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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 March 31, 2021
OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                      to                     
Commission file number: 1-12162
BORGWARNER INC.
________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 13-3404508
(State or other jurisdiction of (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
1.80% Senior Notes due 2022BWA22New 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 April 30, 2021, the registrant had 239,847,758 shares of voting common stock outstanding.



BORGWARNER INC.
FORM 10-Q
THREE MONTHS ENDED MARCH 31, 2021
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,” “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, 2020 (“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: uncertainties regarding the extent and duration of impacts of matters associated with the COVID-19/coronavirus pandemic (“COVID-19”), including additional production disruptions; the failure to realize the expected benefits of the acquisition of Delphi Technologies PLC that the Company completed on October 1, 2020; the failure to promptly and effectively integrate acquired businesses; the potential for unknown or inestimable liabilities relating to acquired businesses; the possibility that the proposed transaction between the Company and AKASOL AG (“Proposed Transaction”) will not be consummated; failure to satisfy any of the conditions to the proposed transaction; failure to realize the expected benefits of the Proposed Transaction; our dependence on automotive and truck production, both of which are highly cyclical and subject to disruptions; our reliance on major original equipment manufacturer (“OEM”) customers; commodities availability and pricing; supply disruptions; fluctuations in interest rates and foreign currency exchange rates; availability of credit; our dependence on key management; 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, tariffs, in the countries in which we operate; and the other risks, including, by way of example, pandemics and quarantines, 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 as updated by Item 1A of this report. 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. The Company believes these non-GAAP financial measures provide additional information that is useful to investors in understanding the underlying performance and trends of the Company. Readers should be aware that non-GAAP financial measures have inherent limitations and should be cautious with respect to the use of such measures. To compensate for these limitations, we use non-GAAP measures as comparative tools, together with GAAP measures, to assist in the evaluation of our operating performance or financial condition. We 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. The Company's method of calculating these non-GAAP measures may differ from methods used by other companies. These non-GAAP measures should not be considered in isolation or as a substitute for those financial measures prepared in accordance with GAAP. Where non-GAAP financial measures are used, the most directly comparable GAAP 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)March 31,
2021
December 31,
2020
ASSETS
Cash and cash equivalents$1,755 $1,650 
Receivables, net3,153 2,919 
Inventories, net1,361 1,286 
Prepayments and other current assets313 312 
Total current assets6,582 6,167 
Property, plant and equipment, net4,449 4,591 
Goodwill2,596 2,627 
Other intangible assets, net1,059 1,096 
Investments and other long-term receivables557 820 
Other non-current assets728 728 
Total assets$15,971 $16,029 
LIABILITIES AND EQUITY
Notes payable and other short-term debt$51 $49 
Accounts payable2,485 2,352 
Other current liabilities1,385 1,409 
Total current liabilities3,921 3,810 
Long-term debt3,708 3,738 
Retirement-related liabilities552 576 
Other non-current liabilities1,136 1,181 
Commitments and contingencies
Common stock3 3 
Capital in excess of par value2,589 2,614 
Retained earnings6,321 6,296 
Accumulated other comprehensive loss(736)(651)
Common stock held in treasury, at cost(1,810)(1,834)
Total BorgWarner Inc. stockholders’ equity6,367 6,428 
Noncontrolling interest287 296 
Total equity6,654 6,724 
Total liabilities and equity$15,971 $16,029 

See accompanying Notes to Condensed Consolidated Financial Statements.
1


BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31,
(in millions, except per share amounts)2021 2020
Net sales$4,009 $2,279 
Cost of sales3,191 1,832 
Gross profit818 447 
Selling, general and administrative expenses377 213 
Other operating expense, net38 36 
Operating income403 198 
Equity in affiliates’ earnings, net of tax(12)(5)
Unrealized loss on equity securities272 9 
Interest income(3)(2)
Interest expense21 12 
Other postretirement income(11)(2)
Earnings before income taxes and noncontrolling interest136 186 
Provision for income taxes42 49 
Net earnings94 137 
Net earnings attributable to noncontrolling interest, net of tax29 8 
Net earnings attributable to BorgWarner Inc. $65 $129 
Earnings per share attributable to BorgWarner Inc. — basic$0.27 $0.63 
Earnings per share attributable to BorgWarner Inc. — diluted$0.27 $0.63 
Weighted average shares outstanding:  
Basic237.7 205.7 
Diluted238.4 206.2 

See accompanying Notes to Condensed Consolidated Financial Statements.
2


BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended March 31,
(in millions)20212020
Net earnings attributable to BorgWarner Inc. $65 $129 
Other comprehensive income (loss)
Foreign currency translation adjustments*(87)(74)
Hedge instruments*(6)(2)
Defined benefit postretirement plans*8 2 
Total other comprehensive loss attributable to BorgWarner Inc.(85)(74)
Comprehensive (loss) income attributable to BorgWarner Inc.*(20)55 
Net earnings attributable to noncontrolling interest, net of tax29 8 
Other comprehensive loss attributable to noncontrolling interest*(5)(3)
Comprehensive income$4 $60 
____________________________________
*    Net of income taxes.

See accompanying Notes to Condensed Consolidated Financial Statements.

3


BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31,
(in millions)20212020
OPERATING
Net cash provided by operating activities (see Note 23)
$342 $263 
INVESTING 
Capital expenditures, including tooling outlays(195)(117)
Capital expenditures for damage to property, plant and equipment(2) 
Proceeds from settlement of net investment hedges, net11 1 
Proceeds from asset disposals and other, net1 (4)
Net cash used in investing activities(185)(120)
FINANCING 
Net increase in notes payable7  
Additions to debt22 13 
Payments for debt issuance costs(1) 
Repayments of debt, including current portion(26)(14)
Payments for stock-based compensation items(13)(12)
Dividends paid to BorgWarner stockholders(40)(35)
Dividends paid to noncontrolling stockholders (14)
Net cash used in financing activities(51)(62)
Effect of exchange rate changes on cash(1)(12)
Net increase in cash and cash equivalents105 69 
Cash and cash equivalents at beginning of year1,650 832 
Cash and cash equivalents at end of period$1,755 $901 

See accompanying Notes to Condensed Consolidated Financial Statements.
4


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 months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. The balance sheet as of December 31, 2020 was derived from the audited financial statements as of that date. For further information, refer to the Consolidated Financial Statements and Footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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

COVID-19 Pandemic Update

Throughout 2020, COVID-19 materially impacted the Company’s business and results of operations. During the first quarter of 2020, the impact of COVID-19 was initially experienced primarily by operations in China. Following the declaration of COVID-19 as a global pandemic on March 11, 2020, government authorities around the world began to impose shelter-in-place orders and other restrictions. As a result, many OEMs began suspending manufacturing operations, particularly in North America and Europe. This led to various temporary closures of, or reduced operations at, the Company’s manufacturing facilities, late in the first quarter of 2020 and throughout the second quarter of 2020.

During the second half of 2020, as global management of COVID-19 evolved and government restrictions were removed or lessened, production levels improved, and substantially all of the Company’s production facilities resumed closer to normal operations by the end of the third quarter of 2020. It is possible the COVID-19 pandemic could result in adverse impacts in the future. Management cannot reasonably estimate the full impact the COVID-19 pandemic could have on the Company’s financial condition, results of operations or cash flows in the future.

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NOTE 2 NEW ACCOUNTING PRONOUNCEMENTS

In January 2020, the FASB issued ASU No. 2020-1, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815).” It clarifies the interaction among the accounting for equity securities, equity method investments, and certain derivative instruments. Specifically, for the purposes of applying the ASC Topic 321 measurement alternative, a company should consider observable transactions immediately before applying or upon discontinuing the equity method. Additionally, when determining the accounting for certain forward contracts and purchased options entered into to purchase securities, a company should not consider if the underlying securities would be accounted for under the equity method (ASC Topic 323) or fair value option (ASC Topic 825). This guidance was effective for interim and annual periods beginning after December 15, 2020. The Company adopted this guidance as of January 1, 2021, and there was no impact on its Consolidated Financial Statements.

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes.” It removes certain exceptions to the general principles in ASC Topic 740 and improves consistent application of and simplifies GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance. This guidance was effective for interim and annual reporting periods beginning after December 15, 2020. The Company adopted this guidance as of January 1, 2021, and the impact on its Consolidated Financial Statements was immaterial.

In August 2018, the FASB issued ASU No. 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20).” It (i) requires the removal of disclosures that are no longer considered cost beneficial; (ii) clarifies specific requirements of certain disclosures; and (iii) adds new disclosure requirements, including the weighted average interest crediting rates for cash balance plans and other plans with promised interest crediting rates, and reasons for significant gains and losses related to changes in the benefit obligation. This guidance was effective for annual periods beginning after December 15, 2020. The Company adopted this guidance as of January 1, 2021, and there was no impact on these Condensed Consolidated Financial Statements; however, the Company will include the annual disclosures as required in its Form 10-K.


NOTE 3 ACQUISITIONS

Proposed Acquisition of AKASOL AG

On February 15, 2021, the Company entered into a Business Combination Agreement (the “Agreement”) with AKASOL AG (“AKASOL”). Pursuant to the agreement, on March 26, 2021, a wholly-owned subsidiary of the Company launched a voluntary public takeover offer at €120.00 per share in cash for all outstanding shares of AKASOL, which valued 100% of AKASOL’s equity at approximately €727 million. Holders of approximately 59% of AKASOL’s outstanding shares committed through Irrevocable Undertakings to accept the offer with respect to their shares. The final acceptance period for this takeover offer is expected to end on May 26, 2021. The Company anticipates that the transaction will be funded primarily with a combination of available cash and incremental debt. Pursuant to the Agreement and to satisfy certain cash confirmation requirements in support of the acquisition pursuant to German law, on February 19, 2021, the Company entered into a $900 million, 364-day delayed draw term loan facility that was undrawn at March 31, 2021 and is expected to remain undrawn. The transaction, which is expected to close in the second quarter of 2021, has received required regulatory approvals but is subject to the satisfaction of other customary closing conditions.

6


Delphi Technologies PLC

On October 1, 2020, the Company completed its acquisition of 100% of the outstanding ordinary shares of Delphi Technologies PLC (“Delphi Technologies”) from the shareholders of Delphi Technologies pursuant to the terms of the Transaction Agreement, dated January 28, 2020, as amended on May 6, 2020, by and between the Company and Delphi Technologies (the “Transaction Agreement”). Pursuant to the terms of the Transaction Agreement, the Company issued, in exchange for each Delphi Technologies share, 0.4307 of a share of common stock of the Company, par value $0.01 per share and cash in lieu of any fractional share. In the aggregate, the Company delivered consideration of approximately $2.4 billion. The acquisition strengthens the Company’s electronics and power electronics products, capabilities and scale, positions the Company for greater growth as electrified propulsion systems gain momentum and enhances key combustion, commercial vehicle and aftermarket product offerings. Upon closing, the Company also assumed approximately $800 million (par value) in aggregate principal amount of Delphi Technologies’ outstanding 5.000% Senior Notes due 2025 (the “DT Notes”).

On October 5, 2020, the Company completed its offer to exchange new BorgWarner notes for the DT Notes. Approximately $776 million in aggregate principal amount of outstanding DT Notes, representing 97% of the $800 million total outstanding principal amount of the DT Notes, were validly exchanged and cancelled for new BorgWarner notes. Following such cancellation, approximately $24 million in aggregate principal amount of the DT Notes remain outstanding. Since the majority of the DT Notes were exchanged, the Company was able to eliminate substantially all of the restrictive covenants and events of default not related to payment on the $800 million in outstanding senior notes of the Company.

The following table summarizes the purchase price for Delphi Technologies:
(in millions, except for share data)
BorgWarner common stock issued for purchase of Delphi Technologies37,188,819
BorgWarner share price at October 1, 2020$39.54 
Fair value of stock consideration$1,470 
Stock compensation consideration7
Total stock consideration$1,477 
Cash consideration18 
Repayment of Delphi Technologies’ debt896 
Total consideration$2,391 

The purchase price was allocated on a preliminary basis as of October 1, 2020. Assets acquired and liabilities assumed were recorded at estimated fair values based on management’s estimates, available information, and supportable assumptions that management considered reasonable. The Company is in the process of finalizing all purchase accounting adjustments related to the Delphi Technologies acquisition. Certain estimated values for the acquisition, including goodwill, 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 from the estimated values shown below.

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The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the acquisition date and subsequent measurement period adjustments:
(in millions)Initial AllocationMeasurement Period AdjustmentsRevised Allocation
ASSETS
Cash and cash equivalents$460 $ $460 
Receivables, net901 1 902 
Inventories, net398 (1)397 
Prepayments and other current assets77  77 
Property, plant and equipment, net1,548  1,548 
Investments and other long-term receivables103  103 
Goodwill710 1 711 
Other intangible assets, net760  760 
Other non-current assets359  359 
Total assets acquired5,316 1 5,317 
LIABILITIES
Notes payable and other short-term debt2  2 
Accounts payable692  692 
Other current liabilities609 (1)608 
Long-term debt934  934 
Other non-current liabilities:
Retirement-related313  313 
Other286  286 
Total liabilities assumed2,836 (1)2,835 
Noncontrolling interests89  89 
Net assets and noncontrolling interests acquired$2,391 $2 $2,393 

Any excess of the purchase price over the estimated fair value of net assets was recognized as goodwill. Goodwill of $711 million, including the impact of measurement period adjustments, was allocated across the Company’s four segments, as noted in the table below. The goodwill consists of the Company’s expected future economic benefits that will arise from expected future product sales and operational synergies from combining Delphi Technologies with its existing business and is not deductible for tax purposes.

(in millions)
Air Management$147 
e-Propulsion & Drivetrain281 
Fuel Injection 
Aftermarket283 
Total acquisition date goodwill$711 
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The valuation of intangible assets was determined using an income approach methodology. The fair values of the customer relationship intangible assets were estimated using the multi-period excess earnings method. Assumptions used in these calculations were considered from a market participant perspective and include revenue growth rates, estimated earnings, contributory asset charges, customer attrition and discount rates.

The fair values of the developed technology and trade name intangible assets were estimated utilizing the relief from royalty method, which calculates the cost savings associated with owning rather than licensing the assets. Assumed royalty rates are applied to projected revenue for the remaining useful lives of the assets to estimate the royalty savings. Assumptions used in the determination of the fair value of the developed technology included revenue growth rates, royalty rates, obsolescence factors and discount rates. Assumptions used in the determination of the fair value of the trade name included the revenue growth rates, the royalty rate and discount rate. The following table summarizes the other intangible assets acquired:

(in millions)Estimated LifeEstimated Fair Value
Amortized intangible assets:
Developed technology14 years$270 
Customer relationships15 years380 
Total amortized intangible assets650 
Unamortized trade nameIndefinite110 
Total other intangible assets$760 

Generally accepted valuation practice indicates that assets and liabilities may be valued using a range of methodologies. The property, plant and equipment and inventory acquired were valued using a combination of cost and market approaches. Goodwill, identifiable intangible assets, noncontrolling interests and the equity method investment were valued using the income approach. Management used a third-party valuation firm to assist in the determination of the preliminary purchase accounting fair values; however, management ultimately oversees the third-party valuation firm to ensure that the transaction-specific assumptions are appropriate for the Company.

On a pro forma basis, the combined net sales of the Company and Delphi Technologies for the three months ended March 31, 2020 were $3,224 million.

Romeo Power, Inc.

In May 2019, the Company invested $50 million in exchange for a 20% equity interest in Romeo Systems, Inc., now known as Romeo Power, Inc., (“Romeo”) a technology-leading battery module and pack supplier that was then privately held. The Company accounted for this investment in Series A-1 Preferred Stock of Romeo under the measurement alternative in ASC Topic 321, “Investments - Equity Securities” for equity securities without a readily determinable fair value. Such investments are measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. In September 2019, the Company and Romeo contributed total equity of $10 million and formed a new joint venture, BorgWarner Romeo Power LLC (“Romeo JV”), in which the Company owns a 60% interest. Romeo JV is a variable interest entity focusing on producing battery module and pack technology. The Company is the primary beneficiary of Romeo JV and consolidates Romeo JV in its consolidated financial statements.

On December 29, 2020, through the business combination of Romeo Systems, Inc. and special purpose acquisition company RMG Acquisition Corporation, a new entity, Romeo Power, Inc., became a publicly listed company. The Company’s ownership in Romeo was reduced to 14%, and the investment no longer qualified for the measurement alternative under ASC Topic 321 as the investment now has a readily
9


determinable fair value. Therefore, the investment is recorded at fair value on an ongoing basis with changes in fair value being recognized in Unrealized loss on equity securities in the Condensed Consolidated Statements of Operations. During the three months ended March 31, 2021, the Company recorded a loss of $272 million to adjust the carrying value of the Company’s investment to fair value of $160 million, which is reflected in Investments and other long-term receivables in the Company’s Condensed Consolidated Balance Sheets.

During the three months ended March 31, 2020, after completing a qualitative assessment which indicated the Company’s equity securities in Romeo may have been impaired, the Company recorded a $9 million impairment charge to reflect this investment at its estimated fair value of $41 million. The estimated fair value of Romeo was determined using unobservable inputs including quantitative information from lower valuations in recently completed or proposed financings and the liquidation preferences included in the Romeo stock agreements. These unobservable inputs are considered Level 3.


NOTE 4 REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company manufactures and sells products, primarily to OEMs of light vehicles and, to a lesser extent, to other OEMs of commercial vehicles and off-highway vehicles, to certain Tier One vehicle systems suppliers and into the aftermarket. The Company’s payment terms are based on customary business practices and vary by customer type and products offered. We have evaluated the terms of our arrangements and determined that they do not contain significant financing components.
Generally, revenue is recognized upon shipment or delivery; however, a limited number of the Company’s customer arrangements for its highly customized products with no alternative use provide the Company with the right to payment during the production process. As a result, for these limited arrangements, revenue is recognized as goods are produced and control transfers to the customer using the input cost-to-cost method. The Company recorded a contract asset of $15 million and $16 million at March 31, 2021 and December 31, 2020, respectively, for these arrangements. These amounts are reflected in Prepayments and other current assets in the Company’s Condensed Consolidated Balance Sheets.
In limited instances, certain customers have provided payments in advance of receiving related products, typically at the onset of an arrangement prior to the beginning of production. These contract liabilities are reflected as Other current liabilities and Other non-current liabilities in the Condensed Consolidated Balance Sheets and were $14 million and $6 million at March 31, 2021 and $22 million and $6 million at December 31, 2020, respectively. These amounts are reflected as revenue over the term of the arrangement (typically 3 to 7 years) as the underlying products are shipped and represent the Company’s remaining performance obligations as of the end of the period.
Sales to certain aftermarket customers provide a right of return to the customers. The Company recognizes an estimated return asset (and adjusts for cost of sales) for the right to recover the products returned by the customer. ASC Topic 606 requires that return assets be presented separately from inventory. As of March 31, 2021 and December 31, 2020, the Company had return assets of $9 million and $8 million recorded in Prepayments and other current assets, respectively.
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 March 31, 2021 and December 31, 2020, the Company recorded customer incentive payments of $43 million in Prepayments and other current assets, and $153 million and $166 million in Other non-current assets in the Condensed Consolidated Balance Sheets, respectively.
10



The following tables represent a disaggregation of revenue from contracts with customers by reporting segment and region and reflects the results of former Delphi Technologies entities in the three months ended March 31, 2021. Refer to Note 22, “Reporting Segments And Related Information,” to the Condensed Consolidated Financial Statements for more information.

Three Months Ended March 31, 2021
(In millions)Air Managemente-Propulsion & DrivetrainFuel InjectionAftermarketTotal
North America$532 $535 $3 $67 $1,137 
Europe833 276 271 102 1,482 
Asia572 602 137 13 1,324 
Other31 6 15 14 66 
Total$1,968 $1,419 $426 $196 $4,009 
Three Months Ended March 31, 2020
(In millions)Air Managemente-Propulsion & DrivetrainFuel InjectionAftermarketTotal
North America$387 $423 $ $ $810 
Europe711 191   902 
Asia291 242   533 
Other30 4   34 
Total$1,419 $860 $ $ $2,279 


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.

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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.

Three Months Ended March 31, 2021
(in millionsAir Managemente-Propulsion & DrivetrainFuel InjectionTotal
Employee termination benefits$14 $4 $3 $21 
Other3 6  9 
Total restructuring expense$17 $10 $3 $30 
Three Months Ended March 31, 2020
Air Managemente-Propulsion & DrivetrainFuel InjectionTotal
Employee termination benefits$11 $1 $ $12 
Other2 1  3 
Total restructuring expense$13 $2 $ $15 

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

(in millionsEmployee Benefit TerminationsOtherTotal
Balance at January 1, 2021$160 $13 $173 
Restructuring expense, net21 9 30 
Cash payments(54)(12)(66)
Balance at March 31, 2021127 10 137 
Less: Non-current restructuring liability48 3 51 
Current restructuring liability at March 31, 2021$79 $7 $86 
Employee Benefit TerminationsOtherTotal
Balance at January 1, 2020$34 $ $34 
Restructuring expense, net12 3 15 
Cash payments(13)(1)(14)
Balance at March 31, 202033 2 35 
Less: Non-current restructuring liability   
Current restructuring liability at March 31, 2020$33 $2 $35 

In February 2020, the Company announced a restructuring plan to address existing structural costs. During the three months ended March 31, 2021 and 2020, the Company recorded $24 million and $15 million of restructuring charges related to this plan, respectively. Cumulatively, the Company has incurred $172 million of restructuring charges related to this plan. This plan is expected to result in a total of $300 million of restructuring costs through 2022. Nearly all of the restructuring charges associated with this plan are expected to be cash expenditures.

In 2019, legacy Delphi Technologies announced a restructuring plan to reshape and realign its global technical center footprint and reduce salaried and contract staff. The Company continued actions under this program post-acquisition and has recorded cumulative charges of $7 million since October 1, 2020,
12


including approximately $5 million in restructuring charges during the three months ended March 31, 2021. Actions under this program have been substantially completed as of March 31, 2021. Any remaining charges related to this program are subject to consultation with employee works councils and other employee representatives and are not expected to be significant.

During the three months ended March 31, 2021 and 2020, the Company incurred restructuring expenses primarily related to these actions:

Air Management
During the three months ended March 31, 2021, the segment recorded $15 million of restructuring costs, primarily related to severance costs, professional fees and a voluntary termination program to reduce existing structural costs.
During the three months ended March 31, 2021, the segment recorded $2 million primarily related to severance costs under a legacy Delphi Technologies restructuring plan to realign its global technical center footprint and implement headcount reductions.
During the three months ended March 31, 2020, the segment recorded $13 million of restructuring costs, of which $8 million related to a voluntary termination program where approximately 350 employees accepted termination packages and $5 million related to severance costs and professional fees for specific actions to reduce structural costs.
e-Propulsion & Drivetrain
During the three months ended March 31, 2021, the segment recorded $6 million primarily related to severance costs, equipment relocation and professional fees to reduce existing structural costs and $4 million related to professional fees and other costs associated with the announced closure of a facility in Europe.
During the three months ended March 31, 2020, the segment recorded $2 million primarily related to professional fees for actions to reduce structural costs and severance costs.
Fuel Injection
During the three months ended March 31, 2021, the segment recorded $3 million primarily related to severance costs under a legacy Delphi Technologies restructuring plan to realign its global technical center footprint and implement headcount reductions.

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

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


NOTE 6 RESEARCH AND DEVELOPMENT COSTS

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

The following table presents the Company’s gross and net expenditures on R&D activities:
Three Months Ended March 31,
(in millions)20212020
Gross R&D expenditures$200 $118 
Customer reimbursements(17)(9)
Net R&D expenditures$183 $109 


NOTE 7 OTHER OPERATING EXPENSE, NET

Items included in Other operating expense, net consist of:
Three Months Ended March 31,
(in millions)20212020
Restructuring expense (Note 5)$30 $15 
Merger, acquisition and divestiture expense13 21 
Net gain on insurance recovery for property damage(2) 
Other income, net(3) 
Other operating expense, net$38 $36 

Merger, acquisition and divestiture expense: During the three months ended March 31, 2021 and 2020, the Company recorded merger, acquisition and divestiture expense of $13 million and $21 million, respectively. The expense for 2021 primarily related to professional fees for integration and other support associated with the Company’s acquisition of Delphi Technologies completed on October 1, 2020 and professional fees associated with the proposed acquisition of AKASOL. The expense for 2020 primarily related to professional fees associated with the Company’s acquisition of Delphi Technologies.


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 March 31, 2021 and 2020 was 31% and 26%, respectively. The 2021 rate was unfavorably impacted by jurisdictions with pretax losses for which no tax benefit could be realized. Additionally, the Company’s effective tax rate includes a net discrete tax benefit of $20 million primarily related to changes to certain withholding rates applied to unremitted earnings. The 2020 rate includes reductions in income tax expense of $4 million related to restructuring expense and $12 million for other one-time adjustments. The other one-time adjustments primarily relate to tax law changes in India that were enacted during the quarter and the release of certain unrecognized tax benefits due to the closure of an audit.

14


The annual effective tax rates differ from the U.S. statutory rate primarily due to foreign rates which vary from those in the U.S., jurisdictions with pretax losses for which no tax benefit could be realized, U.S. taxes on foreign earnings, the realization of certain business tax credits (including foreign tax credits), and permanent differences between book and tax treatment for certain items (including equity in affiliates’ earnings).


NOTE 9 INVENTORIES, NET

A summary of Inventories, net is presented below:
March 31,December 31,
(in millions)20212020
Raw material and supplies$875 $827 
Work in progress162 150 
Finished goods342 324 
FIFO inventories1,379 1,301 
LIFO reserve(18)(15)
Inventories, net$1,361 $1,286 


NOTE 10 OTHER CURRENT AND NON-CURRENT ASSETS

Additional detail related to assets is presented below:

March 31,December 31,
(in millions)20212020
Prepayments and other current assets:
Prepaid tooling$86 $84 
Prepaid taxes58 64 
Customer incentive payments (Note 4)43 43 
Prepaid engineering33 33 
Contract assets (Note 4)15 16 
Other78 72 
Total prepayments and other current assets$313 $312 
Investments and other long-term receivables:
Investment in equity affiliates$306 $297 
Equity securities (Note 3)202 472 
Other long-term receivables49 51 
Total investments and other long-term receivables$557 $820 
Other non-current assets:
Deferred income taxes$291 $291 
Operating leases219 211 
Customer incentive payments (Note 4)153 166 
Other65 60 
Total other non-current assets$728 $728 


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NOTE 11 GOODWILL AND OTHER INTANGIBLES

During the fourth quarter of each year, the Company assesses its goodwill assigned to each of its reporting units. In addition, the Company may test goodwill in between annual test dates if an event occurs or circumstances change that could more-likely-than-not reduce the fair value of a reporting unit below its carrying value. No events or circumstances were noted in the first quarter of 2021 requiring additional assessment or testing. Future changes in the judgments, assumptions and estimates from those used in acquisition-related valuations and goodwill impairment testing, including discount rates or future operating results and related cash flow projections, could result in significantly different estimates of the fair values in the future. An increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated fair values, which may result in impairment charges that could materially affect the Company’s financial statements in any given year.

A summary of the changes in the carrying amount of goodwill are as follows:
(in millions)Air Managemente-Propulsion & DrivetrainAftermarketTotal
Gross goodwill balance, December 31, 2020$1,517 $1,313 $299 $3,129 
Accumulated impairment losses, December 31, 2020(502)  (502)
Net goodwill balance, December 31, 2020$1,015 $1,313 $299 $2,627 
Goodwill during the period:
Measurement period adjustments(4)9 (4)1 
Other, primarily translation adjustment(13)(12)(7)(32)
Ending balance, March 31, 2021$998 $1,310 $288 $2,596 

The Company’s other intangible assets, primarily from acquisitions, consist of the following:
March 31, 2021December 31, 2020
(in millions)Estimated useful lives (years)Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Amortized intangible assets:
Patented and unpatented technology
7 - 15
$380 $81 $299 $383 $77 $306 
Customer relationships
7 - 15
868 276 592 893 272 621 
Miscellaneous
1 - 13
9 7 2 10 7 3 
Total amortized intangible assets1,257 364 893 1,286 356 930 
Unamortized trade names166 — 166 166 — 166 
Total other intangible assets$1,423 $364 $1,059 $1,452 $356 $1,096 


NOTE 12 PRODUCT WARRANTY

The Company provides warranties on some, but not all, of its products. The warranty terms are typically from one to three years. Provisions for estimated expenses related to product warranty are made at the time products are sold. These estimates are established using historical information about the nature, frequency and average cost of warranty claim settlements as well as product manufacturing and industry developments and recoveries from third parties. Management actively studies trends of warranty claims and takes action to improve product quality and minimize warranty claims. Management believes that the warranty accrual is appropriate; however, actual claims incurred could differ from the original estimates, requiring adjustments to the accrual. The product warranty accrual is allocated to current and non-current liabilities in the Condensed Consolidated Balance Sheets.

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The following table summarizes the activity in the product warranty accrual accounts:
(in millions)20212020
Beginning balance, January 1$253 $116 
Provisions for current period sales28 15 
Adjustments of prior estimates13 5 
Payments(29)(18)
Translation adjustment (5)(2)
Ending balance, March 31$260 $116 

The product warranty liability is classified in the Condensed Consolidated Balance Sheets as follows:
March 31,December 31,
(in millions)20212020
Accounts payable and accrued expenses$155 $164 
Other non-current liabilities105 89 
Total product warranty liability$260 $253 


NOTE 13 NOTES PAYABLE AND DEBT

As of March 31, 2021 and December 31, 2020, the Company had debt outstanding as follows:
March 31,December 31,
(in millions)
20212020
Short-term borrowings$47 $45 
Long-term debt
1.800% Senior notes due 11/07/22 (€500 million par value)
585 609 
3.375% Senior notes due 03/15/25 ($500 million par value)
498 498 
5.000% Senior notes due 03/15/25 ($800 million par value)*
906 912 
2.650% Senior notes due 07/01/27 ($1,100 million par value)
1,089 1,088 
7.125% Senior notes due 02/15/29 ($121 million par value)
119 119 
4.375% Senior notes due 03/15/45 ($500 million par value)
494 494 
Term loan facilities, finance leases and other21 22 
Total long-term debt3,712 3,742 
Less: current portion4 4 
Long-term debt, net of current portion$3,708 $3,738 
________________
*Includes the fair value step-up from the Delphi Technologies acquisition, which was based on observable market data and will be amortized as a reduction to interest expense over the remaining life of the instrument using the effective interest method.

The Company may utilize uncommitted lines of credit for short-term working capital requirements. As of March 31, 2021 and December 31, 2020, the Company had $47 million and $45 million, respectively, in borrowings under these facilities, which are classified in Notes payable and short-term debt on the Condensed Consolidated Balance Sheets.

The weighted average interest rate on short-term borrowings outstanding as of March 31, 2021 and December 31, 2020 was 1.6% and 1.7%, respectively. The weighted average interest rate on all
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borrowings outstanding, including the effects of outstanding cross-currency swaps, as of March 31, 2021 and December 31, 2020 was 2.8%.

On February 19, 2021, the Company entered into a $900 million, 364-day delayed draw term loan facility to satisfy certain cash confirmation requirements in support of the proposed acquisition of AKASOL. The facility remained undrawn at March 31, 2021 and is expected to remain undrawn. Refer to Note 3, “Acquisitions,” to the Condensed Consolidated Financial Statements for more information.

The Company has a $2.0 billion multi-currency revolving credit facility which allows the Company the ability to increase the facility by $1.0 billion with bank group approval. The credit agreement contains customary events of default and one key financial covenant, which is a debt-to-EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) ratio. The Company was in compliance with the financial covenant at March 31, 2021. At March 31, 2021 and December 31, 2020, the Company had no outstanding borrowings under this facility.

The Company’s commercial paper program allows the Company to issue up to $2.0 billion of short-term, unsecured commercial paper notes under the limits of its multi-currency revolving credit facility. Under this program, the Company may issue notes from time to time and use the proceeds for general corporate purposes. The Company had no outstanding borrowings under this program as of March 31, 2021 and December 31, 2020.

The total current combined borrowing capacity under the multi-currency revolving credit facility and commercial paper program cannot exceed $2 billion.

As of March 31, 2021 and December 31, 2020, the estimated fair values of the Company’s senior unsecured notes totaled $3,893 million and $4,052 million, respectively. The estimated fair values were $202 million higher than their carrying value at March 31, 2021 and $332 million higher than their carrying value at December 31, 2020. Fair market values of the senior unsecured notes are developed using observable values for similar debt instruments, which are considered Level 2 inputs as defined by ASC Topic 820. The carrying values of the Company's multi-currency revolving credit facility and commercial paper program approximates fair value. The fair value estimates do not necessarily reflect the values the Company could realize in the current markets.

The Company had outstanding letters of credit of $36 million and $33 million at March 31, 2021 and December 31, 2020, respectively. The letters of credit typically act as guarantees of payment to certain third parties in accordance with specified terms and conditions.

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NOTE 14 OTHER CURRENT AND NON-CURRENT LIABILITIES

Additional detail related to liabilities is presented in the table below:

March 31,December 31,
(in millions)20212020
Other current liabilities:
Payroll and employee related$224 $301 
Customer related238 198 
Product warranties (Note 12)155 164 
Income taxes payable112 102 
Employee termination benefits (Note 5)79