GOODWILL AND OTHER INTANGIBLES

12 Months Ended

Dec. 31, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

During the fourth quarter of 2022, the Company performed a quantitative analysis on each reporting unit to refresh its respective fair value. Prior to 2022, the estimated fair value was determined based on the income approach. The income approach is based on discounted future cash flows and requires significant assumptions, including estimates regarding future revenue, profitability, capital requirements and discount rates. The basis of the income approach is the Company’s annual budget and long-range plan (“LRP”). The annual budget and LRP includes a five-year projection of future cash flows based on actual new products and customer commitments. Because the projections are estimated over a significant future period of time, those estimates and assumptions are subject to uncertainty. For 2022, the estimated fair value was determined using a combined income and market approach. The market approach is based on market multiples (revenue and “EBITDA”, defined as earnings before interest, taxes, depreciation and amortization) and requires an estimate of appropriate multiples based on market data for comparable companies. The market valuation models and other financial ratios used by the Company require certain assumptions and estimates regarding the applicability of those models to the Company’s facts and circumstances.

The Company believes the assumptions and estimates used to determine the estimated fair value are reasonable. Different assumptions could materially affect the estimated fair value. The primary assumptions affecting the Company’s 2022 goodwill quantitative impairment review are as follows:

•Discount rates: the Company used a range of 11.0% to 14.5% weighted average cost of capital (“WACC”) as the discount rates for future cash flows. The WACC is intended to represent a rate of return that would be expected by a market participant.

•Operating income margin: the Company used historical and expected operating income margins, which may vary based on the projections of the reporting unit being evaluated.

•Revenue growth rates: the Company used a global automotive market industry growth rate forecast adjusted to estimate its own market participation for product lines.

In addition to the above primary assumptions, the Company notes the following risks to volume and operating income assumptions that could have an impact on the discounted cash flow models:

•The automotive industry is cyclical, and the Company’s results of operations could be adversely affected by industry downturns.

•The automotive industry is evolving, and if the Company does not respond appropriately, its results of operations could be adversely affected.

•The Company is dependent on market segments that use its key products and could be affected by decreasing demand in those segments.

•The Company is subject to risks related to international operations.

Based on the assumptions outlined above, the impairment testing conducted in the fourth quarter of 2022 indicated the Company’s goodwill assigned to the respective reporting units was not impaired. Future changes in the judgments, assumptions and estimates from those used in acquisition-related valuations and goodwill impairment testing, including discount rates or future operating results and related cash flow projections, could result in significantly different estimates of the fair values in the future. Due to the Company’s recent acquisitions, there is less headroom (the difference between the carrying value and the fair value) associated with certain of the Company’s reporting units. Based on the impairment testing conducted in 2022, the amounts by which the estimated fair values of the Company’s goodwill reporting units exceeded their carrying values ranged from 25% to 153%. An increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated fair values, which may result in impairment charges that could materially affect the Company’s financial statements in any given year.

A summary of the changes in the carrying amount of goodwill is presented in the following tables. The prior period balances have been recast for inter-segment transitions of certain businesses that were completed during 2022. Refer to Note 24, “Reporting Segments and Related Information” for more information.


	2022
(in millions)	Air Management		e-Propulsion & Drivetrain		Aftermarket		Fuel Systems		Total
Gross goodwill balance, January 1	$	1,466	$	1,890	$	380	$	45	$	3,781
Accumulated impairment losses, January 1	(502)		—		—		—		(502)
Net goodwill balance, January 1	$	964	$	1,890	$	380	$	45	$	3,279
Goodwill during the year:
Acquisitions1 (Note 2)	126		132		—		—		258
Measurement period adjustments (Note 2)	—		(20)		—		—		(20)
Other, primarily translation adjustment	(26)		(88)		(6)		—		(120)
Net goodwill balance, December 31	$	1,064	$	1,914	$	374	$	45	$	3,397


	2021
(in millions)	Air Management		e-Propulsion & Drivetrain		Aftermarket		Fuel Systems		Total
Gross goodwill balance, January 1	$	1,472	$	1,244	$	368	$	45	$	3,129
Accumulated impairment losses, January 1	(502)		—		—		—		(502)
Net goodwill balance, January 1	$	970	$	1,244	$	368	$	45	$	2,627
Goodwill during the year:
Acquisitions1 (Note 2)	—		707		—		—		707
Measurement period adjustments2	(1)		26		16		—		41
Disposition3 (Note 2)	—		(12)		—		—		(12)

Other, primarily translation adjustment	(5)		(75)		(4)		—		(84)
Net goodwill balance, December 31	$	964	$	1,890	$	380	$	45	$	3,279

_____________________________

1 Acquisitions relate to the Company’s 2022 purchases of Drivetek, Rhombus and Santroll, and the 2021 purchase of AKASOL.

2 Measurement period adjustments primarily relate to the 2020 acquisition of Delphi Technologies.

3 Disposition relates to the Company’s 2021 sale of Water Valley.

The Company’s other intangible assets, primarily from acquisitions, consist of the following:


		December 31, 2022						December 31, 2021
(in millions)	Estimated useful lives (years)	Gross carrying amount		Accumulated amortization		Net carrying amount		Gross carrying amount		Accumulated amortization		Net carrying amount
Amortized intangible assets:
Patented and unpatented technology	5 - 15	$	492	$	141	$	351	$	443	$	105	$	338
Customer relationships	7 - 15	901		351		550		877		310		567
Miscellaneous	2 - 5	10		6		4		14		7		7
Total amortized intangible assets		1,403		498		905		1,334		422		912
Unamortized trade names		146		—		146		179		—		179
Total other intangible assets		$	1,549	$	498	$	1,051	$	1,513	$	422	$	1,091

Amortization of other intangible assets was $97 million, $88 million and $89 million for the years ended December 31, 2022, 2021 and 2020, respectively. The Company utilizes the straight-line method of amortization recognized over the estimated useful lives of the assets. The estimated future annual amortization expense, primarily for acquired intangible assets, is as follows: $95 million in 2023, $95 million in 2024, $94 million in 2025, $86 million in 2026, $80 million in 2027 and $455 million thereafter.

During the fourth quarter of 2020, as a result of an evaluation of the underlying technologies and management of the business subsequent to the acquisition of Delphi Technologies, the Company reduced the useful life of certain intangible assets as they no longer provided future economic benefit. This resulted in accelerated amortization expense of $38 million and the removal of the related gross carrying amount and accumulated amortization of these assets.

A roll forward of the gross carrying amounts and related accumulated amortization of the Company’s other intangible assets is presented below:


	Gross carrying amounts				Accumulated amortization
(in millions)	2022		2021		2022		2021
Beginning balance, January 1	$	1,513	$	1,452	$	422	$	356
Acquisitions1 (Note 2)	132		130		—		—
Impairment2	(41)		(14)		(3)		—
Amortization	—		—		97		88
Translation adjustment	(55)		(55)		(18)		(22)
Ending balance, December 31	$	1,549	$	1,513	$	498	$	422

_____________________________

1 Acquisitions relate to the Company’s 2022 purchases of Drivetek, Rhombus and Santroll, and the 2021 purchase of AKASOL.

2 During the fourth quarter of 2022, the Company recorded an impairment charge of $30 million to remove an indefinite-lived trade name as the Company no longer plans to utilize this trade name in the business. In 2021, the Company performed a quantitative impairment test over its indefinite-lived trade names, which indicated that for one trade name the fair value was less than the carrying value. Therefore, the Company recorded an impairment charge to reduce the carrying value to the fair value.