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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
QUARTERLY REPORT
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2022
OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                      to                     
Commission file number: 1-12162
BORGWARNER INC.
________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 13-3404508
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
3850 Hamlin Road,Auburn Hills,Michigan 48326
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (248754-9200
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 shareBWANew York Stock Exchange
1.00% Senior Notes due 2031BWA31New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.        Yes  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).                        Yes   No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No
As of October 21, 2022, the registrant had 234,153,930 shares of voting common stock outstanding.



BORGWARNER INC.
FORM 10-Q
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
INDEX
 Page No.
 
  
 
  
  
  
  
  
  
  
  
 
  
  
  


CAUTIONARY STATEMENTS FOR FORWARD-LOOKING STATEMENTS

Statements in this Quarterly Report on Form 10-Q (“Form 10-Q”) (including Management’s Discussion and Analysis of Financial Condition and Results of Operations) may constitute forward-looking statements as contemplated by the 1995 Private Securities Litigation Reform Act (the “Act”) that are based on management's current outlook, expectations, estimates and projections. Words such as “anticipates,” “believes,” “continues,” “could,” “designed,” “effect,” “estimates,” “evaluates,” “expects,” “forecasts,” “goal,” “guidance,” “initiative,” “intends,” “may,” “outlook,” “plans,” “potential,” “predicts,” “project,” “pursue,” “seek,” “should,” “target,” “when,” “will,” “would,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Further, all statements, other than statements of historical fact contained or incorporated by reference in this Form 10-Q, that we expect or anticipate will or may occur in the future regarding our financial position, business strategy and measures to implement that strategy, including changes to operations, competitive strengths, goals, expansion and growth of our business and operations, plans, references to future success and other such matters, are forward-looking statements. Accounting estimates, such as those described under the heading “Critical Accounting Policies and Estimates” in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021 (“Form 10-K”), are inherently forward-looking. All forward-looking statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate under the circumstances. Forward-looking statements are not guarantees of performance, and the Company’s actual results may differ materially from those expressed, projected, or implied in or by the forward-looking statements.

You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q. Forward-looking statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed, projected or implied in or by the forward-looking statements. These risks and uncertainties, among others, include supply disruptions impacting us or our customers, such as the current shortage of semiconductor chips that has impacted original equipment manufacturer (“OEM”) customers and their suppliers, including us; commodities availability and pricing, and an inability to achieve expected levels of success in additional commercial negotiations with customers concerning recovery of these costs; competitive challenges from existing and new competitors including OEM customers; the challenges associated with rapidly changing technologies, particularly as relates to electric vehicles, and our ability to innovate in response; uncertainties regarding the extent and duration of impacts of matters associated with the COVID-19/coronavirus pandemic (“COVID-19”), including additional production disruptions; the difficulty in forecasting demand for electric vehicles and our electric vehicles revenue growth; potential disruptions in the global economy caused by Russia’s invasion of Ukraine; the ability to identify targets and consummate acquisitions on acceptable terms; failure to realize the expected benefits of acquisitions on a timely basis; 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 in reports that we file with the Securities and Exchange Commission, including Item 1A, “Risk Factors” in our most recently-filed Form 10-K. We do not undertake any obligation to update or announce publicly any updates to or revisions to any of the forward-looking statements in this Form 10-Q to reflect any change in our expectations or any change in events, conditions, circumstances, or assumptions underlying the statements.

This section and the discussions contained in Item 1A, “Risk Factors,” and in Item 7, subheading “Critical Accounting Policies and Estimates” in our most recently-filed Form 10-K are intended to provide


meaningful cautionary statements for purposes of the safe harbor provisions of the Act. This should not be construed as a complete list of all of the economic, competitive, governmental, technological and other factors that could adversely affect our expected consolidated financial position, results of operations or liquidity. Additional risks and uncertainties, including without limitation those not currently known to us or that we currently believe are immaterial, also may impair our business, operations, liquidity, financial condition and prospects.

Use of Non-GAAP Financial Measures

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



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions)September 30,
2022
December 31,
2021
ASSETS
Cash, cash equivalents and restricted cash$1,241 $1,844 
Receivables, net3,363 2,898 
Inventories, net1,658 1,534 
Prepayments and other current assets285 321 
Total current assets6,547 6,597 
Property, plant and equipment, net4,006 4,395 
Investments and long-term receivables422 530 
Goodwill3,271 3,279 
Other intangible assets, net1,049 1,091 
Other non-current assets782 683 
Total assets$16,077 $16,575 
LIABILITIES AND EQUITY
Notes payable and other short-term debt$56 $66 
Accounts payable2,400 2,276 
Other current liabilities1,360 1,456 
Total current liabilities3,816 3,798 
Long-term debt4,080 4,261 
Retirement-related liabilities252 290 
Other non-current liabilities892 964 
Total liabilities9,040 9,313 
Commitments and contingencies
Common stock3 3 
Capital in excess of par value2,650 2,637 
Retained earnings7,239 6,671 
Accumulated other comprehensive loss(1,078)(551)
Common stock held in treasury, at cost(2,039)(1,812)
Total BorgWarner Inc. stockholders’ equity6,775 6,948 
Noncontrolling interest262 314 
Total equity7,037 7,262 
Total liabilities and equity$16,077 $16,575 

See accompanying Notes to Condensed Consolidated Financial Statements.
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BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended September 30,Nine Months Ended September 30,
(in millions, except per share amounts)2022 20212022 2021
Net sales$4,060 $3,416 $11,693 $11,183 
Cost of sales3,254 2,766 9,425 8,953 
Gross profit806 650 2,268 2,230 
Selling, general and administrative expenses397 343 1,179 1,084 
Restructuring expense8 51 50 143 
Other operating expense, net12 3 26 30 
Operating income389 253 1,013 973 
Equity in affiliates’ earnings, net of tax(10)(12)(29)(40)
Unrealized (gain) loss on equity securities(1)61 27 337 
Interest expense, net12 18 42 75 
Other postretirement income(8)(10)(26)(33)
Earnings before income taxes and noncontrolling interest396 196 999 634 
Provision for income taxes104 79 252 149 
Net earnings292 117 747 485 
Net earnings attributable to noncontrolling interest, net of tax19 21 58 77 
Net earnings attributable to BorgWarner Inc. $273 $96 $689 $408 
Earnings per share attributable to BorgWarner Inc. — basic$1.17 $0.40 $2.92 $1.71 
Earnings per share attributable to BorgWarner Inc. — diluted$1.16 $0.40 $2.90 $1.70 
Weighted average shares outstanding:       
Basic234.3 238.2 236.5 238.0 
Diluted235.6 239.8 237.5 239.3 

See accompanying Notes to Condensed Consolidated Financial Statements.
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BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended September 30,Nine Months Ended September 30,
(in millions)2022202120222021
Net earnings attributable to BorgWarner Inc. $273 $96 $689 $408 
Other comprehensive (loss) income
Foreign currency translation adjustments*(274)(81)(554)(111)
Hedge instruments*8 (1)13 (3)
Defined benefit postretirement plans*4 9 14 19 
Total other comprehensive loss attributable to BorgWarner Inc.(262)(73)(527)(95)
Comprehensive income attributable to BorgWarner Inc.*11 23 162 313 
Net earnings attributable to noncontrolling interest, net of tax19 21 58 77 
Other comprehensive loss attributable to noncontrolling interest*(24)(6)(42)(11)
Comprehensive income$6 $38 $178 $379 
____________________________________
*    Net of income taxes.

See accompanying Notes to Condensed Consolidated Financial Statements.

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BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30,
(in millions)20222021
OPERATING
Net cash provided by operating activities (see Note 23)
$679 $764 
INVESTING 
Capital expenditures, including tooling outlays(511)(494)
Capital expenditures for damage to property, plant and equipment (2)
Insurance proceeds received for damage to property, plant and equipment 5 
Payments for businesses acquired, net of cash acquired(288)(759)
Proceeds from settlement of net investment hedges, net40 21 
Proceeds from (payments for) investments in equity securities27 (15)
Proceeds from the sale of business, net25  
Proceeds from asset disposals and other, net21 6 
Net cash used in investing activities(686)(1,238)
FINANCING 
Net decrease in notes payable (8)
Additions to debt2 1,273 
Payments for debt issuance costs (10)
Repayments of debt, including current portion(9)(698)
Payments for purchase of treasury stock(240) 
Payments for stock-based compensation items(18)(14)
Purchase of noncontrolling interest(59)(33)
Dividends paid to BorgWarner stockholders(121)(122)
Dividends paid to noncontrolling stockholders(48)(38)
Net cash (used in) provided by financing activities(493)350 
Effect of exchange rate changes on cash(103)(16)
Net decrease in cash, cash equivalents and restricted cash(603)(140)
Cash, cash equivalents and restricted cash at beginning of year1,844 1,650 
Cash, cash equivalents and restricted cash at end of period$1,241 $1,510 

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

NOTE 1 BASIS OF PRESENTATION

The accompanying unaudited Condensed Consolidated Financial Statements of BorgWarner Inc. and Consolidated Subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes necessary for a comprehensive presentation of financial position, results of operations and cash flow activity required by GAAP for complete financial statements. In the opinion of management, all normal recurring adjustments necessary for a fair statement of results have been included. Certain prior period amounts have been reclassified to conform to the current period presentation. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The balance sheet as of December 31, 2021 was derived from the audited financial statements as of that date. For further information, refer to the Consolidated Financial Statements and Footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and accompanying notes, as well as the amounts of revenues and expenses reported during the periods covered by those financial statements and accompanying notes. Actual results could differ from these estimates.

COVID-19 Pandemic and Other Supply Disruptions

The impact of COVID-19, including changes in consumer behavior, pandemic fears and market downturns, and restrictions on business and individual activities, has created significant volatility in the global economy. Recent COVID-19 outbreaks in certain regions continue to cause intermittent COVID-19-related disruptions in the Company’s supply chain and local manufacturing operations. For a significant portion of the second quarter of 2022, China imposed lock-downs in many cities due to an increase in COVID-19 cases in the region. The Company also continues to face supplier disruptions due to a global semiconductor shortage in the automotive industry.

The Company continues to expect global industry production to modestly increase year over year in 2022. However, various global disruptions, including, but not limited to, input cost inflation, supply chain disruptions and further impacts from Russia’s invasion of Ukraine could impact the Company’s 2022 expectation.


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NOTE 2 NEW ACCOUNTING PRONOUNCEMENTS

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

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


NOTE 3 ACQUISITIONS

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

Hubei Surpass Sun Electric Charging Business

On September 20, 2022, the Company announced that it had entered into an Equity Transfer Agreement under which BorgWarner will acquire the electric vehicle solution, smart grid and smart energy businesses of Hubei Surpass Sun Electric. The transaction has an enterprise value up to ¥410 million ($60 million), of which approximately ¥267 million ($39 million) will be delivered at or soon after closing and up to ¥143 million ($21 million) could be paid in the form of contingent payments over approximately two years following the closing. The acquisition complements the Company’s existing European and North American charging footprint by adding a presence in China. The transaction is subject to satisfaction of customary closing conditions and is expected to close in the first quarter of 2023.

Rhombus Energy Solutions

On July 29, 2022, the Company completed its acquisition of 100% of Rhombus Energy Solutions (“Rhombus”), a provider of charging solutions in the North American market, pursuant to the terms of an Agreement and Plan of Merger (the “Agreement”). The acquisition complements the Company’s existing
6

European charging footprint to accelerate organic growth and adds North American regional presence to its charging business.

The total consideration was $131 million, all of which was paid at the time of closing. Pursuant to the Agreement, the Company is obligated to remit up to $30 million of earn-out payments, payable in 2025, contingent upon achievement of certain sales dollars, sales volume, and gross margin targets. The Company’s current estimates indicate that the minimum thresholds for these earn-out targets will not be achieved, thus no amount for the earn-out payments has been included in the purchase consideration or in the Company’s Condensed Consolidated Balance Sheet. Additionally, pursuant to the Agreement, the Company is obligated to remit up to $25 million over the next three years in key employee retention related payments, which include certain performance targets. The amounts will be accounted for as post-combination expense.

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

The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of July 29, 2022, the acquisition date:
(in millions)Initial Allocation
ASSETS
Current assets$7 
Goodwill104 
Other intangible assets, net27 
Other non-current assets4 
Total assets acquired142 
LIABILITIES
Current liabilities3 
Other non-current liabilities8 
Total liabilities assumed11 
Net assets acquired$131 

Any excess of the purchase price over the estimated fair value of net assets was recognized as goodwill. Goodwill of $104 million was recorded within the Company’s Air Management segment. The goodwill consists of the Company’s expected future economic benefits that will be realized from expanding the Company’s electric vehicle portfolio as electric vehicle production continues to increase. The goodwill is not expected to be deductible for tax purposes.

In connection with the acquisition, the Company preliminarily recorded $27 million for intangible assets, primarily for developed technology. As described above, the provisional fair value of intangible assets was valued using the income approach. Management used a third-party valuation firm to assist in the determination of the provisional purchase accounting fair values; however, management ultimately oversees the third-party valuation firm to ensure that the transaction-specific assumptions are appropriate for the Company.

The impact of the Rhombus acquisition on net sales and net earnings was immaterial for the three and nine months ended September 30, 2022. Due to its insignificant size relative to the Company, supplemental pro forma financial information of the combined entity for the current and prior reporting periods is not provided.
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Santroll Automotive Components

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

The total final consideration was $207 million, which includes final working capital and net debt adjustments of $5 million. The consideration includes approximately ¥1.1 billion ($167 million) of base purchase price and ¥0.25 billion ($40 million) of originally estimated earn-out payments. The Company paid approximately ¥1.0 billion ($157 million) of base purchase price in the nine months ended September 30, 2022. The remaining $10 million of base purchase price is recorded in Other current liabilities in the Company’s Condensed Consolidated Balance Sheet as of September 30, 2022. Pursuant to the ETA, the obligation of the Company to remit up to ¥0.3 billion (approximately $47 million) of earn-out payments is contingent upon achievement of certain sales volume targets and certain estimated future volume targets associated with newly awarded business. As of September 30, 2022, the Company’s estimate of the earn-out payments was approximately $31 million, which is recorded in Other current liabilities in the Company’s Condensed Consolidated Balance Sheet.

The purchase price was allocated on a preliminary basis as of March 31, 2022. Assets acquired and liabilities assumed were recorded at estimated fair values based on management’s estimates, available information, and supportable assumptions that management considered reasonable. Certain estimated values for the acquisition, including goodwill and deferred taxes, are not yet finalized, and the preliminary purchase price allocations are subject to change as the Company completes its analysis of the fair value at the date of acquisition. The final valuation of assets acquired and liabilities assumed may be materially different from the estimated values shown below.

The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of March 31, 2022, the acquisition date:
(in millions)Initial AllocationMeasurement Period AdjustmentsRevised Allocation
ASSETS
Current assets$8 $(3)$5 
Property, plant and equipment, net9 4 13 
Goodwill132 (5)127 
Other intangible assets, net87  87 
Other non-current assets 1 1 
Total assets acquired236 (3)233 
LIABILITIES
Current liabilities2 2 4 
Other non-current liabilities22  22 
Total liabilities assumed24 2 26 
Net assets acquired$212 $(5)$207 

Any excess of the purchase price over the estimated fair value of net assets was recognized as goodwill. Goodwill of $127 million was recorded within the Company’s e-Propulsion & Drivetrain segment. The goodwill consists of the Company’s expected future economic benefits that will arise from future product sales and the added capabilities from vertical integration of eMotors. The goodwill is not expected to be deductible for tax purposes in China.
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The following table summarizes the other intangible assets acquired:
(in millions)Estimated LifeEstimated Fair Value
Customer relationships12 years$62 
Manufacturing processes (know-how)10 years25 
Total other intangible assets$87 

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

The impact of the Santroll acquisition on net sales and net earnings was immaterial for the three and nine months ended September 30, 2022. Due to its insignificant size relative to the Company, supplemental pro forma financial information of the combined entity for the current and prior reporting periods is not provided.

AKASOL AG

On June 4, 2021, the Company completed its voluntary public takeover offer for shares of AKASOL AG (“AKASOL”), resulting in ownership of 89% of AKASOL’s outstanding shares. The Company paid approximately €648 million ($788 million) to settle the offer from current cash balances, which included proceeds received from its public offering of 1.00% Senior Notes due 2031 completed on May 19, 2021. Following the settlement of the offer, AKASOL became a consolidated majority-owned subsidiary of the Company. Upon that settlement, the Company also consolidated approximately €64 million ($77 million) of gross debt of AKASOL. Subsequent to the completion of the voluntary public takeover offer, the Company purchased additional shares of AKASOL for €28 million ($33 million) increasing its ownership to 93% as of December 31, 2021.

On August 2, 2021, the Company initiated a merger squeeze-out process under German law for the purpose of acquiring 100% of AKASOL. On December 17, 2021, the shareholders of AKASOL voted to mandatorily transfer to ABBA BidCo. AG, a wholly owned indirect subsidiary of the Company, each issued and outstanding share of AKASOL held by shareholders who did not tender their shares in the Company’s previously completed exchange offer for AKASOL shares (the “Squeeze Out”). In exchange for the AKASOL shares transferred in the Squeeze Out, the Company paid appropriate cash compensation, in the amount of €119.16 per share, which was determined after an assessment by a third-party valuation firm, the adequacy of which was examined by an independent, court-appointed auditor. At December 31, 2021, the noncontrolling interest in AKASOL of approximately €51 million ($58 million) to be acquired through the Squeeze Out was reclassified to Other current liabilities in the Company’s Condensed Consolidated Balance Sheet as it was deemed mandatorily redeemable. No shareholder objections were filed during the statutory contestation period, and on February 10, 2022, the Company completed the registration of the Squeeze Out resulting in 100% ownership. The Company settled the Squeeze Out with AKASOL minority shareholders in the first quarter of 2022.

The acquisition further strengthens BorgWarner’s commercial vehicle and industrial electrification capabilities, which positions the Company to capitalize on what it believes to be a fast-growing battery module and pack market. The Company finalized its valuation of the assets and liabilities of the AKASOL acquisition during the second quarter of 2022.

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The following table summarizes the final fair values of assets acquired and liabilities assumed as of the acquisition date and subsequent measurement period adjustments:
(in millions)Initial AllocationMeasurement Period AdjustmentsFinal Allocation
ASSETS
Cash and cash equivalents (including restricted cash of $16 million)
$29 $ $29 
Receivables, net16  16 
Inventories, net42 (2)40 
Prepayments and other current assets5  5 
Property, plant and equipment, net106 (3)103 
Goodwill707 (3)704 
Other intangible assets, net130  130 
Other non-current assets 7 7 
Total assets acquired1,035 (1)1,034 
LIABILITIES
Notes payable and other short-term debt8  8 
Accounts payable22  22 
Other current liabilities13 6 19 
Long-term debt69  69 
Other non-current liabilities39 (7)32 
Total liabilities assumed151 (1)150 
Noncontrolling interest96  96 
Net assets and noncontrolling interest acquired$788 $ $788 

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

The following table summarizes the other intangible assets acquired:
(in millions)Estimated LifeEstimated Fair Value
Amortized intangible assets:
Developed technology5 years$70 
Customer relationships11 years25 
Total amortized intangible assets95 
Unamortized trade nameIndefinite35 
Total other intangible assets$130 

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

Due to its insignificant size relative to the Company, supplemental pro forma financial information of the combined entity for the current and prior reporting periods is not provided.
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Romeo Power, Inc.

In May 2019, the Company invested $50 million in exchange for a 20% equity interest in Romeo Systems, Inc., now known as Romeo Power, Inc., (“Romeo”) a technology-leading battery module and pack supplier that was then privately held. On December 29, 2020, through the business combination of Romeo Systems, Inc. and special purpose acquisition company RMG Acquisition Corporation, a new entity, Romeo Power, Inc., became a publicly listed company. The Company’s ownership in Romeo was reduced to 14%, and the investment was recorded at fair value on an ongoing basis with changes in fair value being recognized in Unrealized (gain) loss on equity securities in the Condensed Consolidated Statements of Operations. During the three and nine months ended September 30, 2021, the Company recorded a loss of $61 million and $337 million, respectively, to adjust the carrying value of the Company’s investment to fair value. As of December 31, 2021, the investment’s fair value was $70 million, which was reflected in Investments and long-term receivables in the Company’s Condensed Consolidated Balance Sheet. During the nine months ended September 30, 2022, the Company recorded a loss of $39 million and liquidated its investment in Romeo shares at a fair value of $31 million. As of March 17, 2022, the Company no longer held any investment in Romeo.

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


NOTE 4 REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company manufactures and sells products, primarily to OEMs of light vehicles and, to a lesser extent, to other OEMs of commercial vehicles and off-highway vehicles, to certain Tier One vehicle systems suppliers and into the aftermarket. The Company’s payment terms are based on customary business practices and vary by customer type and products offered. We have evaluated the terms of our arrangements and determined that they do not contain significant financing components.
Generally, revenue is recognized upon shipment or delivery; however, a limited number of the Company’s customer arrangements for its highly customized products with no alternative use provide the Company with the right to payment during the production process. As a result, for these limited arrangements, revenue is recognized as goods are produced and control transfers to the customer using the input cost-to-cost method. The Company recorded a contract asset of $18 million and $17 million at September 30, 2022 and December 31, 2021, respectively, for these arrangements. These amounts are reflected in Prepayments and other current assets in the Company’s Condensed Consolidated Balance Sheets.
In limited instances, certain customers have provided payments in advance of receiving related products, typically at the onset of an arrangement prior to the beginning of production. These contract liabilities are reflected as Other current liabilities and Other non-current liabilities in the Condensed Consolidated Balance Sheets and were $18 million and less than $1 million at September 30, 2022 and $21 million and $1 million at December 31, 2021, respectively. These amounts are reflected as revenue over the term of
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the arrangement (typically 3 to 7 years) as the underlying products are shipped and represent the Company’s remaining performance obligations as of the end of the period.
The Company continually seeks business development opportunities and at times provides customer incentives for new program awards. When the Company determines that the payments are incremental and incurred only if the new business is obtained and expects to recover these amounts from the customer over the term of the new business arrangement, the Company capitalizes these amounts. As of September 30, 2022 and December 31, 2021, the Company recorded customer incentive payments of $32 million and $36 million, respectively, in Prepayments and other current assets, and $102 million and $137 million, respectively, in Other non-current assets in the Condensed Consolidated Balance Sheets.
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The following tables represent a disaggregation of revenue from contracts with customers by reporting segment and region. The balances for the three and nine months ended September 30, 2021 have been recast for inter-segment transitions of certain businesses that were completed during the three months ended June 30, 2022. Refer to Note 22, “Reporting Segments And Related Information,” to the Condensed Consolidated Financial Statements for more information.
Three Months Ended September 30, 2022
(in millions)Air Managemente-Propulsion & DrivetrainFuel SystemsAftermarketTotal
North America$541 $474 $120 $179 $1,314 
Europe770 226 219 101 1,316 
Asia519 627 172 17 1,335 
Other50  17 28 95 
Total$1,880 $1,327 $528 $325 $4,060 
Three Months Ended September 30, 2021
(in millions)Air Managemente-Propulsion & DrivetrainFuel SystemsAftermarketTotal
North America$403 $388 $70 $164 $1,025 
Europe631 183 217 114 1,145 
Asia474 524 153 16 1,167 
Other43  16 20 79 
Total$1,551 $1,095 $456 $314 $3,416 
Nine Months Ended September 30, 2022
(in millions)Air Managemente-Propulsion & DrivetrainFuel SystemsAftermarketTotal
North America$1,515 $1,368 $343 $531 $3,757 
Europe2,293 717 691 302 4,003 
Asia1,486 1,691 444 47 3,668 
Other140  53 72 265 
Total$5,434 $3,776 $1,531 $952 $11,693 
Nine Months Ended September 30, 2021
(in millions)Air Managemente-Propulsion & DrivetrainFuel SystemsAftermarketTotal
North America$1,272 $1,208 $201 $483 $3,164 
Europe2,202 710 794 324 4,030 
Asia1,559 1,710 455 46 3,770 
Other112  48 59 219 
Total$5,145 $3,628 $1,498 $912 $11,183 


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NOTE 5 RESTRUCTURING

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

The Company’s restructuring expenses consist primarily of employee termination benefits (principally severance and/or termination benefits) and other costs, which are primarily professional fees and costs related to facility closures and exits.

Three Months Ended September 30, 2022
(in millions)Air Managemente-Propulsion & DrivetrainFuel SystemsCorporateTotal
Employee termination benefits$5 $ $ $ $