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, 2023

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: (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 April 28, 2023, the registrant had 234,373,353 shares of voting common stock outstanding.

BORGWARNER INC.

FORM 10-Q

THREE MONTHS ENDED MARCH 31, 2023

INDEX

	Page No.
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 (Unaudited)	1
Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 (Unaudited)	2
Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2023 and 2022 (Unaudited)	3
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (Unaudited)	4
Notes to Condensed Consolidated Financial Statements (Unaudited)	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3. Quantitative and Qualitative Disclosures About Market Risk	43
Item 4. Controls and Procedures	44
PART II. Other Information
Item 1. Legal Proceedings	45
Item 1A. Risk Factors	45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 6. Exhibits	46
SIGNATURES	47

CAUTIONARY STATEMENTS FOR FORWARD-LOOKING STATEMENTS

Statements in this Quarterly Report on Form 10-Q (“Form 10-Q”) (including Management’s Discussion and Analysis of Financial Condition and Results of Operations) may constitute forward-looking statements as contemplated by the 1995 Private Securities Litigation Reform Act (the “Act”) that are based on management's current outlook, expectations, estimates and projections. Words such as “anticipates,” “believes,” “continues,” “could,” “designed,” “effect,” “estimates,” “evaluates,” “expects,” “forecasts,” “goal,” “guidance,” “initiative,” “intends,” “may,” “outlook,” “plans,” “potential,” “predicts,” “project,” “pursue,” “seek,” “should,” “target,” “when,” “will,” “would,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Further, all statements, other than statements of historical fact contained or incorporated by reference in this Form 10-Q, that we expect or anticipate will or may occur in the future regarding our financial position, business strategy and measures to implement that strategy, including changes to operations, competitive strengths, goals, expansion and growth of our business and operations, plans, references to future success and other such matters, are forward-looking statements. Accounting estimates, such as those described under the heading “Critical Accounting Policies and Estimates” in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022 (“Form 10-K”), are inherently forward-looking. All forward-looking statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate under the circumstances. Forward-looking statements are not guarantees of performance, and the Company’s actual results may differ materially from those expressed, projected, or implied in or by the forward-looking statements.

You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q. Forward-looking statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed, projected or implied in or by the forward-looking statements. These risks and uncertainties, among others, include supply disruptions impacting us or our customers, such as the current shortage of semiconductor chips that has impacted original equipment manufacturer (“OEM”) customers and their suppliers, including us; 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 OEM customers; the challenges associated with rapidly changing technologies, particularly as relates to electric vehicles, and our ability to innovate in response; uncertainties regarding the extent and duration of impacts of matters associated with the COVID-19/coronavirus pandemic, including additional production disruptions; the difficulty in forecasting demand for electric vehicles and our electric vehicles revenue growth; potential disruptions in the global economy caused by Russia’s invasion of Ukraine; the ability to identify targets and consummate acquisitions on acceptable terms; failure to realize the expected benefits of acquisitions on a timely basis; our ability to effect the intended tax-free spin-off of our Fuel Systems and Aftermarket segments into a separate, publicly traded company on a timely basis or at all; the potential that uncertainty during the pendency of the spin-off transaction could affect our financial performance; the possibility that the spin-off transaction 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, both of which are highly cyclical and subject to disruptions; our reliance on major OEM customers; fluctuations in interest rates and foreign currency exchange rates; our dependence on information systems; the uncertainty of the global economic environment; the outcome of existing or any future legal proceedings, including litigation with respect to various claims, 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.

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

Use of Non-GAAP Financial Measures

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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions)	March 31, 2023		December 31, 2022
ASSETS
Cash, cash equivalents and restricted cash	$	950	$	1,338
Receivables, net	3,566		3,323
Inventories, net	1,800		1,687
Prepayments and other current assets	291		269
Total current assets	6,607		6,617
Property, plant and equipment, net	4,463		4,365
Investments and long-term receivables	895		896
Goodwill	3,420		3,397
Other intangible assets, net	1,033		1,051
Other non-current assets	699		668
Total assets	$	17,117	$	16,994
LIABILITIES AND EQUITY
Notes payable and other short-term debt	$	62	$	62
Accounts payable	2,676		2,684
Other current liabilities	1,410		1,490
Total current liabilities	4,148		4,236
Long-term debt	4,175		4,166
Retirement-related liabilities	223		223
Other non-current liabilities	892		861
Total liabilities	9,438		9,486
Commitments and contingencies
Common stock	3		3
Capital in excess of par value	2,661		2,675
Retained earnings	7,632		7,454
Accumulated other comprehensive loss	(824)		(876)
Common stock held in treasury, at cost	(2,031)		(2,032)
Total BorgWarner Inc. stockholders’ equity	7,441		7,224
Noncontrolling interest	238		284
Total equity	7,679		7,508
Total liabilities and equity	$	17,117	$	16,994

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 March 31,
(in millions, except per share amounts)	2023		2022
Net sales	$	4,180	$	3,874
Cost of sales	3,430		3,124
Gross profit	750		750
Selling, general and administrative expenses	384		388
Restructuring expense	7		15
Other operating expense (income), net	19		(5)
Operating income	340		352
Equity in affiliates’ earnings, net of tax	(4)		(8)
Unrealized loss on debt and equity securities	15		39
Interest expense, net	10		15
Other postretirement expense (income)	2		(9)
Earnings before income taxes and noncontrolling interest	317		315
Provision for income taxes	87		91
Net earnings	230		224
Net earnings attributable to noncontrolling interest, net of tax	13		24
Net earnings attributable to BorgWarner Inc.	$	217	$	200
Earnings per share attributable to BorgWarner Inc. — basic	$	0.93	$	0.84
Earnings per share attributable to BorgWarner Inc. — diluted	$	0.93	$	0.84
Weighted average shares outstanding:
Basic	232.8		238.2
Diluted	234.4		239.0

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)	2023		2022
Net earnings attributable to BorgWarner Inc.	$	217	$	200
Other comprehensive income (loss)
Foreign currency translation adjustments*	39		(18)
Hedge instruments*	14		—
Defined benefit postretirement plans*	(1)		5
Total other comprehensive income (loss) attributable to BorgWarner Inc.	52		(13)
Comprehensive income attributable to BorgWarner Inc.*	269		187
Net earnings attributable to noncontrolling interest, net of tax	13		24
Other comprehensive loss attributable to noncontrolling interest*	(1)		(1)
Comprehensive income	$	281	$	210

____________________________________

*    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)

	Three Months Ended March 31,
(in millions)	2023		2022
OPERATING
Net cash (used in) provided by operating activities (see Note 23)	$	(12)	$	116
INVESTING
Capital expenditures, including tooling outlays	(278)		(177)
Payments for businesses acquired, net of cash acquired	(19)		(157)
Proceeds from settlement of net investment hedges, net	13		12
Proceeds from investments in debt and equity securities, net	—		30
Proceeds from the sale of business, net	—		25
Proceeds from asset disposals and other, net	2		13
Net cash used in investing activities	(282)		(254)
FINANCING
Additions to debt	1		—
Repayments of debt, including current portion	(2)		(2)
Payments for purchase of treasury stock	—		(40)
Payments for stock-based compensation items	(25)		(17)
Purchase of noncontrolling interest	—		(59)
Dividends paid to BorgWarner stockholders	(39)		(41)
Dividends paid to noncontrolling stockholders	(25)		(36)
Net cash used in financing activities	(90)		(195)
Effect of exchange rate changes on cash	(4)		(7)
Net decrease in cash, cash equivalents and restricted cash	(388)		(340)
Cash, cash equivalents and restricted cash at beginning of year	1,338		1,844
Cash, cash equivalents and restricted cash at end of period	$	950	$	1,504

See accompanying Notes to Condensed Consolidated Financial Statements.

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BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 BASIS OF PRESENTATION

The accompanying unaudited Condensed Consolidated Financial Statements of BorgWarner Inc. and Consolidated Subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes necessary for a comprehensive presentation of financial position, results of operations and cash flow activity required by GAAP for complete financial statements. In the opinion of management, all normal recurring adjustments necessary for a fair statement of results have been included. Certain prior period amounts have been reclassified to conform to the current period presentation. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The balance sheet as of December 31, 2022 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, 2022.

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.

On December 6, 2022, the Company announced its intention to execute a tax-free spin-off of the Fuel Systems and Aftermarket segments into a separate, publicly traded company. The intended separation of its Fuel Systems and Aftermarket segments would support optimizing the Company’s combustion portfolio and advancing its electrification journey, while at the same time creating a new, focused company that would be able to pursue growth opportunities in alternative fuels, such as hydrogen, and in Aftermarket. The Company expects to complete the transaction by the end of the third quarter of 2023, subject to satisfaction of customary conditions.

NOTE 2 NEW ACCOUNTING PRONOUNCEMENTS

In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” It requires entities to apply ASC Topic 606, “Revenue from Contracts with Customers,” to recognize and measure contract assets and contract liabilities in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. This guidance is effective for interim and annual reporting periods beginning after December 15, 2022. The Company adopted this guidance prospectively as of January 1, 2023, and there was no impact on the Condensed Consolidated Financial Statements.

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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 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.

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 is ¥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 ¥129 million ($19 million) of base purchase price in the three months ended March 31, 2023. Of the remaining ¥139 million ($20 million) of base purchase price, ¥119 million ($17 million) is payable by June 30, 2023 and is recorded in Other current liabilities in the Company’s Condensed Consolidated Balance Sheet as of March 31, 2023. The remaining ¥20 million ($3 million) of base purchase price is payable before March 31, 2025 and is recorded in Other non-current liabilities in the Company’s Condensed Consolidated Balance Sheet as of March 31, 2023. 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. As of March 31, 2023, the Company’s estimate of the earn-out payments was approximately ¥20 million ($3 million), of which half is recorded in Other current liabilities and half is recorded in Other non-current liabilities in the Company’s Condensed Consolidated Balance Sheet.

The purchase price was allocated on a provisional basis as of March 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 provisional purchase price allocations are subject to change as the Company

completes its analysis of the fair value at the date of acquisition. The final valuation of assets acquired

and liabilities assumed may be materially different than the estimated values shown below.

The estimated fair values of assets acquired and liabilities assumed as of March 1, 2023 were assets of $50 million, including goodwill and intangibles of $12 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 $8 million was recorded within the Company’s Air Management segment. The goodwill

consists of the Company’s expected future economic benefits that will be realized from expanding the

Company’s electric vehicle portfolio as electric vehicle production continues to increase. The goodwill is

not expected to be deductible for tax purposes in China.

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In connection with the acquisition, the Company preliminarily recorded $4 million for intangible assets, primarily for customer relationships and developed technology. The provisional fair values of goodwill and identifiable intangible assets were valued using the market approach.

The impact of the SSE acquisition on net sales and net earnings was immaterial for the three months ended March 31, 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 accelerate the growth of its High Voltage eFan business. The Company paid ₣27 million ($29 million) at closing, and up to ₣10 million ($10 million) could be paid in the form of contingent earn-out payments over the three years following closing. The earn-out payments are contingent upon achievement of estimated future sales targets associated with newly awarded business and future turnover rate targets. As of March 31, 2023, the Company’s estimate of the earn-out payments was approximately ₣10 million ($11 million), which is recorded in Other non-current liabilities in the Company’s Condensed Consolidated Balance Sheet.

The purchase price was allocated on a preliminary basis as of December 1, 2022. Assets acquired and liabilities assumed were recorded at estimated fair values based on management’s estimates, available information, and supportable assumptions that management considered reasonable. Certain estimated values for the acquisition, including goodwill, tangible and intangible assets and deferred taxes, are not yet finalized, and the preliminary purchase price allocations are subject to change as the Company completes its analysis of the fair value at the date of acquisition. The final valuation of assets acquired and liabilities assumed may be materially different from the estimated values shown below.

The estimated fair values of assets acquired and liabilities assumed as of December 1, 2022 were assets

of $49 million, including goodwill and intangibles of $40 million, and liabilities of $10 million.

Any excess of the purchase price over the estimated fair value of net assets was recognized as goodwill. Goodwill of $22 million was recorded within the Company’s Air Management segment. The goodwill consists of the Company’s expected future economic benefits that will be realized from expanding the Company’s electric vehicle portfolio as electric vehicle production continues to increase. The goodwill is not expected to be deductible for tax purposes in Switzerland.

The following table summarizes the other intangible assets acquired:

(in millions)	Estimated Life	Estimated Fair Value
Developed technology	8 years	$	11
Customer relationships	12 years	7
Total other intangible assets		$	18

Goodwill and identifiable intangible assets were valued using the market approach.

The impact of the Drivetek acquisition on net sales and net earnings was immaterial for the three months ended March 31, 2023.

Rhombus Energy Solutions

On July 29, 2022, the Company completed its acquisition of 100% of Rhombus Energy Solutions (“Rhombus”), a provider of charging solutions in the North American market, pursuant to the terms of an

7

Agreement and Plan of Merger (the “Agreement”). The acquisition complements the Company’s existing 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 current estimates indicate that the minimum thresholds for these earn-out targets will not be achieved; thus, no amount for the earn-out payments has been included in the purchase consideration or in the Company’s Condensed Consolidated Balance Sheet. Additionally, pursuant to the Agreement, the Company is obligated to remit up to $25 million over the three years following closing in key employee retention-related payments, which include certain performance targets. The amounts will be accounted for as post-combination expense.

The purchase price was allocated on a preliminary basis as of July 29, 2022. Assets acquired and liabilities assumed were recorded at estimated fair values based on management’s estimates, available information, and supportable assumptions that management considered reasonable. Certain estimated values for the acquisition, including goodwill 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 preliminary estimated values.

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

The following table summarizes the other intangible assets acquired:

(in millions)	Estimated Life	Estimated Fair Value
Developed technology	13 years	$	22
Customer relationships	8 years	5
Total other intangible assets		$	27

Goodwill and identifiable intangible assets were valued using the income approach.

The impact of the Rhombus acquisition on net sales and net earnings was immaterial for the three months ended March 31, 2023.

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 expects to recapture approximately $5 million of post-closing adjustments through a reduction of the second earn-out payment. Pursuant to the ETA, the obligation of the Company to remit up to ¥0.3 billion (approximately $47 million) of earn-out payments is contingent upon achievement of certain sales

8

volume targets and certain estimated future volume targets associated with newly awarded business. As of March 31, 2023, the Company’s estimate of the earn-out payments was approximately ¥0.2 billion ($24 million), or $19 million net of the post-closing adjustments noted above. This liability is recorded in Other current liabilities in the Company’s Condensed Consolidated Balance Sheet.

The Company finalized its valuation of the assets and liabilities of the Santroll acquisition during the first quarter of 2023. Any excess of the purchase price over the estimated fair value of net assets was recognized as goodwill. Goodwill of $112 million was recorded within the Company’s ePropulsion segment. The goodwill consists of the Company’s expected future economic benefits that will arise from future product sales and the added capabilities from vertical integration of eMotors. The goodwill is not expected to be deductible for tax purposes in China.

The following table summarizes the other intangible assets acquired:

(in millions)	Estimated Life	Estimated Fair Value
Customer relationships	12 years	$	62
Manufacturing processes (know-how)	10 years	25
Total other intangible assets		$	87

Goodwill and identifiable intangible assets were valued using the income approach.

The impact of the Santroll acquisition on net sales and net earnings was immaterial for the three months ended March 31, 2023.

AKASOL AG

On June 4, 2021, the Company completed its voluntary public takeover offer for shares of AKASOL AG (“AKASOL”), resulting in ownership of 89% of AKASOL’s outstanding shares. The Company paid approximately €648 million ($788 million) to settle the offer. During 2021, the Company increased its ownership to 93% through the subsequent purchase of additional shares. At December 31, 2021, the noncontrolling interest in AKASOL was approximately €51 million ($58 million), which was to be acquired through a merger squeeze-out process (the “Squeeze Out”). On February 10, 2022, the Company completed the registration of the Squeeze Out resulting in 100% ownership. The Company settled the Squeeze Out with AKASOL minority shareholders in the first quarter of 2022.

Romeo Power, Inc.

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

In September 2019, the Company and Romeo contributed total equity of $10 million and formed a new joint venture, BorgWarner Romeo Power LLC (“Romeo JV”), in which the Company owned a 60% interest. Romeo JV was a variable interest entity focusing on producing battery module and pack technology. The Company was the primary beneficiary of Romeo JV and had consolidated Romeo JV in its consolidated financial statements. On October 25, 2021, the Company delivered written notice to

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Romeo that the Company was electing to exercise its right to put its ownership stake in Romeo JV to Romeo. Based on an independent appraisal, the Company’s interest in Romeo JV was valued at $30 million. In February 2022, the Company completed the sale of its 60% interest in Romeo JV for $29 million, which was the fair value of $30 million reduced by a 5% discount pursuant to the joint venture agreement. During the three months ended March 31, 2022, the Company recorded a gain of $24 million in Other operating expense (income), net, which represented the difference between the Company’s book value of its interest in Romeo JV compared to the fair value of consideration received. As a result of the sale, the Company has no further rights in or involvement with Romeo JV.

NOTE 4 REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company manufactures and sells products, primarily to OEMs of light vehicles and, to a lesser extent, to other OEMs of commercial vehicles and off-highway vehicles, to certain tier one vehicle systems suppliers and into the aftermarket. The Company’s payment terms are based on customary business practices and vary by customer type and products offered. 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 $14 million and $16 million at March 31, 2023 and December 31, 2022, 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 in the Condensed Consolidated Balance Sheets and were $12 million at March 31, 2023 and $16 million at December 31, 2022. 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.

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, 2023 and December 31, 2022, the Company recorded customer incentive payments of $34 million in Prepayments and other current assets, and $90 million and $99 million, respectively, in Other non-current assets in the Condensed Consolidated Balance Sheets.

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The following tables represent a disaggregation of revenue from contracts with customers by reporting segment and region. The balances for the three months ended March 31, 2022 have been recast for a change in reporting segments that was made during the three months ended March 31, 2023. Refer to Note 22, “Reporting Segments And Related Information,” to the Condensed Consolidated Financial Statements for more information.

	Three Months Ended March 31, 2023
(in millions)	Air Management		Drivetrain & Battery Systems		Fuel Systems		ePropulsion		Aftermarket		Total
North America	$	520	$	371	$	152	$	128	$	171	$	1,342
Europe	890		300		227		60		112		1,589
Asia	491		283		117		251		16		1,158
Other	52		1		11		—		27		91
Total	$	1,953	$	955	$	507	$	439	$	326	$	4,180
	Three Months Ended March 31, 2022
(in millions)	Air Management		Drivetrain & Battery Systems		Fuel Systems		ePropulsion		Aftermarket		Total
North America	$	459	$	306	$	116	$	123	$	168	$	1,172
Europe	733		234		241		50		99		1,357
Asia	516		355		154		221		13		1,259
Other	44		—		18		—		24		86
Total	$	1,752	$	895	$	529	$	394	$	304	$	3,874

NOTE 5 RESTRUCTURING

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

The Company’s restructuring expenses consist primarily of employee termination benefits (principally severance and/or termination benefits) and other costs, which are primarily professional fees and costs related to facility closures and exits. The balances for the three months ended March 31, 2022 have been recast for a change in reporting segments that was made during the three months ended March 31, 2023. Refer to Note 22, “Reporting Segments And Related Information,” to the Condensed Consolidated Financial Statements for more information.

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	Three Months Ended March 31, 2023
(in millions)	Air Management		Drivetrain & Battery Systems		Fuel Systems		ePropulsion		Corporate		Total
Employee termination benefits	$	2	$	—	$	4	$	—	$	—	$	6
Other	1		—		—		—		—		1
Total restructuring expense	$	3	$	—	$	4	$	—	$	—	$	7
	Three Months Ended March 31, 2022
(in millions)	Air Management		Drivetrain & Battery Systems		Fuel Systems		ePropulsion		Corporate		Total
Employee termination benefits	$	7	$	—	$	1	$	—	$	—	$	8
Other	—		7		—		—		—		7
Total restructuring expense	$	7	$	7	$	1	$	—	$	—	$	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 millions)	Employee Termination Benefits		Other		Total
Balance at January 1, 2023	$	59	$	9	$	68
Restructuring expense, net	6		1		7
Cash payments	(21)		(2)		(23)
Foreign currency translation adjustment and other	—		—		—
Balance at March 31, 2023	44		8		52
Less: Non-current restructuring liability	10		—		10
Current restructuring liability at March 31, 2023	$	34	$	8	$	42
(in millions)	Employee Termination Benefits		Other		Total
Balance at January 1, 2022	$	126	$	13	$	139
Restructuring expense, net	8		7		15
Cash payments	(38)		(12)		(50)
Foreign currency translation adjustment and other	(3)		3		—
Balance at March 31, 2022	93		11		104
Less: Non-current restructuring liability	25		2		27
Current restructuring liability at March 31, 2022	$	68	$	9	$	77

    

During the three months ended March 31, 2023, the Company recorded $4 million of restructuring costs for individually approved restructuring actions that primarily related to reductions in headcount.

2020 Structural Costs Plan In February 2020, the Company announced a $300 million restructuring plan to address existing structural costs. During the three months ended March 31, 2023 and 2022, the Company recorded $3 million and $13 million of restructuring charges related to this plan, respectively. Cumulatively, the Company has incurred $290 million of restructuring charges related to this plan. The actions under this plan are substantially complete.

2019 Legacy Delphi Technologies Plan 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 plan post-acquisition and has recorded cumulative charges of

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$67 million since October 1, 2020, including approximately $2 million in restructuring charges during the three months ended March 31, 2022. The actions under this plan are substantially complete.

The following provides details of restructuring expense incurred by the Company’s reporting segments during the three months ended March 31, 2023 and 2022, related to the plans and actions discussed above:

Air Management

2020 Structural Costs Plan

•During the three months ended March 31, 2023, the segment recorded $3 million of restructuring costs under this plan, primarily related to $2 million for a voluntary termination program.

•During the three months ended March 31, 2022, the segment recorded $6 million of restructuring costs under this plan. This primarily related to $5 million for a voluntary termination program pursuant to which approximately 25 employees accepted termination packages in 2022.

2019 Legacy Delphi Technologies Plan

•During the three months ended March 31, 2022, the segment recorded $1 million of restructuring costs primarily related to severance costs.

Drivetrain & Battery Systems

2020 Structural Costs Plan

•During the three months ended March 31, 2022, the segment recorded $7 million of restructuring costs, primarily related to severance costs associated with the announced closure of a technical center in Europe affecting approximately 80 employees.

Fuel Systems

2019 Legacy Delphi Technologies Plan

•During the three months ended March 31, 2022, the segment recorded $1 million of restructuring costs related to this plan, primarily related to employee severance and equipment moves.

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. Customer reimbursements for engineering services are recorded when performance obligations are

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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)	2023		2022
Gross R&D expenditures	$	244	$	232
Customer reimbursements	(51)		(41)
Net R&D expenditures	$	193	$	191

NOTE 7 OTHER OPERATING EXPENSE (INCOME), NET

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

	Three Months Ended March 31,
(in millions)	2023		2022
Merger, acquisition and divestiture expense, net	$	22	$	23
Gain on sale of business (Note 3)	—		(24)
Other income, net	(3)		(4)
Other operating expense (income), net	$	19	$	(5)

Merger, acquisition and divestiture expense, net: During the three months ended March 31, 2023, the Company recorded merger, acquisition and divestiture expense, net of $22 million primarily related to professional fees associated with the intended separation of its Fuel Systems and Aftermarket segments and other specific acquisition and disposition initiatives. During the three months ended March 31, 2022, the Company recorded merger, acquisition and divestiture expense, net of $23 million primarily related to professional fees associated with specific acquisition and disposition initiatives.

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, 2023 and 2022 was 27% and 29%, respectively. During the three months ended March 31, 2023, a discrete tax benefit of approximately $13 million was recorded related to the resolution of tax audits, and a $10 million discrete tax expense was recorded for the impact of enacted tax law changes.

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 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:

	March 31,		December 31,
(in millions)	2023		2022
Raw material and supplies	$	1,279	$	1,203
Work in progress	180		176
Finished goods	371		333
FIFO inventories	1,830		1,712
LIFO reserve	(30)		(25)
Inventories, net	$	1,800	$	1,687

NOTE 10 OTHER CURRENT AND NON-CURRENT ASSETS

Additional detail related to assets is presented below:

	March 31,		December 31,
(in millions)	2023		2022
Prepayments and other current assets:
Prepaid tooling	$	83	$	82
Prepaid taxes	40		40
Customer incentive payments (Note 4)	34		34
Derivative instruments	29		18
Contract assets (Note 4)	14		16
Other	91		79
Total prepayments and other current assets	$	291	$	269
Investments and long-term receivables:
Investment in debt securities	$	441	$	455
Investment in equity affiliates	287		279
Long-term receivables	92		87
Equity securities	75		75
Total investments and long-term receivables	$	895	$	896
Other non-current assets:
Deferred income taxes	$	280	$	239
Operating leases	197		199
Customer incentive payments (Note 4)	90		99
Derivative instruments	68		68
Other	64		63
Total other non-current assets	$	699	$	668

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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. No events or circumstances were noted in the first three months of 2023 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 Management		Drivetrain & Battery Systems		ePropulsion		Aftermarket		Fuel Systems		Total
Gross goodwill balance, December 31, 2022	$	1,566	$	1,434	$	480	$	374	$	45	$	3,899
Accumulated impairment losses, December 31, 2022	(502)		—		—		—		—		(502)
Net goodwill balance, December 31, 2022*	$	1,064	$	1,434	$	480	$	374	$	45	$	3,397
Goodwill during the period:
Acquisitions	8		—		—		—		—		8
Other, primarily translation adjustment	5		9		(2)		3		—		15
Ending balance, March 31, 2023	$	1,077	$	1,443	$	478	$	377	$	45	$	3,420

__________________________________

* The December 31, 2022 balances have been recast for a change in reporting segments that was made during the three months ended March 31, 2023. Refer to Note 22, “Reporting Segments And Related Information” for more information.

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

		March 31, 2023						December 31, 2022
(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	$	496	$	153	$	343	$	492	$	141	$	351
Customer relationships	7 - 15	906		366		540		901		351		550
Miscellaneous	2 - 5	10		6		4		10		6		4
Total amortized intangible assets		1,412		525		887		1,403		498		905
Unamortized trade names		146		—		146		146		—		146
Total other intangible assets		$	1,558	$	525	$	1,033	$	1,549	$	498	$	1,051

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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.

The following table summarizes the activity in the product warranty accrual accounts:

(in millions)	2023		2022
Beginning balance, January 1	$	245	$	236
Provisions for current period sales	29		24
Adjustments of prior estimates	(3)		(2)
Payments	(39)		(25)
Other, primarily translation adjustment	2		(3)
Ending balance, March 31	$	234	$	230

The product warranty liability is classified in the Condensed Consolidated Balance Sheets as follows:

	March 31,		December 31,
(in millions)	2023		2022
Other current liabilities	$	120	$	142
Other non-current liabilities	114		103
Total product warranty liability	$	234	$	245

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NOTE 13 NOTES PAYABLE AND DEBT

As of March 31, 2023 and December 31, 2022, the Company had debt outstanding as follows:

	March 31,		December 31,
(in millions)	2023		2022
Short-term borrowings	$	58	$	58
Long-term debt
3.375% Senior notes due 03/15/25 ($500 million par value)	499