BORGWARNER INC [BWA] Filings

10-Q 1 bwa-20240930.htm 10-Q bwa-20240930

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, 2024


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number: 1-12162

BORGWARNER INC.

________________________________________________

(Exact name of registrant as specified in its charter)

Delaware

13-3404508

(State or other jurisdiction of

(I.R.S. Employer

Incorporation or organization)

Identification No.)

3850 Hamlin Road,

Auburn Hills,

Michigan

48326

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (248) 754-9200

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

BWA

New York Stock Exchange

1.00% Senior Notes due 2031

BWA31

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of October 25, 2024, the registrant had 218,699,878 shares of voting common stock outstanding.

BORGWARNER INC.

FORM 10-Q

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024

INDEX


			Page No.
PART I. Financial Information

Item 1. Financial Statements

Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 (Unaudited)			1

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and 2023 (Unaudited)			2

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2024 and 2023 (Unaudited)			3

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 (Unaudited)			4

Notes to Condensed Consolidated Financial Statements (Unaudited)			5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			39

Item 3. Quantitative and Qualitative Disclosures About Market Risk			57

Item 4. Controls and Procedures			58

PART II. Other Information

Item 1. Legal Proceedings			59

Item 1A. Risk Factors			59

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities			59

Item 5. Other Information			60

Item 6. Exhibits			60

SIGNATURES			61

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CAUTIONARY STATEMENTS FOR FORWARD-LOOKING STATEMENTS

Statements in this Quarterly Report on Form 10-Q (this “Form 10-Q” or “report”) (including Management’s Discussion and Analysis of Financial Condition and Results of Operations) may constitute forward-looking statements as contemplated by the 1995 Private Securities Litigation Reform Act (the “Act”) that are based on management's current outlook, expectations, estimates and projections. Words such as “anticipates,” “believes,” “continues,” “could,” “designed,” “effect,” “estimates,” “evaluates,” “expects,” “forecasts,” “goal,” “guidance,” “initiative,” “intends,” “may,” “outlook,” “plans,” “potential,” “predicts,” “project,” “pursue,” “seek,” “should,” “target,” “when,” “will,” “would,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Further, all statements, other than statements of historical fact contained or incorporated by reference in this Form 10-Q, that we expect or anticipate will or may occur in the future regarding our financial position, business strategy and measures to implement that strategy, including changes to operations, competitive strengths, goals, expansion and growth of our business and operations, plans, references to future success and other such matters, are forward-looking statements. Accounting estimates, such as those described under the heading “Critical Accounting Policies and Estimates” in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023 (“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, commodity availability and pricing, and an inability to achieve expected levels of recoverability in commercial negotiations with customers concerning these costs; competitive challenges from existing and new competitors, including original equipment manufacturer (“OEM”) customers; the challenges associated with rapidly changing technologies, particularly as they relate to electric vehicles, and our ability to innovate in response; the difficulty in forecasting demand for electric vehicles and our electric vehicles revenue growth; potential disruptions in the global economy caused by wars or other geopolitical conflicts; the ability to identify targets and consummate acquisitions on acceptable terms; failure to realize the expected benefits of acquisitions on a timely basis; the possibility that our 2023 tax-free spin-off of our former Fuel Systems and Aftermarket segments into a separate publicly traded company will not achieve its intended benefits; the failure to promptly and effectively integrate acquired businesses; the potential for unknown or inestimable liabilities relating to the acquired businesses; our dependence on automotive and truck production, which is highly cyclical and subject to disruptions; our reliance on major OEM customers; impacts of any future strikes involving any of our OEM customers and any actions such OEM customers take in response; fluctuations in interest rates and foreign currency exchange rates; our dependence on information systems; the uncertainty of the global economic environment; the outcome of existing or any future legal proceedings, including litigation with respect to various claims, or governmental investigations, including related litigation; future changes in laws and regulations, including, by way of example, taxes and tariffs, in the countries in which we operate; impacts from any potential future acquisition or disposition transactions; and the other risks noted in reports that we file with the Securities and Exchange Commission, including Item 1A, “Risk Factors” in our most recently-filed Form 10-K. We do not undertake any obligation to update or announce publicly any updates to or revisions to any of the forward-looking statements in this Form 10-Q to reflect any change in our expectations or any change in events, conditions, circumstances, or assumptions underlying the statements.

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This section and the discussions contained in Item 1A, “Risk Factors,” and in Item 7, subheading “Critical Accounting Policies and Estimates,” in our most recently-filed Form 10-K are intended to provide meaningful cautionary statements for purposes of the safe harbor provisions of the Act. This should not be construed as a complete list of all of the economic, competitive, governmental, technological and other factors that could adversely affect our expected consolidated financial position, results of operations or liquidity. Additional risks and uncertainties, including without limitation those not currently known to us or that we currently believe are immaterial, also may impair our business, operations, liquidity, financial condition and prospects.

Use of Non-GAAP Financial Measures

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

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(in millions)	September 30, 2024		December 31, 2023
ASSETS
Cash and cash equivalents	$	2,000	$	1,534
Receivables, net	3,215		3,109
Inventories, net	1,366		1,313
Prepayments and other current assets	275		261

Total current assets	6,856		6,217

Property, plant and equipment, net	3,814		3,783
Investments and long-term receivables	350		364
Goodwill	3,027		3,013
Other intangible assets, net	514		564
Other non-current assets	576		512

Total assets	$	15,137	$	14,453

LIABILITIES AND EQUITY
Short-term debt	$	398	$	73
Accounts payable	2,176		2,546
Other current liabilities	1,144		1,148

Total current liabilities	3,718		3,767

Long-term debt	4,195		3,707
Retirement-related liabilities	146		146
Other non-current liabilities	726		767

Total liabilities	8,785		8,387

Commitments and contingencies

Common stock	3		3
Capital in excess of par value	2,657		2,689
Retained earnings	6,840		6,152
Accumulated other comprehensive loss	(808)		(828)
Common stock held in treasury, at cost	(2,536)		(2,188)
Total BorgWarner Inc. stockholders’ equity	6,156		5,828
Noncontrolling interest	196		238
Total equity	6,352		6,066
Total liabilities and equity	$	15,137	$	14,453

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)	2024		2023		2024		2023
Net sales	$	3,449	$	3,622	$	10,647	$	10,676
Cost of sales	2,813		2,970		8,682		8,767
Gross profit	636		652		1,965		1,909

Selling, general and administrative expenses	340		330		1,010		963
Restructuring expense	21		56		65		68
Other operating expense (income), net	5		(6)		28		(1)
Operating income	270		272		862		879

Equity in affiliates’ earnings, net of tax	(6)		(10)		(23)		(23)
Unrealized and realized (gain) loss on equity and debt securities	(2)		60		—		129
Interest expense (income), net	4		(19)		17		3
Other postretirement expense	4		3		10		8
Earnings from continuing operations before income taxes and noncontrolling interest	270		238		858		762

Provision for income taxes	13		133		44		230
Net earnings from continuing operations	257		105		814		532
Net loss from discontinued operations	(8)		(37)		(27)		(12)
Net earnings	249		68		787		520
Net earnings from continuing operations attributable to noncontrolling interest	15		18		44		49

Net earnings attributable to BorgWarner Inc.	$	234	$	50	$	743	$	471

Amounts attributable to BorgWarner Inc.:
Net earnings from continuing operations	$	242	$	87	$	770	$	483
Net loss from discontinued operations	(8)		(37)		(27)		(12)
Net earnings attributable to BorgWarner Inc.	$	234	$	50	$	743	$	471

Earnings per share from continuing operations — basic	$	1.08	$	0.37	$	3.41	$	2.07
Loss per share from discontinued operations — basic	(0.04)		(0.16)		(0.12)		(0.05)
Earnings per share attributable to BorgWarner Inc. — basic	$	1.04	$	0.21	$	3.29	$	2.02

Earnings per share from continuing operations — diluted	$	1.08	$	0.37	$	3.40	$	2.06
Loss per share from discontinued operations — diluted	(0.04)		(0.16)		(0.12)		(0.05)
Earnings per share attributable to BorgWarner Inc. — diluted	$	1.04	$	0.21	$	3.28	$	2.01

Weighted average shares outstanding:
Basic	223.1		233.4		225.7		233.2
Diluted	224.5		235.3		226.8		234.6

See accompanying Notes to Condensed Consolidated Financial Statements.

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BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2024		2023		2024		2023
Net earnings attributable to BorgWarner Inc.	$	234	$	50	$	743	$	471

Other comprehensive income (loss)
Foreign currency translation adjustments	159		(16)		62		(72)
Hedge instruments1	(28)		(12)		(46)		26
Postretirement defined benefit plans1	(1)		11		4		7

Total other comprehensive income (loss) attributable to BorgWarner Inc.	130		(17)		20		(39)

Comprehensive income attributable to BorgWarner Inc.1	364		33		763		432

Net earnings from continuing operations attributable to noncontrolling interest	15		18		44		49
Other comprehensive income (loss) attributable to noncontrolling interest1	11		(4)		3		(18)
Comprehensive income	$	390	$	47	$	810	$	463

____________________________________

1 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)	2024		2023
OPERATING ACTIVITIES OF CONTINUING OPERATIONS
Net cash provided by operating activities of continuing operations (see Note 23)	$	700	$	510
INVESTING ACTIVITIES OF CONTINUING OPERATIONS
Capital expenditures, including tooling outlays	(510)		(624)
Payments for businesses acquired, net of cash acquired	—		(31)
Proceeds from settlement of net investment hedges, net	46		25
(Payments for) proceeds from investments in equity and debt securities, net	(7)		63
Proceeds from the sale of business, net	8		—
Proceeds from asset disposals and other, net	3		29
Net cash used in investing activities from continuing operations	(460)		(538)
FINANCING ACTIVITIES OF CONTINUING OPERATIONS
Net increase in notes payable	—		3
Additions to debt	1,000		4
Payments for debt issuance costs	(9)		(3)
Repayments of debt, including current portion	(175)		(444)
Payments for purchase of treasury stock	(401)		—
Payments for stock-based compensation items	(23)		(25)
Payments for businesses acquired, net of cash acquired	(4)		—
Payments for contingent consideration	(1)		(23)
Purchase of noncontrolling interest	—		(15)
Net distribution from PHINIA	—		401
Dividends paid to BorgWarner stockholders	(74)		(105)
Dividends paid to noncontrolling stockholders	(63)		(71)
Net cash provided by (used in) financing activities from continuing operations	250		(278)
CASH FLOWS FROM DISCONTINUED OPERATIONS
Operating activities of discontinued operations	(27)		(66)
Investing activities of discontinued operations	—		(86)
Financing activities of discontinued operations	—		84
Net cash used in discontinued operations	(27)		(68)
Effect of exchange rate changes on cash	3		(15)
Net increase (decrease) in cash and cash equivalents	466		(389)
Cash and cash equivalents at beginning of year	1,534		1,338
Cash and cash equivalents at end of period	$	2,000	$	949
Less: Cash and cash equivalents of discontinued operations at end of period	$	—	$	—
Cash and cash equivalents of continuing operations at end of period	$	2,000	$	949

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. Additionally, in the nine months ended September 30, 2024, the Company recognized a $19 million increase in Net earnings attributable to BorgWarner Inc. in the Condensed Consolidated Statement of Operations for the correction of misstatements related to certain accruals, of which $12 million related to 2023 (the remainder relates to periods prior to 2023). The Company has evaluated the effect of these out-of-period adjustments for the current reporting period, as well as on the previous interim and annual periods in which they should have been recognized, and concluded that these adjustments are not material to any of the periods affected. Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. The balance sheet as of December 31, 2023 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, 2023.

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.

Effective July 1, 2024, the Company implemented a new business unit and management structure designed to further enhance the execution of the Company’s Charging Forward strategy. The Company now reports its results in the following four reportable segments: Turbos & Thermal Technologies, Drivetrain & Morse Systems, PowerDrive Systems and Battery & Charging Systems. This new structure had no impact on the Company’s consolidated financial position, results of operations or cash flows. The reportable segment disclosures have been updated accordingly, which included recasting prior period information for the new reporting structure. Refer to Note 11, “Goodwill And Other Intangibles” and Note 22, “Reportable Segments,” to the Condensed Consolidated Financial Statements for more information.

On July 3, 2023, BorgWarner completed the previously announced spin-off (“Spin-Off”) of its Fuel Systems and Aftermarket segments in a transaction intended to qualify as tax free to the Company’s stockholders for U.S. federal income tax purposes, which was accomplished by the distribution of 100% of the outstanding common stock of PHINIA, Inc. (“PHINIA”) to holders of record of common stock of the Company on a pro-rata basis. Each holder of record of common stock of the Company received one share of PHINIA common stock for every five shares of common stock of the Company held on June 23, 2023, the record date for the distribution (“Distribution Date”). In lieu of fractional shares of PHINIA, stockholders of the Company received cash. PHINIA is an independent public company trading under the symbol “PHIN” on the New York Stock Exchange.

The historical results of operations of PHINIA for periods prior to the Spin-Off are presented as discontinued operations in these Condensed Consolidated Financial Statements.

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In connection with the Spin-Off, the Company entered into several agreements with PHINIA on or prior to the Distribution Date that, among other things, provide a framework for the Company’s relationship with PHINIA after the Spin-Off, including a separation and distribution agreement, an employee matters agreement, a tax matters agreement, an intellectual property cross-license agreement and a transition services agreement through which the Company and PHINIA will continue to provide certain services to each other following the Spin-Off. The Company completed the performance under the transition services agreement during the three months ended September 30, 2024.

NOTE 2 NEW ACCOUNTING PRONOUNCEMENTS

In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” It requires incremental disclosures related to an entity’s reportable segments, including (i) significant segment expense categories and amounts for each reportable segment that are provided to the chief operating decision maker (“CODM”), (ii) an aggregate amount and description of other segment items included in each reported measure, (iii) all annual disclosures about a reportable segment’s profit or loss and assets required by Topic 280 to be disclosed in interim periods, (iv) the title and position of the individual or the name of the group identified as the CODM and (v) an explanation of how the CODM uses the reported measures of segment profit or loss to assess performance and allocate resources to the segment. The standard improves transparency by providing disaggregated expense information about an entity’s reportable segments. The standard does not change the definition of a segment, the method for determining segments or the criteria for aggregating operating segments into reportable segments. This guidance is effective for annual reporting periods beginning after December 15, 2023, and interim reporting periods beginning after December 15, 2024. Upon adoption, the Company will provide additional disclosures as required. The Company does not expect this guidance to have a material impact on the identification of its reportable segments or its Consolidated Financial Statements.

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” It requires entities to disaggregate information related to the effective tax rate reconciliation and income taxes paid. The standard improves transparency by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. This guidance is effective for annual reporting periods beginning after December 15, 2024. 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.

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

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Eldor Corporation’s Electric Hybrid Systems Business

On December 1, 2023, the Company completed its acquisition of the electric hybrid systems business segment of Eldor Corporation (“Eldor”), which is headquartered in Italy. The Company expects the acquisition to complement its existing PowerDrive Systems product portfolio by enhancing the Company’s engineering capabilities in power electronics. The Company paid €72 million ($78 million) at closing and is obligated to remit up to €175 million ($191 million) of earn-out payments that could be paid over the two years following closing. The earn-out payments are contingent upon booked business for future periods from new customer awards. The Company’s estimate at closing indicated that the minimum threshold for the earn-out target would not be achieved; thus, no amount of the potential earn-out payments was included in the purchase consideration. As of September 30, 2024, the Company’s estimate has not changed; thus, no amount is included in the Company’s Condensed Consolidated Balance Sheet.

The purchase price was allocated on a preliminary basis as of December 1, 2023. Assets acquired and liabilities assumed were recorded at estimated fair values based on management’s estimates, available information, and supportable assumptions that management considered reasonable. Certain estimated values for the acquisition, including goodwill, tangible and intangible assets and deferred taxes, are not yet finalized, and the 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 than the estimated values shown below.

The estimated fair values of assets acquired and liabilities assumed as of December 1, 2023 were assets of $86 million, including goodwill and intangibles of $25 million, and liabilities of $8 million.

Any excess of the purchase price over the estimated fair value of net assets was recognized as goodwill. Goodwill of $14 million was recorded within the Company’s PowerDrive Systems segment. 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. Goodwill is not deductible for tax purposes in Italy.

The following table summarizes the other intangible assets acquired:


(in millions)	Estimated Life	Estimated Fair Value

Developed technology	6 years	$	9
Customer relationships	10 years	2

Total other intangible assets		$	11

Identifiable intangible assets were valued using the market approach.

Hubei Surpass Sun Electric Charging Business

On March 1, 2023, the Company completed its acquisition of 100% of the electric vehicle solution, smart grid and smart energy businesses (“SSE”) of Hubei Surpass Sun Electric, pursuant to an Equity Transfer Agreement. The acquisition complements the Company’s existing European and North American charging footprint by adding a presence in China. The total consideration was ¥288 million ($42 million), including ¥268 million ($39 million) of base purchase price and ¥20 million ($3 million) of estimated earn-out payments. The Company paid ¥217 million ($31 million) of base purchase price in the year ended December 31, 2023. The Company paid ¥25 million ($4 million) during the nine months ended September 30, 2024. In accordance with ASC Topic 230, since the payments made in 2024 are not soon after the acquisition close date, they are recorded as a financing activity in the Company’s Condensed Consolidated Statement of Cash Flows. Of the remaining ¥26 million ($4 million) of base purchase price, ¥6 million ($1 million) is payable by December 31, 2024 and is recorded in Other current liabilities in the

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Company’s Condensed Consolidated Balance Sheet as of September 30, 2024. The remaining ¥20 million ($3 million) of base purchase price is payable before October 31, 2025 and is recorded in Other non-current liabilities in the Company’s Condensed Consolidated Balance Sheet as of September 30, 2024.

Pursuant to the agreement, the Company’s obligation to remit up to ¥103 million ($15 million) of earn-out payments is contingent upon the achievement of certain revenue and pre-tax profit margin targets in 2023 and 2024 as well as the retention of key employees during the same time period. In the nine months ended September 30, 2024, the Company paid ¥10 million ($1 million) of earnout related to the 2023 measurement period. The Company’s current estimate of the earn-out payments related to the 2024 measurement period is approximately ¥10 million ($2 million), which is recorded in Other current liabilities in the Company’s Condensed Consolidated Balance Sheet as of September 30, 2024.

The Company finalized its valuation of the assets and liabilities of the SSE acquisition during the third quarter of 2023. Any excess of the purchase price over the estimated fair value of net assets was recognized as goodwill. Goodwill of $2 million was recorded within the Company’s Air Management segment. 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. Goodwill is not deductible for tax purposes in China.

The following table summarizes the other intangible assets acquired:


(in millions)	Estimated Life	Estimated Fair Value
Developed technology	5 years	$	2
Customer relationships	6 years	1
Total other intangible assets		$	3

The impact of the SSE acquisition on net sales and net earnings was immaterial for the three and nine months ended September 30, 2023.

Drivetek AG

On December 1, 2022, the Company completed its acquisition of 100% of Drivetek AG (“Drivetek”), an engineering and product development company located in Switzerland. This acquisition strengthens the Company’s power electronics capabilities in auxiliary inverters, which the Company expects will help to accelerate the growth of its High Voltage eFan business. The total consideration was ₣37 million ($39 million), including ₣27 million ($29 million) of base purchase price and ₣10 million ($10 million) of estimated earn-out payments. The Company paid ₣27 million ($29 million) of base purchase price at closing. The Company’s obligation to remit up to ₣10 million ($10 million) of earn-out payments, over the three years following closing, is contingent upon achievement of estimated future sales targets associated with newly awarded business and future turnover rate targets. During the three months ended September 30, 2024, the Company revised its estimate of expected earn-out payments due to reductions in expected awarded business programs and increased headcount turnover. In accordance with ASC Topic 805, the ₣5 million ($6 million) change in estimate was included in Other operating expense, net in the Company’s Condensed Consolidated Statements of Operations. As of September 30, 2024, the Company’s estimate of the earn-out payments was approximately ₣5 million ($6 million), which is recorded in Other non-current liabilities in the Company’s Condensed Consolidated Balance Sheet.

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

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

The Company paid $131 million at 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 estimate at closing indicated that the minimum thresholds for these earn-out targets would not be achieved; thus, no amount of the potential earn-out payments was included in the purchase consideration. As of September 30, 2024, the Company’s estimate has not changed; thus, no amount is included 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 three years following closing in key employee retention-related payments, which include certain performance targets. The amounts are being accounted for as post-combination expense.

Santroll Automotive Components

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

The total final consideration was $192 million, including approximately ¥1.0 billion ($152 million) of base purchase price and ¥0.25 billion ($40 million) of originally estimated earn-out payments. The Company paid approximately ¥1.0 billion ($157 million) of base purchase price in the year ended December 31, 2022 and no longer expects to recapture a previously anticipated $5 million of post-closing adjustments, which was recorded in Other operating expense, net during the three months ended March 31, 2023. Pursuant to the ETA, the obligation of the Company to remit up to ¥0.3 billion (approximately $47 million) of earn-out payments was contingent upon achievement of certain sales volume targets and certain estimated future volume targets associated with newly awarded business. During the second quarter of 2023, the Company paid approximately ¥0.2 billion ($24 million) to settle the remaining earn-out liability and related adjustments.

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. The Company 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 $16 million and $18 million at September 30, 2024 and December 31, 2023, 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 $15 million and $18 million at September 30, 2024 and $18 million and $10 million at December 31, 2023, respectively. These amounts are reflected as revenue over the term of the

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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, 2024 and December 31, 2023, the Company recorded customer incentive payments of $25 million and $27 million, respectively, in Prepayments and other current assets, and $32 million and $58 million, respectively, in Other non-current assets in the Condensed Consolidated Balance Sheets.

The Company’s products can be disaggregated by two types: eProducts and Foundational products. eProducts include all products utilized on or for electric vehicles (“EVs”) plus those same products and components that are included in hybrid powertrains whose underlying technologies are adaptable or applicable to those used in or for EVs. Foundational products include all products utilized on internal combustion engines plus those same products and components that are also included in hybrid powertrains. The following table represents a disaggregation of revenue from contracts with customers by Foundational products and eProducts for the three and nine months ended September 30, 2024 and 2023.


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2024		2023		2024		2023
Foundational products	$	2,810	$	3,050	$	8,926	$	9,182
eProducts	639		572		1,721		1,494
Total	$	3,449	$	3,622	$	10,647	$	10,676

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The following tables represent a disaggregation of revenue from contracts with customers by reportable segment and region. The balances for prior periods have been recast for the reportable segment realignment for certain businesses that was completed in the third quarter of 2024. Refer to Note 22, “Reportable Segments,” to the Condensed Consolidated Financial Statements for more information.


	Three Months Ended September 30, 2024
(in millions)	Turbos & Thermal Technologies		Drivetrain & Morse Systems		PowerDrive Systems		Battery & Charging Systems		Total
North America	$	335	$	478	$	87	$	32	$	932
Europe	668		295		143		152		1,258
Asia	329		589		275		3		1,196
Other	53		—		—		10		63
Total	$	1,385	$	1,362	$	505	$	197	$	3,449

	Three Months Ended September 30, 2023
(in millions)	Turbos & Thermal Technologies		Drivetrain & Morse Systems		PowerDrive Systems		Battery & Charging Systems		Total
North America	$	385	$	523	$	118	$	39	$	1,065
Europe	732		318		95		98		1,243
Asia	306		606		343		7		1,262
Other	50		—		—		2		52
Total	$	1,473	$	1,447	$	556	$	146	$	3,622


	Nine Months Ended September 30, 2024
(in millions)	Turbos & Thermal Technologies		Drivetrain & Morse Systems		PowerDrive Systems		Battery & Charging Systems		Total
North America	$	1,111	$	1,517	$	231	$	134	$	2,993
Europe	2,261		984		390		396		4,031
Asia	945		1,717		769		13		3,444
Other	155		—		—		24		179
Total	$	4,472	$	4,218	$	1,390	$	567	$	10,647

	Nine Months Ended September 30, 2023
(in millions)	Turbos & Thermal Technologies		Drivetrain & Morse Systems		PowerDrive Systems		Battery & Charging Systems		Total
North America	$	1,169	$	1,543	$	388	$	100	$	3,200
Europe	2,310		975		227		272		3,784
Asia	930		1,624		953		18		3,525
Other	158		—		4		5		167
Total	$	4,567	$	4,142	$	1,572	$	395	$	10,676

NOTE 5 RESTRUCTURING

The Company undertakes restructuring activities, 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.

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

The following tables display the Company’s restructuring expense by reportable segment:


	Three Months Ended September 30, 2024
(in millions)	Turbos & Thermal Technologies		Drivetrain & Morse Systems		PowerDrive Systems		Battery & Charging Systems		Corporate		Total
Employee termination benefits	$	7	$	1	$	—	$	—	$	—	$	8
Other	8		—		5		—		—		13
Total restructuring expense	$	15	$	1	$	5	$	—	$	—	$	21

	Three Months Ended September 30, 2023
(in millions)	Turbos & Thermal Technologies		Drivetrain & Morse Systems		PowerDrive Systems		Battery & Charging Systems		Corporate		Total
Employee termination benefits	$	53	$	1	$	—	$	—	$	—	$	54
Other	1		1		—		—		—		2
Total restructuring expense	$	54	$	2	$	—	$	—	$	—	$	56


	Nine Months Ended September 30, 2024
(in millions)	Turbos & Thermal Technologies		Drivetrain & Morse Systems		PowerDrive Systems		Battery & Charging Systems		Corporate		Total
Employee termination benefits	$	16	$	10	$	10	$	1	$	1	$	38
Other	14		1		12		—		—		27
Total restructuring expense	$	30	$	11	$	22	$	1	$	1	$	65

	Nine Months Ended September 30, 2023
(in millions)	Turbos & Thermal Technologies		Drivetrain & Morse Systems		PowerDrive Systems		Battery & Charging Systems		Corporate		Total
Employee termination benefits	$	60	$	3	$	—	$	—	$	—	$	63
Other	4		1		—		—		—		5
Total restructuring expense	$	64	$	4	$	—	$	—	$	—	$	68

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


(in millions)	Employee Termination Benefits		Other		Total
Balance at January 1, 2024	$	68	$	7	$	75
Restructuring expense, net	38		27		65
Cash payments	(54)		(30)		(84)
Foreign currency translation adjustment and other	—		2		2
Balance at September 30, 2024	52		6		58
Less: Non-current restructuring liability	8		—		8
Current restructuring liability at September 30, 2024	$	44	$	6	$	50

(in millions)	Employee Termination Benefits		Other		Total
Balance at January 1, 2023	$	39	$	9	$	48
Restructuring expense, net	63		5		68
Cash payments	(32)		(9)		(41)
Foreign currency translation adjustment and other	(1)		2		1
Balance at September 30, 2023	69		7		76
Less: Non-current restructuring liability	7		—		7
Current restructuring liability at September 30, 2023	$	62	$	7	$	69

2023 Structural Costs Plan In 2023, the Company announced a $130 million to $150 million restructuring plan to address structural costs primarily in its Foundational products businesses. During the three and nine months ended September 30, 2024, the Company recorded $18 million and $52 million, respectively, of restructuring charges related to this plan. During the three and nine months ended September 30, 2023, the Company recorded $56 million and $68 million, respectively, of restructuring costs related to this plan. Cumulatively, the Company has incurred $131 million of restructuring charges related to this plan.

2024 Structural Costs Plan In June 2024, the Company approved an approximately $75 million restructuring plan to address the cost structure in its PowerDrive Systems segment due to increased market volatility, which could include realignment of the segment’s manufacturing footprint. During the three and nine months ended September 30, 2024, the Company recorded $3 million and $13 million, respectively, of restructuring charges related to this plan.

The following provides details of restructuring expense incurred by the Company’s reportable segments during the three and nine months ended September 30, 2024 and 2023, related to the plans discussed above:

Turbos & Thermal Technologies

2023 Structural Costs Plan

•During the three and nine months ended September 30, 2024, the segment recorded $15 million and $30 million, respectively, of restructuring costs under this plan. These costs primarily related to $16 million of employee termination benefits and $14 million of

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professional fees and equipment relocation costs for facilities in Europe, China and the U.S.

•During the three and nine months ended September 30, 2023, the segment recorded $54 million and $64 million, respectively, of restructuring costs under this plan. These costs primarily related to $60 million for a voluntary termination program during the nine months ended September 30, 2023.

Drivetrain & Morse Systems

2023 Structural Costs Plan

•During the three and nine months ended September 30, 2024, the segment recorded $1 million and $11 million, respectively, of restructuring costs under this plan. These costs primarily related to $10 million of employee termination benefits for a facility in Europe.

•During the three and nine months ended September 30, 2023, the segment recorded $2 million and $4 million, respectively, of restructuring costs under this plan. These costs primarily related to employee termination benefits and equipment moves.

PowerDrive Systems

2023 Structural Costs Plan

•During the three and nine months ended September 30, 2024, the segment recorded $2 million and $9 million, respectively, of restructuring costs under this plan. These costs primarily related to $8 million of equipment relocation costs.

2024 Structural Costs Plan

•During the three and nine months ended September 30, 2024, the segment recorded $3 million and $13 million, respectively, of restructuring costs under this plan. These costs primarily related to $9 million of employee termination benefits and $4 million of professional fees.

The Company estimates restructuring expense based on information available at the time such charges are recorded. Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially recorded. Accordingly, the Company may record revisions of previous estimates by adjusting previously established accruals.

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

NOTE 6 RESEARCH AND DEVELOPMENT COSTS

The Company’s net Research & Development (“R&D”) expenditures are included in Selling, general and administrative expenses on the Condensed Consolidated Statements of Operations. Customer reimbursements are netted against gross R&D expenditures as they are considered a recovery of cost. Customer reimbursements for prototypes are recorded net of prototype costs based on customer contracts, typically either when the prototype is shipped or when it is accepted by the customer. Customer reimbursements for engineering services are recorded when performance obligations are satisfied in accordance with the contract. Financial risks and rewards transfer upon shipment, acceptance of a prototype component by the customer or upon completion of the performance obligation, as stated in

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the respective customer agreement. The Company has contracts with several customers relating to R&D activities that the Company performs at the Company’s various R&D locations.

The following table presents the Company’s gross and net expenditures on R&D activities:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2024		2023		2024		2023
Gross R&D expenditures	$	218	$	215	$	656	$	625
Customer reimbursements	(28)		(23)		(90)		(84)
Net R&D expenditures	$	190	$	192	$	566	$	541

NOTE 7 OTHER OPERATING EXPENSE (INCOME), NET

Items included in Other operating expense (income), net consist of:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2024		2023		2024		2023
Commercial contract settlement	$	—	$	—	$	15	$	—
Adjustments associated with Spin-Off related balances	3		—		14		—
Collective bargaining agreement ratification bonus	4		—		4		—
Loss (gain) on sale of businesses	6		—		3		(5)
Merger and acquisition expense, net	(5)		2		—		18
Asset impairments and lease modifications	—		2		—		11


Gain on sale of assets	—		(7)		—		(13)
Other income, net	(3)		(3)		(8)		(12)
Other operating expense (income), net	$	5	$	(6)	$	28	$	(1)

Commercial contract settlement: During the nine months ended September 30, 2024, the Company recorded a loss of approximately $15 million related to the settlement of a commercial contract assumed in its acquisition of the electric hybrid systems business segment of Eldor.

Adjustments associated with Spin-Off related balances: During the three and nine months ended September 30, 2024, the Company recorded expense of $3 million and $14 million, respectively, primarily for adjustments to net amounts owed to the Company related to the tax matters agreement between the Company and PHINIA.

Collective bargaining agreement ratification bonus: During the three and nine months ended September 30, 2024, the Company recorded $4 million of expense for bonuses related to the ratification of a collective bargaining agreement at a facility in New York.

Loss (gain) on sale of businesses: During the three and nine months ended September 30, 2024, the Company recorded a net loss on sales of businesses of $6 million and $3 million, respectively. During the three months ended September 30, 2024, the Company recorded a charge of $6 million related to the estimated loss on an immaterial business that met held for sale accounting criteria.

Merger and acquisition expense, net: During the three months ended September 30, 2024, the Company recorded a gain related to merger and acquisition activity of $5 million, primarily due to a $6 million revision of its expected earn-out related to the Drivetek acquisition, offset by expense primarily related to professional fees associated with specific acquisition initiatives. During the three and nine months ended September 30, 2023, the Company recorded merger and acquisition expense of $2 million

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and $18 million, respectively, primarily related to professional fees associated with specific acquisition initiatives.

Asset impairments and lease modifications: During the three and nine months ended September 30, 2023, the Company recorded charges of $2 million and $11 million, primarily related to a service and lease agreement termination and impairment of certain property, plant and equipment at a facility in North America.

Gain on sale of assets: During the three months ended September 30, 2023, the Company recorded a $7 million gain related to the sale of a European manufacturing facility. During the nine months ended September 30, 2023, the Company recorded a $13 million gain, primarily related to the sale of the European manufacturing facility and other fixed assets.

NOTE 8 INCOME TAXES

The Company’s provision for income taxes is based upon an estimated annual tax rate for the year applied to federal, state and foreign income. On a quarterly basis, the annual effective tax rate is adjusted, as appropriate, based upon changed facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and each interim period thereafter.

The Company’s effective tax rate for the three months ended September 30, 2024 and 2023 was 5% and 56%, respectively. During the three months ended September 30, 2024, the Company recorded a discrete tax benefit of approximately $18 million related to a reduction in certain unrecognized tax benefits and accrued interest for matters where the statute of limitations lapsed, a discrete tax expense of $4 million related to net changes to valuation allowances, a discrete tax benefit of approximately $36 million related to post Spin-Off restructuring and a discrete tax benefit of approximately $1 million related to various changes in filing positions for prior years. During the three months ended September 30, 2023, the Company recorded a discrete tax benefit of approximately $31 million related to various changes in filing positions for prior years, a discrete tax benefit of approximately $12 million in relation to the Spin-Off and a discrete tax expense of approximately $87 million for changes in judgment related to the realization of deferred tax assets, primarily due to the impact of the Spin-Off on the allocation of the Company’s profits across jurisdictions for tax purposes as well as various tax structuring actions and strategies.

The Company’s effective tax rate for the nine months ended September 30, 2024 and 2023 was 5% and 30%, respectively. During the nine months ended September 30, 2024, the Company recorded a discrete tax benefit of approximately $107 million related to reductions in certain unrecognized tax benefits and accrued interest for matters where the statute of limitations lapsed, a discrete tax benefit of approximately $36 million related to post Spin-Off restructuring and a discrete tax benefit of approximately $4 million related to various changes in filing positions for prior years. During the nine months ended September 30, 2023, the Company recorded a discrete tax benefit of approximately $41 million in relation to the Spin-Off, a discrete tax benefit of approximately $39 million related to various changes in filing positions for prior years, a discrete tax benefit of approximately $14 million related to the resolution of tax audits, a discrete tax expense of approximately $9 million for the impact of enacted tax law changes and a discrete tax expense of approximately $85 million for changes in judgment related to the realization of deferred tax assets, primarily due to the impact of the Spin-Off on the allocation of the Company’s profits across jurisdictions for tax purposes as well as various tax structuring actions and strategies.

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

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NOTE 9 INVENTORIES, NET

A summary of Inventories, net is presented below:


	September 30,		December 31,
(in millions)	2024		2023
Raw material and supplies	$	1,026	$	991
Work in progress	159		160
Finished goods	213		194
FIFO inventories	1,398		1,345
LIFO reserve	(32)		(32)
Inventories, net	$	1,366	$	1,313

NOTE 10 OTHER ASSETS

Additional detail related to assets is presented below:


	September 30,		December 31,
(in millions)	2024		2023
Prepayments and other current assets:
Prepaid tooling	$	113	$	89
Prepaid taxes	42		38
Customer incentive payments (Note 4)	25		27
Contract assets (Note 4)	16		18
Derivative instruments	10		32
Other	69		57
Total prepayments and other current assets	$	275	$	261

Investments and long-term receivables:
Investment in equity affiliates	$	242	$	237
Investment in equity securities	70		71
Long-term receivables	38		56
Total investments and long-term receivables	$	350	$	364

Other non-current assets:
Deferred income taxes	$	333	$	257
Operating leases	142		143
Customer incentive payments (Note 4)	32		58
Derivative instruments	24		15
Other	45		39
Total other non-current assets	$	576	$	512

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NOTE 11 GOODWILL AND OTHER INTANGIBLES

During the fourth quarter of each year, the Company assesses its goodwill and indefinite-lived intangible assets assigned to each of its reporting units. In addition, the Company may test goodwill in between annual test dates if an event occurs or circumstances change that could more-likely-than-not reduce the fair value of a reporting unit below its carrying value.

During the first quarter of 2024, the Company reduced the outlook of its PowerDrive Systems business in response to volatility in actual and expected customer production schedules. This was viewed as a triggering event, and as a result the Company performed an interim quantitative analysis of the fair value of the PowerDrive Systems reporting unit. The estimated fair value was determined using a combined income and market approach, consistent with the Company’s analysis performed during the fourth quarter of 2023. The most critical assumptions used in the calculation of the fair value of the PowerDrive Systems reporting unit were projected revenue growth rates, projected operating income margin, and discount rates. Additionally, at the time of that assessment, the carrying value of the PowerDrive Systems reporting unit was higher than the carrying value used in the most recent quantitative analysis in 2023 due to capital investments made in the business.

Based on this interim impairment test, the PowerDrive Systems reporting unit had an estimated fair value that exceeded its carrying value, including goodwill, by approximately 5%, resulting in no impairment.

The fair value of the PowerDrive Systems reporting unit’s goodwill is sensitive to differences between estimated and actual cash flows, including changes in the projected revenue, projected operating margin and discount rate used to evaluate the fair value of these assets and market multiples assumptions applied by the Company. Future changes in the judgments, assumptions and estimates from those used in valuations and goodwill impairment testing, including discount rates or future operating results and related cash flow projections, could result in significantly different estimates of the fair values in the future. An increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated fair values, which may result in impairment charges that could materially affect the Company’s financial statements in any given year.

As further described in Note 22, “Reportable Segments,” as a result of the previously disclosed reportable segment realignment, the Company disaggregated certain entities within one of the Company’s historical goodwill reporting units across two reporting units: Drivetrain & Morse Systems and Battery & Charging Systems. As a result of this change, the Company allocated goodwill to these two reporting units on a relative fair value basis. The Company estimated the fair values of the businesses to be split from the historical reporting unit based upon the present value of their anticipated future cash flows. The Company’s determination of fair value involved judgment and the use of estimates and assumptions. In conjunction with the goodwill allocation, the Company performed a quantitative impairment assessment of the historical reporting units’ goodwill immediately before and after the segment realignment. The quantitative analyses did not result in any impairment charges as the fair value of each reporting unit exceeded its respective carrying value. The disclosures below have been updated accordingly, which included recasting prior period information for the new reporting structure.

Other than as described above, the Company noted no events or circumstances related to any of the Company’s reporting units in the three and nine months ended September 30, 2024 that required additional assessment or testing.

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A summary of the changes in the carrying amount of goodwill are as follows:


(in millions)	Turbos & Thermal Technologies		Drivetrain & Morse Systems		PowerDrive Systems		Battery & Charging Systems		Total
Gross goodwill balance, December 31, 2023	$	1,257	$	1,126	$	481	$	651	$	3,515
Accumulated impairment losses, December 31, 2023	(502)		—		—		—		(502)
Net goodwill balance, December 31, 2023	$	755	$	1,126	$	481	$	651	$	3,013
Goodwill during the period:

Other, primarily translation adjustment	4		1		3		6		14
Ending balance, September 30, 2024	$	759	$	1,127