilities
In the years ended December 31, 2021, 2020 and 2019, the Company recorded operating lease expense
of $57 million, $29 million and $24 million, respectively.
In the years ended December 31, 2021, 2020 and 2019, the operating cash flows for operating leases
were $54 million, $29 million and $24 million, respectively.
In the years ended December 31, 2021, 2020 and 2019, the Company recorded short-term lease costs of
$21 million, $21 million and $18 million, respectively.
118
119
limitation. Following the completion of this transfer, the Company has no obligation with respect to
previously recorded asbestos-related liabilities. During the year ended December 31, 2019, in
accordance with ASC Topic 810, this subsidiary was derecognized as the Company ceased to control the
entity, and the Company removed the associated assets and liabilities from the Consolidated Balance
Sheet, resulting in a pre-tax gain of $177 million. In addition, the Company recorded tax expense as a
result of the reversal of the previously recorded deferred tax assets related to the asbestos liabilities of
$173 million, resulting in an after-tax gain of $4 million.
The Company had certain insurance coverage applicable to asbestos-related claims. The rights to this
insurance were transferred with Morse TEC upon the sale of its membership interests. Prior to the
derecognition, the coverage was the subject of litigation that remained pending at the time of the
derecognition.
During the year ended December 31, 2019, the Company paid $38 million in asbestos-related claim
resolution costs and associated defense costs. Asbestos-related claim resolution costs and associated
defense costs were reflected in the Company’s operating cash flows.
NOTE 22 LEASES AND COMMITMENTS
The Company’s lease agreements primarily consist of real estate property, such as manufacturing
facilities, warehouses, and office buildings, in addition to personal property, such as vehicles,
manufacturing and information technology equipment. The Company determines whether a contract is or
contains a lease at contract inception. The majority of the Company's lease arrangements are comprised
of fixed payments and a limited number of these arrangements include a variable payment component
based on certain index fluctuations. As of December 31, 2021, a significant portion of the Company’s
leases were classified as operating leases.
Generally, the Company’s operating leases have renewal options that extend the lease terms, and some
include options to terminate the agreement or purchase the leased asset. The amortizable life of these
assets is the lesser of its useful life or the lease term, including renewal periods reasonably assured of
being exercised at lease inception.
All leases with an initial term of 12 months or less without an option to extend or purchase the underlying
asset that the Company is reasonably certain to exercise (“short-term leases”) are not recorded on the
Consolidated Balance Sheet and lease expense is recognized on a straight-line basis over the lease
term.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents the lease assets and lease liabilities as of December 31, 2021 and 2020:
(in millions)
Assets
Operating leases
Finance leases
Total lease assets
Liabilities
Current
Operating leases
Finance leases
Non-current
Operating leases
Finance leases
Balance Sheet Location
Other non-current assets
Property, plant and equipment, net
December 31,
2021
2020
$
$
185 $
11
196 $
Other current liabilities
$
43 $
Notes payable and other short-term debt
Other non-current liabilities
Long-term debt
2
152
11
Total lease liabilities
$
208 $
211
12
223
47
2
172
12
233
The following table presents lease obligations arising from obtaining leased assets for the years ended
December 31, 2021 and 2020. For the years ended December 31, 2021 and 2020, approximately
$6 million and $159 million of these lease obligations were assumed in the acquisition of AKASOL on
June 4, 2021 and Delphi Technologies on October 1, 2020, respectively.
(in millions)
Operating leases
Finance leases
Total lease obligations
December 31,
2021
2020
$
$
27 $
1
28 $
152
14
166
The following table presents the maturity of lease liabilities as of December 31, 2021:
(in millions)
2022
2023
2024
2025
2026
After 2026
Total (undiscounted) lease payments
Less: Imputed interest
Present value of lease liabilities
Operating leases
Finance leases
$
47 $
33
29
26
23
54
$
$
212 $
17
195 $
3
2
2
2
2
4
15
2
13
In the years ended December 31, 2021, 2020 and 2019, the Company recorded operating lease expense
of $57 million, $29 million and $24 million, respectively.
In the years ended December 31, 2021, 2020 and 2019, the operating cash flows for operating leases
were $54 million, $29 million and $24 million, respectively.
In the years ended December 31, 2021, 2020 and 2019, the Company recorded short-term lease costs of
$21 million, $21 million and $18 million, respectively.
118
119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Finance lease costs and related cash flows were immaterial for the periods presented.
The following table reconciles the numerators and denominators used to calculate basic and diluted
earnings per share of common stock:
(in millions except share and per share amounts)
Basic earnings per share:
Net earnings attributable to BorgWarner Inc.
Weighted average shares of common stock outstanding
Basic earnings per share of common stock
Diluted earnings per share:
Net earnings attributable to BorgWarner Inc.
Weighted average shares of common stock outstanding
Effect of stock-based compensation
Year Ended December 31,
2021
2020
2019
$
$
$
537 $
500 $
238.1
213.0
2.25 $
2.35 $
537 $
500 $
238.1
1.4
213.0
1.0
746
205.7
3.63
746
205.7
1.1
206.8
3.61
Weighted average shares of common stock outstanding including dilutive
shares
Diluted earnings per share of common stock
239.5
214.0
$
2.24 $
2.34 $
Antidilutive stock-based awards excluded from the calculation of diluted
earnings per share
—
—
0.1
ASC Topic 842 requires that the rate implicit in the lease be used if readily determinable. Generally,
implicit rates are not readily determinable in the Company’s agreements, so the incremental borrowing
rate is used instead for such lease arrangements. The incremental borrowing rates are determined using
rates specific to the term of the lease, economic environments where lease activity is concentrated, value
of lease portfolio, and assuming full collateralization of the loans. The following table presents the terms
and discount rates:
Weighted-average remaining lease term (years)
Operating leases
Finance leases
Weighted-average discount rate
Operating leases
Finance leases
NOTE 23 EARNINGS PER SHARE
December 31,
2021
2020
7
7
2.0 %
3.0 %
8
8
2.0 %
3.1 %
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 described in Note 19, “Stock-Based Compensation,” to the
Consolidated Financial Statements are included in the computation of diluted earnings per share at the
level the related performance criteria are met through the respective balance sheet date. There were 0.8
million and 0.2 million of performance share units excluded from the computation of the diluted earnings
per share for the years ended December 31, 2021 and 2020, respectively, because the related
performance criteria had not been met as of the balance sheet dates.
As a result of the acquisition of Delphi Technologies, approximately 37 million shares were issued on
October 1, 2020, which resulted in dilution of approximately 9 million shares on a year-to-date basis.
120
121
Finance lease costs and related cash flows were immaterial for the periods presented.
ASC Topic 842 requires that the rate implicit in the lease be used if readily determinable. Generally,
implicit rates are not readily determinable in the Company’s agreements, so the incremental borrowing
rate is used instead for such lease arrangements. The incremental borrowing rates are determined using
rates specific to the term of the lease, economic environments where lease activity is concentrated, value
of lease portfolio, and assuming full collateralization of the loans. The following table presents the terms
and discount rates:
Weighted-average remaining lease term (years)
Weighted-average discount rate
Operating leases
Finance leases
Operating leases
Finance leases
NOTE 23 EARNINGS PER SHARE
December 31,
2021
2020
7
7
2.0 %
3.0 %
8
8
2.0 %
3.1 %
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 described in Note 19, “Stock-Based Compensation,” to the
Consolidated Financial Statements are included in the computation of diluted earnings per share at the
level the related performance criteria are met through the respective balance sheet date. There were 0.8
million and 0.2 million of performance share units excluded from the computation of the diluted earnings
per share for the years ended December 31, 2021 and 2020, respectively, because the related
performance criteria had not been met as of the balance sheet dates.
As a result of the acquisition of Delphi Technologies, approximately 37 million shares were issued on
October 1, 2020, which resulted in dilution of approximately 9 million shares on a year-to-date basis.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table reconciles the numerators and denominators used to calculate basic and diluted
earnings per share of common stock:
(in millions except share and per share amounts)
Basic earnings per share:
Net earnings attributable to BorgWarner Inc.
Weighted average shares of common stock outstanding
Basic earnings per share of common stock
Diluted earnings per share:
Net earnings attributable to BorgWarner Inc.
Weighted average shares of common stock outstanding
Effect of stock-based compensation
Year Ended December 31,
2021
2020
2019
$
$
$
537 $
500 $
238.1
213.0
2.25 $
2.35 $
537 $
500 $
238.1
1.4
213.0
1.0
746
205.7
3.63
746
205.7
1.1
206.8
3.61
Weighted average shares of common stock outstanding including dilutive
shares
Diluted earnings per share of common stock
239.5
214.0
$
2.24 $
2.34 $
Antidilutive stock-based awards excluded from the calculation of diluted
earnings per share
—
—
0.1
120
121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Inter-segment eliminations
(175)
(175)
3,940
435
192
—
10,165
—
3,989
479
194
10,165
—
5,412
1,964
806
—
13,896
2,133
Customers
Inter-segment
Net
Year-end assets
Depreciation/
amortization3
Long-lived asset
expenditures1
Net sales
$
5,598 $
80 $
5,678 $
5,714 $
241 $
261
32
2
—
536
32
183
—
410
29
210
192
21
2
—
425
16
441
219
254
—
473
8
481
$
10,165 $
— $
10,165 $
16,029 $
568 $
Customers
Inter-segment
Net
Year-end assets
Depreciation/
amortization
Long-lived asset
expenditures1
Net sales
$
6,153 $
61 $
6,214 $
4,536 $
227 $
4,015
10,168
—
—
(61)
(61)
4,015
10,168
—
4,075
—
8,611
1,091
$
10,168 $
— $
10,168 $
9,702 $
439 $
49
44
2
—
—
—
—
—
2020 Segment information
(in millions)
Air Management
e-Propulsion & Drivetrain
Fuel Injection
Aftermarket
Total
Corporate2
Consolidated
2019 Segment information
(in millions)
Air Management
e-Propulsion & Drivetrain
Inter-segment eliminations
Total
Corporate2
Consolidated
_______________
1 Long-lived asset expenditures include capital expenditures and tooling outlays.
2 Corporate assets include cash and cash equivalents, investments and long-term receivables, and deferred income
taxes.
3 In 2020, e-Propulsion & Drivetrain includes $38 million related to accelerated amortization for certain intangibles, refer to
Note 12, “Goodwill and Other Intangibles,” for more information.
NOTE 24 REPORTING SEGMENTS AND RELATED INFORMATION
The Company’s business is aggregated into four reporting segments which are further described below.
These segments are strategic business groups, which are managed separately as each represents a
specific grouping of related automotive components and systems.
• Air Management. This segment develops and manufactures products to improve fuel economy,
reduce emissions and enhance performance. The Air Management segment’s technologies
include turbochargers, eBoosters, eTurbos, timing systems, emissions systems, thermal systems,
gasoline ignition technology, smart remote actuators, powertrain sensors, canisters, cabin
heaters, battery modules and systems, battery packs, battery heaters and battery charging.
•
•
e-Propulsion & Drivetrain. This segment develops and manufactures products to improve fuel
economy, reduce emissions and enhance performance in combustion, hybrid and electric
vehicles. The e-Propulsion & Drivetrain segment’s technologies include rotating electrical
components, power electronics, control modules, software, friction and mechanical products for
automatic transmissions and torque-management products.
Fuel Injection. This segment includes gasoline and diesel fuel injection components and
systems. The gasoline fuel injection portfolio includes a full suite of fuel injection technologies –
including pumps, injectors, fuel rail assemblies and complete systems – that deliver greater
efficiency for traditional and hybrid vehicles with gasoline combustion engines.
• Aftermarket. Through this segment, the Company sells products and services to independent
aftermarket customers and original equipment service customers. The aftermarket product
portfolio includes a wide range of solutions covering the fuel injection, electronics and engine
management, maintenance, and test equipment and vehicle diagnostics categories.
Segment Adjusted EBIT is the measure of segment income or loss used by the Company. Segment
Adjusted EBIT is comprised of earnings before interest, income taxes and noncontrolling interest (“EBIT”)
adjusted for restructuring, merger, acquisition and divestiture expense, impairment charges, affiliates’
earnings and other items not reflective of on-going operating income or loss. The Company believes
Segment Adjusted EBIT is most reflective of the operational profitability or loss of its reporting segments.
The following tables show segment information and Segment Adjusted EBIT for the Company’s reporting
segments:
2021 Segment information
(in millions)
Air Management
e-Propulsion & Drivetrain
Fuel Injection
Aftermarket
Inter-segment eliminations
Total
Corporate2
Consolidated
Net sales
Customers
Inter-segment
Net
Year-end assets
Depreciation/
amortization
Long-lived asset
expenditures1
$
7,146 $
152 $
7,298 $
6,729 $
305 $
5,209
1,637
846
—
14,838
—
169
189
7
5,378
1,826
853
(517)
(517)
—
—
14,838
—
5,527
1,782
815
—
14,853
1,722
284
142
5
—
736
36
$
14,838 $
— $
14,838 $
16,575 $
772 $
281
237
110
4
—
632
34
666
122
123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 24 REPORTING SEGMENTS AND RELATED INFORMATION
The Company’s business is aggregated into four reporting segments which are further described below.
These segments are strategic business groups, which are managed separately as each represents a
specific grouping of related automotive components and systems.
• Air Management. This segment develops and manufactures products to improve fuel economy,
reduce emissions and enhance performance. The Air Management segment’s technologies
include turbochargers, eBoosters, eTurbos, timing systems, emissions systems, thermal systems,
gasoline ignition technology, smart remote actuators, powertrain sensors, canisters, cabin
heaters, battery modules and systems, battery packs, battery heaters and battery charging.
•
e-Propulsion & Drivetrain. This segment develops and manufactures products to improve fuel
economy, reduce emissions and enhance performance in combustion, hybrid and electric
vehicles. The e-Propulsion & Drivetrain segment’s technologies include rotating electrical
components, power electronics, control modules, software, friction and mechanical products for
automatic transmissions and torque-management products.
•
Fuel Injection. This segment includes gasoline and diesel fuel injection components and
systems. The gasoline fuel injection portfolio includes a full suite of fuel injection technologies –
including pumps, injectors, fuel rail assemblies and complete systems – that deliver greater
efficiency for traditional and hybrid vehicles with gasoline combustion engines.
• Aftermarket. Through this segment, the Company sells products and services to independent
aftermarket customers and original equipment service customers. The aftermarket product
portfolio includes a wide range of solutions covering the fuel injection, electronics and engine
management, maintenance, and test equipment and vehicle diagnostics categories.
Segment Adjusted EBIT is the measure of segment income or loss used by the Company. Segment
Adjusted EBIT is comprised of earnings before interest, income taxes and noncontrolling interest (“EBIT”)
adjusted for restructuring, merger, acquisition and divestiture expense, impairment charges, affiliates’
earnings and other items not reflective of on-going operating income or loss. The Company believes
Segment Adjusted EBIT is most reflective of the operational profitability or loss of its reporting segments.
The following tables show segment information and Segment Adjusted EBIT for the Company’s reporting
segments:
2021 Segment information
(in millions)
Air Management
e-Propulsion & Drivetrain
Fuel Injection
Aftermarket
Total
Corporate2
Consolidated
Customers
Inter-segment
Net
Year-end assets
Depreciation/
amortization
Long-lived asset
expenditures1
Net sales
$
7,146 $
152 $
7,298 $
6,729 $
305 $
5,209
1,637
846
—
14,838
—
169
189
7
—
—
5,378
1,826
853
14,838
—
5,527
1,782
815
—
14,853
1,722
284
142
5
—
736
36
$
14,838 $
— $
14,838 $
16,575 $
772 $
281
237
110
4
—
632
34
666
Inter-segment eliminations
(517)
(517)
2020 Segment information
(in millions)
Air Management
e-Propulsion & Drivetrain
Fuel Injection
Aftermarket
Inter-segment eliminations
Total
Corporate2
Consolidated
2019 Segment information
(in millions)
Air Management
Net sales
Customers
Inter-segment
Net
Year-end assets
Depreciation/
amortization3
Long-lived asset
expenditures1
$
5,598 $
80 $
5,678 $
5,714 $
241 $
3,940
435
192
—
10,165
—
49
44
2
3,989
479
194
(175)
(175)
—
—
10,165
—
5,412
1,964
806
—
13,896
2,133
261
32
2
—
536
32
$
10,165 $
— $
10,165 $
16,029 $
568 $
210
192
21
2
—
425
16
441
Net sales
Customers
Inter-segment
Net
Year-end assets
Depreciation/
amortization
Long-lived asset
expenditures1
$
6,153 $
61 $
6,214 $
4,536 $
227 $
219
254
—
473
8
481
e-Propulsion & Drivetrain
Inter-segment eliminations
4,015
—
—
(61)
4,015
(61)
4,075
—
183
—
$
—
—
—
10,168
10,168
Total
Corporate2
Consolidated
_______________
1 Long-lived asset expenditures include capital expenditures and tooling outlays.
2 Corporate assets include cash and cash equivalents, investments and long-term receivables, and deferred income
taxes.
3 In 2020, e-Propulsion & Drivetrain includes $38 million related to accelerated amortization for certain intangibles, refer to
Note 12, “Goodwill and Other Intangibles,” for more information.
10,168 $
10,168 $
9,702 $
439 $
— $
8,611
1,091
410
29
—
122
123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Adjusted earnings before interest, income taxes and noncontrolling interest (“Segment Adjusted
EBIT”)
Geographic Information
(in millions)
Air Management
e-Propulsion & Drivetrain
Fuel Injection
Aftermarket
Segment Adjusted EBIT
Corporate, including stock-based compensation
Restructuring expense
Customer warranty settlement (Note 21)
Merger, acquisition and divestiture expense
Loss on sales of businesses
Asset impairments and lease modifications
Net gain on insurance recovery for property damage
Intangible asset accelerated amortization (Note 12)
Amortization of inventory fair value adjustment
Gain on derecognition of subsidiary (Note 21)
Unfavorable arbitration loss
Officer stock awards modification
Equity in affiliates' earnings, net of tax
Unrealized loss (gain) on equity securities
Interest expense, net
Other postretirement (income) expense
Earnings before income taxes and noncontrolling interest
Provision for income taxes
Net earnings
Net earnings attributable to the noncontrolling interest, net of tax
Year Ended December 31,
2021
2020
2019
$
1,070 $
762 $
486
170
107
359
39
22
1,833
1,182
302
163
124
50
29
17
192
203
—
96
—
17
(3)
(9)
—
—
—
—
—
(48)
362
93
(45)
789
150
639
102
38
27
—
—
—
(18)
(382)
61
(7)
964
397
567
67
995
443
—
—
1,438
206
72
—
11
7
—
—
—
—
(177)
14
2
(32)
—
43
27
1,265
468
797
51
746
Net earnings attributable to BorgWarner Inc.
$
537 $
500 $
During the year ended December 31, 2021, approximately 83% of the Company’s consolidated net sales
were outside the United States (“U.S.”), attributing sales to the location of production rather than the
location of the customer. Outside the U.S., China, Mexico, Germany, Poland, South Korea and the United
Kingdom exceeded 5% of consolidated net sales during the year ended December 31, 2021. The
Company’s investments in equity securities are excluded from the definition of long-lived assets, as are
goodwill and certain other non-current assets.
(in millions)
United States
Europe:
Germany
Poland
United Kingdom
Hungary
Other Europe
Total Europe
China
Mexico
South Korea
Other foreign
Total
Net sales
2020
Long-lived assets
2021
2019
2021
2020
2019
$
2,490 $
2,023 $
2,335 $
625 $
937 $
752
1,342
1,121
821
469
1,452
5,205
3,518
1,736
1,096
793
1,175
1,507
696
276
458
954
3,559
2,269
1,035
814
465
627
171
589
916
3,810
1,711
1,040
786
486
405
324
215
193
520
1,657
1,042
623
256
192
338
352
229
184
620
1,723
1,055
367
301
208
328
180
56
164
229
957
605
247
221
152
$
14,838 $
10,165 $
10,168 $
4,395 $
4,591 $
2,934
Sales to Major Customers
Consolidated net sales to Ford (including its subsidiaries) were approximately 10%, 13% and 15% for the
years ended December 31, 2021, 2020 and 2019, respectively. Consolidated net sales to Volkswagen
(including its subsidiaries) were approximately 9%, 11% and 11% for the years ended December 31,
2021, 2020 and 2019. Such sales consisted of a variety of products to a variety of customer locations and
regions. No other single customer accounted for more than 10% of consolidated net sales in any of the
years presented.
Sales by Product Line
Subsequent Event
Sales of turbochargers for light vehicles represented approximately 19%, 24% and 28% of consolidated
net sales for the years ended December 31, 2021, 2020 and 2019, respectively. No other single product
line accounted for more than 10% of consolidated net sales in any of the years presented.
In January 2022, the Company announced that the starter and alternator business currently reported in
its e-Propulsion & Drivetrain segment will transition to the Aftermarket segment effective January 1, 2022.
124
125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Adjusted earnings before interest, income taxes and noncontrolling interest (“Segment Adjusted
Geographic Information
EBIT”)
(in millions)
Air Management
e-Propulsion & Drivetrain
Fuel Injection
Aftermarket
Segment Adjusted EBIT
Corporate, including stock-based compensation
Restructuring expense
Customer warranty settlement (Note 21)
Merger, acquisition and divestiture expense
Loss on sales of businesses
Asset impairments and lease modifications
Net gain on insurance recovery for property damage
Intangible asset accelerated amortization (Note 12)
Amortization of inventory fair value adjustment
Gain on derecognition of subsidiary (Note 21)
Unfavorable arbitration loss
Officer stock awards modification
Equity in affiliates' earnings, net of tax
Unrealized loss (gain) on equity securities
Interest expense, net
Other postretirement (income) expense
Earnings before income taxes and noncontrolling interest
Provision for income taxes
Net earnings
Year Ended December 31,
2021
2020
2019
$
1,070 $
762 $
1,833
1,182
(3)
(9)
486
170
107
302
163
124
50
29
17
—
—
—
—
—
(48)
(45)
362
93
789
150
639
102
359
39
22
192
203
—
96
—
17
38
27
—
—
—
(18)
(382)
61
(7)
964
397
567
67
995
443
—
—
1,438
206
72
—
11
7
—
—
—
—
(177)
14
2
(32)
—
43
27
1,265
468
797
51
746
Net earnings attributable to the noncontrolling interest, net of tax
Net earnings attributable to BorgWarner Inc.
$
537 $
500 $
During the year ended December 31, 2021, approximately 83% of the Company’s consolidated net sales
were outside the United States (“U.S.”), attributing sales to the location of production rather than the
location of the customer. Outside the U.S., China, Mexico, Germany, Poland, South Korea and the United
Kingdom exceeded 5% of consolidated net sales during the year ended December 31, 2021. The
Company’s investments in equity securities are excluded from the definition of long-lived assets, as are
goodwill and certain other non-current assets.
(in millions)
United States
Europe:
Germany
Poland
United Kingdom
Hungary
Other Europe
Total Europe
China
Mexico
South Korea
Other foreign
Total
2021
Net sales
2020
2019
2021
2020
2019
Long-lived assets
$
2,490 $
2,023 $
2,335 $
625 $
937 $
752
1,342
1,121
821
469
1,452
5,205
3,518
1,736
1,096
793
1,175
1,507
696
276
458
954
3,559
2,269
1,035
814
465
627
171
589
916
3,810
1,711
1,040
786
486
405
324
215
193
520
1,657
1,042
623
256
192
338
352
229
184
620
1,723
1,055
367
301
208
328
180
56
164
229
957
605
247
221
152
$
14,838 $
10,165 $
10,168 $
4,395 $
4,591 $
2,934
Sales to Major Customers
Consolidated net sales to Ford (including its subsidiaries) were approximately 10%, 13% and 15% for the
years ended December 31, 2021, 2020 and 2019, respectively. Consolidated net sales to Volkswagen
(including its subsidiaries) were approximately 9%, 11% and 11% for the years ended December 31,
2021, 2020 and 2019. Such sales consisted of a variety of products to a variety of customer locations and
regions. No other single customer accounted for more than 10% of consolidated net sales in any of the
years presented.
Sales by Product Line
Sales of turbochargers for light vehicles represented approximately 19%, 24% and 28% of consolidated
net sales for the years ended December 31, 2021, 2020 and 2019, respectively. No other single product
line accounted for more than 10% of consolidated net sales in any of the years presented.
Subsequent Event
In January 2022, the Company announced that the starter and alternator business currently reported in
its e-Propulsion & Drivetrain segment will transition to the Aftermarket segment effective January 1, 2022.
124
125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
NOTE 25 OPERATING CASH FLOWS AND OTHER SUPPLEMENTAL FINANCIAL INFORMATION
(in millions)
OPERATING
Net earnings
Adjustments to reconcile net earnings to net cash flows from operations:
Year Ended December 31,
2021
2020
2019
$
639 $
567 $
797
Not applicable.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Depreciation and tooling amortization
Intangible asset amortization
Restructuring expense, net of cash paid
Stock-based compensation expense
Loss on sales of businesses
Loss on debt extinguishment
Asset impairments
Unrealized loss (gain) on equity securities
Deferred income tax (benefit) provision
Gain on insurance recovery received for property damages
Tax reform adjustments to provision for income taxes
Pre-tax gain on derecognition of subsidiary
Other non-cash adjustments
Net earnings adjustments to reconcile to net cash flows from
operations
Retirement plan contributions
Derecognition of a subsidiary
Changes in assets and liabilities, excluding effects of acquisitions,
divestitures and foreign currency translation adjustments:
Receivables
Inventories
Prepayments and other current assets
Accounts payable and accrued expenses
Prepaid taxes and income taxes payable
Other assets and liabilities
684
88
123
62
29
20
14
362
(180)
(5)
—
—
479
89
135
41
—
—
17
(382)
123
(9)
—
—
(31)
(13)
1,805
(30)
—
1,047
(182)
—
(59)
(268)
11
(134)
8
(27)
27
(28)
23
186
35
76
400
39
30
42
7
—
—
—
186
—
16
(177)
27
1,367
(38)
(172)
19
(36)
(18)
(123)
(8)
17
Net cash provided by operating activities
$
1,306 $
1,184 $
1,008
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest, net
Income taxes, net of refunds
Non-cash investing transactions:
Period end accounts payable related to property, plant and equipment
purchases
$
$
$
130 $
342 $
97 $
205 $
72
243
142 $
182 $
102
reporting as of December 31, 2021 as stated in its report included herein.
126
127
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design of a control system must
reflect the fact that there are resource constraints and the benefits of controls must be considered relative
to costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, within the Company have been
detected. Because of the inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected. However, the Company’s disclosure controls and
procedures are designed to provide reasonable assurance of achieving their objectives.
The Company has adopted and maintains disclosure controls and procedures that are designed
to provide reasonable assurance that information required to be disclosed in the reports filed or submitted
under the Exchange Act, such as this Form 10-K, is collected, recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the Securities and Exchange
Commission. The Company’s disclosure controls and procedures are also designed to ensure that such
information is accumulated and communicated to management to allow timely decisions regarding
required disclosure. As required under Exchange Act Rule 13a-15, the Company’s management,
including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the
effectiveness of disclosure controls and procedures as of the end of the period covered by this report.
Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the
disclosure controls and procedures are effective.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control
over financial reporting, as defined in Exchange Act Rule 13a-15(f). Management conducted an
assessment of the Company’s internal control over financial reporting based on the framework and
criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control - Integrated Framework (2013). As permitted by Securities and Exchange Commission
guidance, management excluded from its assessment of internal control over financial reporting AKASOL
AG which was acquired on June 4, 2021 and accounted for approximately 1.3% of consolidated total
assets and 0.5% of consolidated net sales of the Company, as of and for the year ended December 31,
2021, respectively. Based on the assessment, management concluded that, as of December 31, 2021,
the Company’s internal control over financial reporting is effective based on those criteria.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the
Company’s consolidated financial statements and the effectiveness of internal control over financial
Changes in Internal Control over Financial Reporting
There have been no changes in internal control over the financial reporting that occurred during the most
recent fiscal quarter that have materially affected or are reasonably likely to materially affect the
Company’s internal control over financial reporting.
Adjustments to reconcile net earnings to net cash flows from operations:
(in millions)
OPERATING
Net earnings
Depreciation and tooling amortization
Intangible asset amortization
Restructuring expense, net of cash paid
Stock-based compensation expense
Loss on sales of businesses
Loss on debt extinguishment
Asset impairments
Unrealized loss (gain) on equity securities
Deferred income tax (benefit) provision
Gain on insurance recovery received for property damages
Tax reform adjustments to provision for income taxes
Pre-tax gain on derecognition of subsidiary
Other non-cash adjustments
Net earnings adjustments to reconcile to net cash flows from
operations
Retirement plan contributions
Derecognition of a subsidiary
Changes in assets and liabilities, excluding effects of acquisitions,
divestitures and foreign currency translation adjustments:
Receivables
Inventories
Prepayments and other current assets
Accounts payable and accrued expenses
Prepaid taxes and income taxes payable
Other assets and liabilities
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest, net
Income taxes, net of refunds
Non-cash investing transactions:
684
88
123
62
29
20
14
362
(180)
(5)
—
—
(59)
(268)
(134)
11
8
(27)
479
89
135
41
—
—
17
(382)
123
(9)
—
—
27
(28)
23
186
35
76
400
39
30
42
7
—
—
—
186
—
16
(177)
27
1,367
(38)
(172)
19
(36)
(18)
(123)
(8)
17
(31)
(13)
1,805
(30)
—
1,047
(182)
—
Net cash provided by operating activities
$
1,306 $
1,184 $
1,008
Period end accounts payable related to property, plant and equipment
purchases
142 $
182 $
102
130 $
342 $
97 $
205 $
72
243
$
$
$
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
NOTE 25 OPERATING CASH FLOWS AND OTHER SUPPLEMENTAL FINANCIAL INFORMATION
Year Ended December 31,
2021
2020
2019
$
639 $
567 $
797
Not applicable.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design of a control system must
reflect the fact that there are resource constraints and the benefits of controls must be considered relative
to costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, within the Company have been
detected. Because of the inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected. However, the Company’s disclosure controls and
procedures are designed to provide reasonable assurance of achieving their objectives.
The Company has adopted and maintains disclosure controls and procedures that are designed
to provide reasonable assurance that information required to be disclosed in the reports filed or submitted
under the Exchange Act, such as this Form 10-K, is collected, recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the Securities and Exchange
Commission. The Company’s disclosure controls and procedures are also designed to ensure that such
information is accumulated and communicated to management to allow timely decisions regarding
required disclosure. As required under Exchange Act Rule 13a-15, the Company’s management,
including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the
effectiveness of disclosure controls and procedures as of the end of the period covered by this report.
Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the
disclosure controls and procedures are effective.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control
over financial reporting, as defined in Exchange Act Rule 13a-15(f). Management conducted an
assessment of the Company’s internal control over financial reporting based on the framework and
criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control - Integrated Framework (2013). As permitted by Securities and Exchange Commission
guidance, management excluded from its assessment of internal control over financial reporting AKASOL
AG which was acquired on June 4, 2021 and accounted for approximately 1.3% of consolidated total
assets and 0.5% of consolidated net sales of the Company, as of and for the year ended December 31,
2021, respectively. Based on the assessment, management concluded that, as of December 31, 2021,
the Company’s internal control over financial reporting is effective based on those criteria.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the
Company’s consolidated financial statements and the effectiveness of internal control over financial
reporting as of December 31, 2021 as stated in its report included herein.
Changes in Internal Control over Financial Reporting
There have been no changes in internal control over the financial reporting that occurred during the most
recent fiscal quarter that have materially affected or are reasonably likely to materially affect the
Company’s internal control over financial reporting.
126
127
Item 9B. Other Information
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Information with respect to directors, executive officers and corporate governance that appears in the
Company’s proxy statement for its 2022 Annual Meeting of Stockholders under the captions “Election of
Directors,” “Information on Nominees for Directors,” “Board Committees,” “Compensation Committee
Report,” “Delinquent Section 16(a) Reports,” and “Code of Ethics” is incorporated herein by this reference
and made a part of this report.
Code of Ethics
The Company has long maintained a Code of Ethical Conduct, updated from time to time, which is
applicable to all directors, officers, and employees of the Company. In addition, the Company has
adopted a Code of Ethics for CEO and Senior Financial Officers, which applies to the Company’s CEO,
CFO, Treasurer, and Controller. Each of these codes is posted on the Company’s website at
www.borgwarner.com. The Company intends to disclose any amendments to, or waivers from, a
provision of its Code of Ethical Conduct or Code of Ethics for CEO and Senior Financial Officers on its
website within four business days following the date of any amendment or waiver.
Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s executive officers,
directors, and persons who beneficially own more than 10% of a registered class of the Company’s equity
securities, to file with the SEC initial reports of ownership and reports of changes in ownership of the
Company’s common stock. Such officers, directors and persons are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms that they file with the SEC.
One Form 4 was filed one business day late, on behalf of Stefan Demmerle, with respect to one sales
transaction, due to delays attributable to Dr. Demmerle’s investment brokers. Otherwise, based on
information provided to the Company by each director and executive officer, the Company believes all
beneficial ownership reports, required to be filed in 2021 were timely.
Item 11. Executive Compensation
Information with respect to director and executive compensation that will appear in the Company’s proxy
statement for its 2022 Annual Meeting of Stockholders under the captions “Director Compensation,”
“Compensation Committee Interlocks and Insider Participation,” “Compensation Discussion and
Analysis,” “Restricted Stock,” “Long-Term Equity Incentives,” and “Change of Control Agreements” is
incorporated herein by this reference and made a part of this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Information with respect to security ownership and certain beneficial owners and management and
related stockholders matters that will appear in the Company’s proxy statement for its 2022 Annual
Meeting of Stockholders under the caption “Security Ownership of Certain Beneficial Owners and
Management” is incorporated herein by this reference and made a part of this report.
For information regarding the Company's equity compensation plans, see Item 5 “Market for the
Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in
this Annual Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions and Director Independence
128
129
Item 9B. Other Information
Not applicable.
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Information with respect to directors, executive officers and corporate governance that appears in the
Company’s proxy statement for its 2022 Annual Meeting of Stockholders under the captions “Election of
Directors,” “Information on Nominees for Directors,” “Board Committees,” “Compensation Committee
Report,” “Delinquent Section 16(a) Reports,” and “Code of Ethics” is incorporated herein by this reference
and made a part of this report.
Code of Ethics
The Company has long maintained a Code of Ethical Conduct, updated from time to time, which is
applicable to all directors, officers, and employees of the Company. In addition, the Company has
adopted a Code of Ethics for CEO and Senior Financial Officers, which applies to the Company’s CEO,
CFO, Treasurer, and Controller. Each of these codes is posted on the Company’s website at
www.borgwarner.com. The Company intends to disclose any amendments to, or waivers from, a
provision of its Code of Ethical Conduct or Code of Ethics for CEO and Senior Financial Officers on its
website within four business days following the date of any amendment or waiver.
Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s executive officers,
directors, and persons who beneficially own more than 10% of a registered class of the Company’s equity
securities, to file with the SEC initial reports of ownership and reports of changes in ownership of the
Company’s common stock. Such officers, directors and persons are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms that they file with the SEC.
One Form 4 was filed one business day late, on behalf of Stefan Demmerle, with respect to one sales
transaction, due to delays attributable to Dr. Demmerle’s investment brokers. Otherwise, based on
information provided to the Company by each director and executive officer, the Company believes all
beneficial ownership reports, required to be filed in 2021 were timely.
Item 11. Executive Compensation
Information with respect to director and executive compensation that will appear in the Company’s proxy
statement for its 2022 Annual Meeting of Stockholders under the captions “Director Compensation,”
“Compensation Committee Interlocks and Insider Participation,” “Compensation Discussion and
Analysis,” “Restricted Stock,” “Long-Term Equity Incentives,” and “Change of Control Agreements” is
incorporated herein by this reference and made a part of this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Information with respect to security ownership and certain beneficial owners and management and
related stockholders matters that will appear in the Company’s proxy statement for its 2022 Annual
Meeting of Stockholders under the caption “Security Ownership of Certain Beneficial Owners and
Management” is incorporated herein by this reference and made a part of this report.
For information regarding the Company's equity compensation plans, see Item 5 “Market for the
Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in
this Annual Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions and Director Independence
128
129
Information with respect to certain relationships and related transactions and director independence that
will appear in the Company’s proxy statement for its 2022 Annual Meeting of Stockholders under the
caption “Certain Relationships and Related Transactions, and Director Independence” is incorporated
herein by this reference and made a part of this report.
Item 14. Principal Accountant Fees and Services
Information with respect to principal accountant fees and services that will appear in the Company’s proxy
statement for its 2022 Annual Meeting of Stockholders under the caption “Fees Paid to PwC” is
incorporated herein by this reference and made a part of this report.
Item 15. Exhibits and Financial Statement Schedules
PART IV
The information required by Section (a)(3) of Item 15 is set forth on the Exhibit Index that precedes the
Signatures page of this Form 10-K. The information required by Section (a)(1) of Item 15 is set forth
above in Item 8, Financial Statements and Supplementary Data. All financial statement schedules have
been omitted, since the required information is not applicable or is not present in amounts sufficient to
require submission of the schedule or because the information required is included in the consolidated
financial statements and notes thereto included in this Form 10-K.
Item 16. Form 10-K Summary
Not applicable.
Exhibit Number
EXHIBIT INDEX
Description
1.1
Underwriting Agreement, dated May 12, 2021, among the Company and Deutsche Bank AG, London Branch.
Merrill Lynch International, and J.P. Morgan Securities, as lead managers (incorporated by reference to
Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on May 13, 2021).
3.1
Restated Certificate of Incorporation of the Company, as amended through April 26, 2018 (incorporated by
reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2018 filed July 26, 2018).
2018 filed July 26, 2018).
3.2
Amended and Restated By-Laws of the Company, as amended through April 25, 2018 (incorporated by
reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,
4.1
Indenture, dated as of February 15, 1999, between Borg-Warner Automotive, Inc. and The Bank of New York
Mellon Trust Company, N.A. (successor in interest to The First National Bank of Chicago), as trustee
(incorporated by reference to Exhibit No. 4.5 to the Company's Registration Statement No. 333-172198 filed
on February 11, 2011).
4.2
Indenture, dated as of September 23, 1999, between Borg-Warner Automotive, Inc. and The Bank of New
York Mellon Trust Company, N.A. (successor in interest to Chase Manhattan Trust Company, National
Association), as trustee (incorporated by reference to Exhibit No. 4.6 to the Company's Registration
Statement 333-172198 filed on February 11, 2011).
4.3
Third Supplemental Indenture, dated as of September 16, 2010, between the Company and The Bank of New
York Mellon Trust Company, N.A., as the indenture trustee (incorporated by reference to Exhibit 4.9 to the
Company's Registration Statement 333-172198 filed on February 11, 2011).
4.4 Fourth Supplemental Indenture dated as of March 16, 2015, between the Company and The Bank of New
York Mellon Trust Company, N.A., as the indenture trustee (incorporated by reference to Exhibit 4.2 to the
Company's Current Report on Form 8-K filed March 16, 2015).
4.5 Fifth Supplemental Indenture dated as of November 6, 2015, between the Company and Deutsche Bank
Trust Company Americas, as the indenture trustee (incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K filed November 6, 2015).
4.6
Sixth Supplemental Indenture, dated as of June 19, 2020, between the Company and Deutsche Bank Trust
Company Americas, as the indenture trustee (incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K filed June 19, 2020).
4.7
Seventh Supplemental Indenture, dated as of October 5, 2020, between the Company and Deutsche Bank
Trust Company Americas, as the indenture trustee (incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K filed October 5, 2020).
4.8
Eighth Supplemental Indenture, dated as of May 19. 2021, between the Company and Deutsche Bank Trust
Company Americas, as the indenture trustee (incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K filed May 19, 2021)
4.9
Description of Securities (incorporated by reference to Exhibit 4.6 to the Company’s Annual Report on Form
10-K for the fiscal year ended December 31, 2019 filed February 13, 2020).
10.1 Business Combination Agreement, dated February 15, 2021, by and among BorgWarner Inc., Blitz F21-842
AG and Akasol AG (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on March 26, 2021).
10.2
Agreement of Irrevocable Undertaking, dated February 15, 2021, among Sven Schulz, Sven Schulz Group
GmbH, BorgWarner Inc. and Blitz F21-842 AG (incorporated by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed on March 26, 2021).
10.3
Agreement of Irrevocable Undertaking, dated February 15, 2021, among Stephen Raiser, BorgWarner Inc.
and Blitz F21-842 AG (incorporate by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K
filed on March 26, 2021).
130
A - 1
Information with respect to certain relationships and related transactions and director independence that
will appear in the Company’s proxy statement for its 2022 Annual Meeting of Stockholders under the
caption “Certain Relationships and Related Transactions, and Director Independence” is incorporated
herein by this reference and made a part of this report.
Item 14. Principal Accountant Fees and Services
Information with respect to principal accountant fees and services that will appear in the Company’s proxy
statement for its 2022 Annual Meeting of Stockholders under the caption “Fees Paid to PwC” is
incorporated herein by this reference and made a part of this report.
Item 15. Exhibits and Financial Statement Schedules
PART IV
The information required by Section (a)(3) of Item 15 is set forth on the Exhibit Index that precedes the
Signatures page of this Form 10-K. The information required by Section (a)(1) of Item 15 is set forth
above in Item 8, Financial Statements and Supplementary Data. All financial statement schedules have
been omitted, since the required information is not applicable or is not present in amounts sufficient to
require submission of the schedule or because the information required is included in the consolidated
financial statements and notes thereto included in this Form 10-K.
Item 16. Form 10-K Summary
Not applicable.
Exhibit Number
EXHIBIT INDEX
Description
1.1
3.1
3.2
4.1
4.2
4.3
Underwriting Agreement, dated May 12, 2021, among the Company and Deutsche Bank AG, London Branch.
Merrill Lynch International, and J.P. Morgan Securities, as lead managers (incorporated by reference to
Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on May 13, 2021).
Restated Certificate of Incorporation of the Company, as amended through April 26, 2018 (incorporated by
reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2018 filed July 26, 2018).
Amended and Restated By-Laws of the Company, as amended through April 25, 2018 (incorporated by
reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2018 filed July 26, 2018).
Indenture, dated as of February 15, 1999, between Borg-Warner Automotive, Inc. and The Bank of New York
Mellon Trust Company, N.A. (successor in interest to The First National Bank of Chicago), as trustee
(incorporated by reference to Exhibit No. 4.5 to the Company's Registration Statement No. 333-172198 filed
on February 11, 2011).
Indenture, dated as of September 23, 1999, between Borg-Warner Automotive, Inc. and The Bank of New
York Mellon Trust Company, N.A. (successor in interest to Chase Manhattan Trust Company, National
Association), as trustee (incorporated by reference to Exhibit No. 4.6 to the Company's Registration
Statement 333-172198 filed on February 11, 2011).
Third Supplemental Indenture, dated as of September 16, 2010, between the Company and The Bank of New
York Mellon Trust Company, N.A., as the indenture trustee (incorporated by reference to Exhibit 4.9 to the
Company's Registration Statement 333-172198 filed on February 11, 2011).
4.4 Fourth Supplemental Indenture dated as of March 16, 2015, between the Company and The Bank of New
York Mellon Trust Company, N.A., as the indenture trustee (incorporated by reference to Exhibit 4.2 to the
Company's Current Report on Form 8-K filed March 16, 2015).
4.5 Fifth Supplemental Indenture dated as of November 6, 2015, between the Company and Deutsche Bank
Trust Company Americas, as the indenture trustee (incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K filed November 6, 2015).
4.6
4.7
4.8
Sixth Supplemental Indenture, dated as of June 19, 2020, between the Company and Deutsche Bank Trust
Company Americas, as the indenture trustee (incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K filed June 19, 2020).
Seventh Supplemental Indenture, dated as of October 5, 2020, between the Company and Deutsche Bank
Trust Company Americas, as the indenture trustee (incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K filed October 5, 2020).
Eighth Supplemental Indenture, dated as of May 19. 2021, between the Company and Deutsche Bank Trust
Company Americas, as the indenture trustee (incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K filed May 19, 2021)
4.9
Description of Securities (incorporated by reference to Exhibit 4.6 to the Company’s Annual Report on Form
10-K for the fiscal year ended December 31, 2019 filed February 13, 2020).
10.1 Business Combination Agreement, dated February 15, 2021, by and among BorgWarner Inc., Blitz F21-842
AG and Akasol AG (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on March 26, 2021).
10.2
10.3
Agreement of Irrevocable Undertaking, dated February 15, 2021, among Sven Schulz, Sven Schulz Group
GmbH, BorgWarner Inc. and Blitz F21-842 AG (incorporated by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed on March 26, 2021).
Agreement of Irrevocable Undertaking, dated February 15, 2021, among Stephen Raiser, BorgWarner Inc.
and Blitz F21-842 AG (incorporate by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K
filed on March 26, 2021).
130
A - 1
Exhibit Number
Description
Exhibit Number
Description
10.4
10.5
10.6
10.7
Agreement of Irrevocable Undertaking, dated February 15, 2021, among Felix von Borck, BorgWarner Inc.
and Blitz F21-842 AG (incorporated by reference to Exhibit 10.4 on the Company’s Current Report on Form 8-
K filed on March 26, 2021).
Agreement of Irrevocable Undertaking, dated February 15, 2021, among Dr. Björn Eberleh, BorgWarner Inc.
and Blitz F21-842 AG (incorporated by reference to Exhibit 10.5 on the Company’s Current Report on Form 8-
K filed on March 26, 2021).
Amendment No. 1 to Credit Agreement, dated as of November 16, 2021, between BorgWarner In. and Bank
of America, as administrative agent (incorporated by reference to Exhibit 99.1 on the Company’s Current
Report on Form 8-K filed on November 18, 2021).
Fourth Amended and Restated Credit Agreement, dated as of March 13, 2020, among the Company, as
borrower, the Administrative Agent named therein, and the Lenders that are parties thereto (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed March 16, 2020).
†10.8
Form of 2021 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Agreement for Employees.*
†10.9
Form of 2021 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Units Agreement for Non-U.S.
Employees.*
†10.10
Form of 2021 BorgWarner Inc. 2018 Stock Incentive Plan Performance Share Award Agreement.*
†10.11
Form of 2021 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Agreement for Non-Employee
Directors.*
†10.12
†10.13
†10.14
†10.15
Form of 2020 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Agreement for Employees
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2020 filed on May 6, 2020).
Form of 2020 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Units Agreement for Non-U.S.
Employees (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended March 31, 2020 filed on May 6, 2020).
Form of 2020 BorgWarner Inc. 2018 Stock Incentive Plan Performance Share Award Agreement
(incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2020 filed on May 6, 2020).
Form of 2020 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Agreement for Non-Employee
Directors (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2020 filed on August 5, 2020).
†10.16 Form of 2019 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Agreement for Employees
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2019 filed on July 25, 2019).
†10.17 Form of 2019 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Units Agreement for Non-U.S.
Employees (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2019 filed on July 25, 2019).
†10.18
Form of 2019 BorgWarner Inc. 2018 Stock Incentive Plan Performance Share Award Agreement for Non-U.S.
Employees (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2019 filed on July 25, 2019).
†10.19
Form of 2019 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Agreement for Non-Employee
Directors (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2019 filed on July 25, 2019).
†10.20 Form of 2019 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Agreement for Non-U.S. Directors
(incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2019 filed on July 25, 2019).
†10.21 BorgWarner Inc. 2018 Stock Incentive Plan (incorporated by reference to Appendix A to the Company’s
Definitive Proxy Statement filed March 16, 2018).
†10.22 Form of 2018 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Agreement for Non-Employee
Directors (incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2018 filed on February 19, 2019).
†10.23 Form of 2018 BorgWarner Inc. 2018 Stock Incentive Plan Stock Units Award Agreement for Non-U.S.
Directors (incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2018 filed on February 19, 2019).
†10.24 Form of 2018 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Agreement for Employees
(incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2018 filed on February 19, 2019).
†10.25
Amended and Restated BorgWarner Inc. Management Incentive Bonus Plan, effective as of December 31,
2008 (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2018 filed on February 19, 2019).
†10.26
BorgWarner Inc. Retirement Savings Excess Benefit Plan, as amended and restated, effective January 1,
2009 (incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2018 filed on February 19, 2019).
†10.27
BorgWarner Inc. Board of Directors Deferred Compensation Plan, as amended and restated, effective
January 1, 2009 (incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K
for the year ended December 31, 2018 filed on February 19, 2019).
†10.28
First Amendment, dated as of January 1, 2011, to BorgWarner Inc. Board of Directors Deferred
Compensation Plan (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-
K for the year ended December 31, 2018 filed on February 19, 2019).
†10.29
Second Amendment, dated as of August 1, 2016, to BorgWarner Inc. Board of Directors Deferred
Compensation Plan. (incorporated by reference to Exhibit 10.31 to the Company's Annual Report on Form
10-K for the year ended December 31, 2016 filed February 9, 2017).
†10.30
Form of Amended and Restated Change of Control Employment Agreement for Executive Officers
(incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2018 filed on February 19, 2019).
†10.31
Form of Amended and Restated Change of Control Employment Agreement for Executive Officers (effective
2009) (incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2018 filed on February 19, 2019).
†10.32
BorgWarner Inc. 2004 Deferred Compensation Plan, as amended and restated, effective January 1, 2009
(incorporated by reference to Exhibit 10.29 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2018 filed on February 19, 2019).
†10.33 Offer Letter, dated as of March 8, 2019, between BorgWarner Inc. and Kevin A. Nowlan (incorporated by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2019 filed on April 25, 2019).
†10.34
Revised Offer Letter, dated as of June 7, 2020, between BorgWarner Inc. and Daniel R. Etue (incorporated by
reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2020 filed on August 5, 2020).
10.35
Distribution and Indemnity Agreement, dated as of January 27, 1993, between Borg-Warner Automotive, Inc.
and Borg-Warner Security (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on
Form 10-K/A for the year ended December 31, 2017 filed September 28, 2018).
10.36
10.37
2018).
Assignment of Trademarks and License Agreement, dated as of November 2, 1994, between Borg-Warner
Security Corporation and Borg-Warner Automotive, Inc. (incorporated by reference to Exhibit 10.26 to the
Company’s Annual Report on Form 10-K/A for the year ended December 31, 2017 filed September 28, 2018).
Amendment to Assignment of Trademarks and License Agreement, dated as of July 31, 1998, between Borg-
Warner Security Corporation and Borg-Warner Automotive, Inc. (incorporated by reference to Exhibit 10.27 to
the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2017 filed September 28,
A - 2
A - 3
Exhibit Number
Description
Exhibit Number
Description
10.4
Agreement of Irrevocable Undertaking, dated February 15, 2021, among Felix von Borck, BorgWarner Inc.
and Blitz F21-842 AG (incorporated by reference to Exhibit 10.4 on the Company’s Current Report on Form 8-
†10.21 BorgWarner Inc. 2018 Stock Incentive Plan (incorporated by reference to Appendix A to the Company’s
Definitive Proxy Statement filed March 16, 2018).
K filed on March 26, 2021).
K filed on March 26, 2021).
10.5
Agreement of Irrevocable Undertaking, dated February 15, 2021, among Dr. Björn Eberleh, BorgWarner Inc.
and Blitz F21-842 AG (incorporated by reference to Exhibit 10.5 on the Company’s Current Report on Form 8-
10.6
Amendment No. 1 to Credit Agreement, dated as of November 16, 2021, between BorgWarner In. and Bank
of America, as administrative agent (incorporated by reference to Exhibit 99.1 on the Company’s Current
Report on Form 8-K filed on November 18, 2021).
10.7
Fourth Amended and Restated Credit Agreement, dated as of March 13, 2020, among the Company, as
borrower, the Administrative Agent named therein, and the Lenders that are parties thereto (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed March 16, 2020).
†10.8
Form of 2021 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Agreement for Employees.*
†10.9
Form of 2021 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Units Agreement for Non-U.S.
Employees.*
Directors.*
†10.10
Form of 2021 BorgWarner Inc. 2018 Stock Incentive Plan Performance Share Award Agreement.*
†10.11
Form of 2021 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Agreement for Non-Employee
†10.12
Form of 2020 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Agreement for Employees
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2020 filed on May 6, 2020).
†10.13
Form of 2020 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Units Agreement for Non-U.S.
Employees (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended March 31, 2020 filed on May 6, 2020).
†10.14
Form of 2020 BorgWarner Inc. 2018 Stock Incentive Plan Performance Share Award Agreement
(incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2020 filed on May 6, 2020).
†10.15
Form of 2020 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Agreement for Non-Employee
Directors (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2020 filed on August 5, 2020).
†10.16 Form of 2019 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Agreement for Employees
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2019 filed on July 25, 2019).
†10.17 Form of 2019 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Units Agreement for Non-U.S.
Employees (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2019 filed on July 25, 2019).
†10.18
Form of 2019 BorgWarner Inc. 2018 Stock Incentive Plan Performance Share Award Agreement for Non-U.S.
Employees (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2019 filed on July 25, 2019).
†10.19
Form of 2019 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Agreement for Non-Employee
Directors (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2019 filed on July 25, 2019).
†10.20 Form of 2019 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Agreement for Non-U.S. Directors
(incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2019 filed on July 25, 2019).
†10.22 Form of 2018 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Agreement for Non-Employee
Directors (incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2018 filed on February 19, 2019).
†10.23 Form of 2018 BorgWarner Inc. 2018 Stock Incentive Plan Stock Units Award Agreement for Non-U.S.
Directors (incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2018 filed on February 19, 2019).
†10.24 Form of 2018 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Agreement for Employees
(incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2018 filed on February 19, 2019).
†10.25
†10.26
†10.27
†10.28
†10.29
†10.30
†10.31
†10.32
Amended and Restated BorgWarner Inc. Management Incentive Bonus Plan, effective as of December 31,
2008 (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2018 filed on February 19, 2019).
BorgWarner Inc. Retirement Savings Excess Benefit Plan, as amended and restated, effective January 1,
2009 (incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2018 filed on February 19, 2019).
BorgWarner Inc. Board of Directors Deferred Compensation Plan, as amended and restated, effective
January 1, 2009 (incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K
for the year ended December 31, 2018 filed on February 19, 2019).
First Amendment, dated as of January 1, 2011, to BorgWarner Inc. Board of Directors Deferred
Compensation Plan (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-
K for the year ended December 31, 2018 filed on February 19, 2019).
Second Amendment, dated as of August 1, 2016, to BorgWarner Inc. Board of Directors Deferred
Compensation Plan. (incorporated by reference to Exhibit 10.31 to the Company's Annual Report on Form
10-K for the year ended December 31, 2016 filed February 9, 2017).
Form of Amended and Restated Change of Control Employment Agreement for Executive Officers
(incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2018 filed on February 19, 2019).
Form of Amended and Restated Change of Control Employment Agreement for Executive Officers (effective
2009) (incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2018 filed on February 19, 2019).
BorgWarner Inc. 2004 Deferred Compensation Plan, as amended and restated, effective January 1, 2009
(incorporated by reference to Exhibit 10.29 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2018 filed on February 19, 2019).
†10.33 Offer Letter, dated as of March 8, 2019, between BorgWarner Inc. and Kevin A. Nowlan (incorporated by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2019 filed on April 25, 2019).
†10.34
Revised Offer Letter, dated as of June 7, 2020, between BorgWarner Inc. and Daniel R. Etue (incorporated by
reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2020 filed on August 5, 2020).
10.35
10.36
10.37
Distribution and Indemnity Agreement, dated as of January 27, 1993, between Borg-Warner Automotive, Inc.
and Borg-Warner Security (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on
Form 10-K/A for the year ended December 31, 2017 filed September 28, 2018).
Assignment of Trademarks and License Agreement, dated as of November 2, 1994, between Borg-Warner
Security Corporation and Borg-Warner Automotive, Inc. (incorporated by reference to Exhibit 10.26 to the
Company’s Annual Report on Form 10-K/A for the year ended December 31, 2017 filed September 28, 2018).
Amendment to Assignment of Trademarks and License Agreement, dated as of July 31, 1998, between Borg-
Warner Security Corporation and Borg-Warner Automotive, Inc. (incorporated by reference to Exhibit 10.27 to
the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2017 filed September 28,
2018).
A - 2
A - 3
Exhibit Number
Description
21.1 Subsidiaries of the Company.*
23.1
Independent Registered Public Accounting Firm's Consent.*
31.1 Rule 13a-14(a)/15d-14(a) Certification by Principal Executive Officer.*
31.2 Rule 13a-14(a)/15d-14(a) Certification by Principal Financial Officer.*
32.1 Section 1350 Certifications.*
101.INS
Inline XBRL Instance Document.*
101.SCH
Inline XBRL Taxonomy Extension Schema Document.*
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.*
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.*
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.*
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.*
104.1
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).*
*Filed herewith.
† Indicates a management contract or compensatory plan or arrangement.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
BORGWARNER INC.
Date: February 15, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person
on behalf of the registrant and in the capacities indicated on the 15th day of February, 2022.
By:
/s/ Frederic B. Lissalde
Frederic B. Lissalde
President and Chief Executive Officer
Title
President and Chief Executive Officer
(Principal Executive Officer) and Director
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
Vice President and Controller
(Principal Accounting Officer)
Signature
/s/ Frederic B. Lissalde
Frederic B. Lissalde
/s/ Kevin A. Nowlan
Kevin A. Nowlan
/s/ Daniel R. Etue
Daniel R. Etue
/s/ Nelda J. Connors
Nelda J. Connors
/s/ Dennis C. Cuneo
Dennis C. Cuneo
/s/ Sara A. Greenstein
Sara A. Greenstein
/s/ David S. Haffner
David S. Haffner
/s/ Michael S. Hanley
Michael S. Hanley
/s/ Paul A. Mascarenas
Paul A. Mascarenas
/s/ Shaun E. McAlmont
Shaun E. McAlmont
/s/ Deborah D. McWhinney
Deborah D. McWhinney
/s/ Alexis P. Michas
Alexis P. Michas
Director
Director
Director
Director
Director
Director
Director
Director
Director and Non-Executive Chairman
A - 4
Exhibit Number
Description
21.1 Subsidiaries of the Company.*
23.1
Independent Registered Public Accounting Firm's Consent.*
31.1 Rule 13a-14(a)/15d-14(a) Certification by Principal Executive Officer.*
31.2 Rule 13a-14(a)/15d-14(a) Certification by Principal Financial Officer.*
32.1 Section 1350 Certifications.*
101.INS
Inline XBRL Instance Document.*
101.SCH
Inline XBRL Taxonomy Extension Schema Document.*
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.*
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.*
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.*
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.*
104.1
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).*
*Filed herewith.
† Indicates a management contract or compensatory plan or arrangement.
A - 4
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
BORGWARNER INC.
By:
/s/ Frederic B. Lissalde
Frederic B. Lissalde
President and Chief Executive Officer
Date: February 15, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person
on behalf of the registrant and in the capacities indicated on the 15th day of February, 2022.
Signature
/s/ Frederic B. Lissalde
Frederic B. Lissalde
/s/ Kevin A. Nowlan
Kevin A. Nowlan
/s/ Daniel R. Etue
Daniel R. Etue
/s/ Nelda J. Connors
Nelda J. Connors
/s/ Dennis C. Cuneo
Dennis C. Cuneo
/s/ Sara A. Greenstein
Sara A. Greenstein
/s/ David S. Haffner
David S. Haffner
/s/ Michael S. Hanley
Michael S. Hanley
/s/ Paul A. Mascarenas
Paul A. Mascarenas
/s/ Shaun E. McAlmont
Shaun E. McAlmont
/s/ Deborah D. McWhinney
Deborah D. McWhinney
/s/ Alexis P. Michas
Alexis P. Michas
Title
President and Chief Executive Officer
(Principal Executive Officer) and Director
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
Vice President and Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director and Non-Executive Chairman
Directors and Officers
BOARD OF DIRECTORS
Alexis P. Michas (1, 5)
Managing Partner, Juniper Investment
Company, LLC
Frédéric B. Lissalde (5)
President and Chief Executive Officer,
BorgWarner Inc.
Nelda J. Connors (2)
Founder, Chairwoman and Chief Executive
Officer, Pine Grove Holdings, LLC
Dennis C. Cuneo (3, 4, 5)
Partner, Fisher & Phillips LLP; Former Senior
Vice President, Toyota Motor North America
Sara A. Greenstein (2, 3)
Former President, Chief Executive Officer
and Board Member, Lydall, Inc.
David S. Haffner (4)
Retired Chairman and Chief Executive Officer,
Leggett & Platt, Inc.
Michael S. Hanley (2)
Retired Global Automotive Leader,
Ernst & Young LLP
OFFICERS
Frédéric B. Lissalde
President and Chief Executive Officer
Kevin A. Nowlan
Executive Vice President, Chief Financial Officer
Tonit M. Calaway
Executive Vice President, Chief Administrative
Officer, General Counsel and Secretary
Felecia J. Pryor
Executive Vice President, Chief Human
Resources Officer
Craig D. Aaron
Vice President and Treasurer
Stefan Demmerle
Vice President and President and
General Manager, PowerDrive Systems
Brady D. Ericson
Vice President and President and General
Manager, Fuel Injection Systems and Aftermarket*
Daniel R. Etue
Vice President and Controller
Paul A. Mascarenas (2, 4)
Venture Partner, Fontinalis Partners LLP; Former
Chief Technical Officer, Ford Motor Company
Joseph F. Fadool
Vice President and President and General
Manager, Emissions, Thermal and Turbo Systems
Dr. Shaun E. McAlmont (3)
President and Chief Executive Officer,
Ninjio, LLC
Deborah D. McWhinney (2, 3)
Retired Chief Executive Officer of Global
Enterprise Payments, Citigroup Inc.
(1) Non-Executive Chair of the Board and
member of the Executive Committee
(2) Member of the Audit Committee, of which
Director Hanley is the Chair
(3) Member of the Compensation Committee,
of which Director McWhinney is the Chair
(4) Member of the Corporate Governance
Committee, of which Director Cuneo is the Chair
(5) Member of the Executive Committee,
of which Director Michas is the Chair
Paul A. Farrell
Vice President and Chief Strategy Officer
Davide Girelli
Vice President and President and
General Manager, Morse Systems*
Volker Weng
Vice President and President and
General Manager, Drivetrain Systems f/k/a
Transmission Systems
* Effective as of March 1, 2022
BorgWarner Inc.
World Headquarters
3850 Hamlin Road
Auburn Hills, MI 48326
borgwarner.com
2021 STOCKHOLDERS LETTER AND ANNUAL REPORT ON FORM 10–K