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BORGWARNER INC

BORGWARNER INCBWA财报

NYSE · automotive industry

BorgWarner Inc. is an American automotive and e-mobility supplier headquartered in Auburn Hills, Michigan. As of 2023, the company maintains production facilities and sites at 92 locations in 24 countries, and generates revenues of US$14.2 billion, while employing around 39,900 people. The company is one of the 25 largest automotive suppliers in the world. Since February 2025, Joseph F. Fadool has been CEO of BorgWarner Inc.

What changed in BORGWARNER INC's 10-K — 2022 vs 2023

Top changes in BORGWARNER INC's 2023 10-K

355 paragraphs added · 375 removed · 266 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

65 edited+36 added−31 removed22 unchanged
Technological innovation, application engineering development, quality, price, delivery and program launch support are the primary methods of competition. The Company’s major non-OEM competitors are Robert Bosch GmbH, Denso Corporation, Hitachi, Ltd., Magna Powertrain (an operating unit of Magna International Inc.), Valeo, Schaeffler Group and Vitesco Technologies. The Company also competes with certain start-ups in electrification.
Technological innovation, application engineering development, quality, price, delivery and program launch support are the primary methods of competition. The Company’s major non-OEM competitors are Robert Bosch GmbH, Denso Corporation, Garrett Motion, Hitachi, Ltd., Magna Powertrain (an operating unit of Magna International Inc.), Valeo, Schaeffler Group and Vitesco Technologies. The Company also competes with certain start-ups in electrification.
Upon securing a new order, account executives participate in product launch team activities and serve as a key interface with customers. In addition, sales and marketing employees of the Company’s reporting segments often work together to explore cross-development opportunities where appropriate. Seasonality The Company’s operations are directly related to the automotive and commercial-vehicle industry.
Upon securing a new order, account executives participate in product launch team activities and serve as a key interface with customers. In addition, sales and marketing employees of the Company’s reportable segments often work together to explore cross-development opportunities where appropriate. Seasonality The Company’s operations are directly related to the automotive and commercial-vehicle industry.
In addition, the Company uses long-term contracts, cost sharing arrangements, design changes, customer buy programs and limited financial instruments to help control costs. The Company intends to use similar measures in 2023 and beyond. Refer to Note 17, “Financial Instruments,” to the Consolidated Financial Statements in Item 8 of this report for information related to the Company’s hedging activities.
In addition, the Company uses long-term contracts, cost sharing arrangements, design changes, customer buy programs and limited financial instruments to help control costs. The Company intends to use similar measures in 2024 and beyond. Refer to Note 17, “Financial Instruments,” to the Consolidated Financial Statements in Item 8 of this report for information related to the Company’s hedging activities.
Results from the three joint ventures in which the Company exercises significant influence but does not have a controlling financial interest, were reported by the Company using the equity method of accounting pursuant to which the Company records its proportionate share of each joint venture’s income or loss each period.
Results from the two joint ventures in which the Company exercises significant influence but does not have a controlling financial interest, were reported by the Company using the equity method of accounting pursuant to which the Company records its proportionate share of each joint venture’s income or loss each period.
The Company typically ships its products directly from its plants to the OEMs. Sales and Marketing Each of the Company’s businesses within its reporting segments has its own sales function. Account executives for each of the Company’s businesses are assigned to serve specific customers for one or more businesses’ products.
The Company typically ships its products directly from its plants to the OEMs. Sales and Marketing Each of the Company’s businesses within its reportable segments has its own sales function. Account executives for each of the Company’s businesses are assigned to serve specific customers for one or more businesses’ products.
The e-Propulsion & Drivetrain segment’s friction and mechanical products for automatic transmissions include dual clutch modules, friction clutch modules, friction and separator plates, transmission bands, torque converter clutches, one-way clutches and torsional vibration dampers. Controls products for automatic transmissions feature electro-hydraulic solenoids for standard and high pressure hydraulic systems, transmission solenoid modules and dual clutch control modules.
The Drivetrain & Battery Systems segment’s friction and mechanical products for automatic transmissions include dual clutch modules, friction clutch modules, friction and separator plates, transmission bands, torque converter clutches, one-way clutches and torsional vibration dampers. Controls products for automatic transmissions feature electro-hydraulic solenoids for standard and high-pressure hydraulic systems, transmission solenoid modules and dual clutch control modules.
Sales to the Company’s top ten customers represented 62% of sales for the year ended December 31, 2022. The Company’s automotive products are generally sold directly to OEMs, substantially pursuant to negotiated annual contracts, long-term supply agreements or terms and conditions as may be modified by the parties. Deliveries are subject to periodic authorizations based upon OEM production schedules.
Sales to the Company’s top ten customers represented 68% of sales for the year ended December 31, 2023. The Company’s automotive products are generally sold directly to OEMs, substantially pursuant to negotiated annual contracts, long-term supply agreements or terms and conditions as may be modified by the parties. Deliveries are subject to periodic authorizations based upon OEM production schedules.
Fadool (56) Vice President and President and General Manager, Emissions, Thermal and Turbo Systems (2019) • Vice President of the Company and President and General Manager of Turbo Systems LLC (2019) • Vice President of the Company and President and General Manager of BorgWarner Emissions Systems LLC and BorgWarner Thermal Systems Inc. (2017 – 2019) Paul A.
Fadool (57) Vice President and President and General Manager, Emissions, Thermal and Turbo Systems (2019) • Vice President of the Company and President and General Manager, Turbo Systems LLC (2019) • Vice President of the Company and President and General Manager, BorgWarner Emissions Systems LLC and BorgWarner Thermal Systems Inc. (2017 – 2019) Paul A.
Nowlan (51) Executive Vice President, Chief Financial Officer (2019) • Meritor Inc., Senior Vice President, President, Trailer, Components and Chief Financial Officer (2018 – 2019) • Meritor Inc., Senior Vice President and Chief Financial Officer (2013 – 2018) • Federal Reserve Bank of Chicago – Detroit Branch, Member of Board of Directors (2022 – Present) Tonit M.
Nowlan (52) Executive Vice President, Chief Financial Officer (2019) • Meritor Inc., Senior Vice President, President, Trailer, Components and Chief Financial Officer (2018 – 2019) • Federal Reserve Bank of Chicago – Detroit Branch, Member of Board of Directors (2022 – Present) Tonit M.
Rhombus Energy Solutions On July 29, 2022, the Company acquired Rhombus Energy Solutions, a provider of charging solutions in the North American market. The acquisition complements the Company’s existing European charging footprint to accelerate organic growth and adds North American regional presence to its charging business.
Rhombus Energy Solutions On July 29, 2022, the Company acquired Rhombus Energy Solutions, a provider of charging solutions in the North American market. The acquisition is expected to complement the Company’s existing European charging footprint to accelerate organic growth and adds North American regional presence to its charging business.
The Company’s worldwide net sales to the following customers (including their subsidiaries) were approximately as follows: Year Ended December 31, Customer 2022 2021 2020 Ford 13 % 10 % 13 % Volkswagen 8 % 9 % 11 % No other single customer accounted for more than 10% of the Company’s consolidated net sales in any of the years presented.
The Company’s worldwide net sales to the following customers (including their subsidiaries) were approximately as follows: Year Ended December 31, Customer 2023 2022 2021 Ford 14 % 15 % 13 % Volkswagen 11 % 9 % 9 % No other single customer accounted for more than 10% of the Company’s consolidated net sales in any of the years presented.
The Company owns the “BorgWarner” trade name and numerous BORGWARNER trademarks which are material to the Company's business. 11 Table of Contents Competition The Company’s reporting segments compete worldwide with a number of other manufacturers and distributors that produce and sell similar products. Many of these competitors are larger and have greater resources than the Company.
The Company owns the “BorgWarner” trade name and numerous trademarks which are material to the Company's business. 12 Table of Contents Competition The Company’s reportable segments compete worldwide with a number of other manufacturers and distributors that produce and sell similar products. Many of these competitors are larger and have greater resources than the Company.
Intellectual Property The Company has approximately 7,800 active domestic and foreign patents and patent applications pending or under preparation and receives royalties from licensing patent rights to others.
Intellectual Property The Company has approximately 5,700 active domestic and foreign patents and patent applications pending or under preparation and receives royalties from licensing patent rights to others.
Sales of turbochargers for light vehicles represented approximately 20%, 19% and 24% of the Company’s net sales for the years ended December 31, 2022, 2021 and 2020, respectively. No other single product line accounted for more than 10% of consolidated net sales in any of the years presented.
Sales of turbochargers for light vehicles represented approximately 21%, 26% and 24% of the Company’s net sales for the years ended December 31, 2023, 2022 and 2021, respectively. No other single product line accounted for more than 10% of consolidated net sales in any of the years presented.
Carey Inc., Member of Board of Directors (2020 – Present) Tania Wingfield (56) Executive Vice President, Chief Human Resources Officer (2022) • Vice President and General Manager, North America Aftermarket (2021 – 2022) • Vice President and Integration Champion of the Company (2020 – 2021) • Vice President, Engineering, PowerDrive Systems (2015 – 2020) Craig D.
Carey Inc., Member of Board of Directors (2020 – Present) Tania Wingfield (57) Executive Vice President, Chief Human Resources Officer (2022) • Vice President and General Manager, North America Aftermarket (2021 – 2022) • Vice President and Integration Champion (2020 – 2021) • Vice President, Engineering, PowerDrive Systems (2017 – 2020) Craig D.
Approximately 13% of the Company’s U.S. workforce is unionized. These employees, located at one facility in the state of New York, are covered by a collective bargaining agreement that expires in September 2024. Employees at certain international facilities are also unionized. The Company believes the present relations with its workforce to be satisfactory.
These employees, located at one facility in the state of New York, are covered by a collective bargaining agreement that expires in September 2024. Employees at certain international facilities are also unionized. The Company believes the current relations with its workforce to be satisfactory.
Calaway (55) Executive Vice President, Chief Administrative Officer, General Counsel and Secretary (2020) • Executive Vice President, Chief Legal Officer and Secretary of the Company (2018 - 2020) • Chief Human Resources Officer of the Company (2016 – 2018) • Air Products & Chemicals, Inc., Member of Board of Directors (2022 – Present) • W.P.
Calaway (56) Executive Vice President, Chief Administrative Officer, General Counsel and Secretary (2020) • Executive Vice President, Chief Legal Officer and Secretary (2018 - 2020) • Air Products & Chemicals, Inc., Member of Board of Directors (2022 – Present) • W.P.
Such unconsolidated sales totaled approximately $969 million, $1,053 million, and $721 million for the years ended December 31, 2022, 2021 and 2020, respectively. Air Management The Air Management segment develops and manufactures products to improve fuel economy, reduce emissions and enhance performance.
Such unconsolidated sales totaled approximately $732 million, $734 million, and $852 million for the years ended December 31, 2023, 2022 and 2021, respectively. Air Management The Air Management segment develops and manufactures products to improve fuel economy, reduce emissions and enhance performance.
The Company’s Compensation Committee oversees human capital management and assesses whether environmental, social and governance (“ESG”) goals and milestones, as appropriate, are effectively reflected in executive compensation. The full Board of Directors oversees talent reviews and succession planning for the Company.
The Compensation Committee of the Board of Directors oversees human capital management and assesses whether efforts to promote and advance environmental, social and governance (“ESG”) initiatives, practices, and objectives, as appropriate, are effectively reflected in executive compensation. The full Board of Directors oversees talent reviews and succession planning for the Company.
Aaron (45) Vice President and Controller (2022) • Vice President and Treasurer (2019 – 2022) • Vice President of Finance of BorgWarner Morse Systems (2016 – 2019) Stefan Demmerle (58) Vice President and President and General Manager, PowerDrive Systems (2015) • Vice President of the Company and President and General Manager of BorgWarner PowerDrive Systems (2015 – Present) Brady D.
Aaron (46) Vice President and Controller (2022) • Vice President and Treasurer (2019 – 2022) • Vice President, Finance, BorgWarner Morse Systems (2016 – 2019) Stefan Demmerle (59) Vice President and President and General Manager, PowerDrive Systems (2015) • Vice President of the Company and President and General Manager of BorgWarner PowerDrive Systems (2015 – Present) Joseph F.
You can also find our public filings at a website maintained by the SEC, http://www.sec.gov, which contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. 15 Table of Contents Information About Executive Officers of the Company Set forth below are the names, ages, positions and certain other information concerning the executive officers of the Company as of February 9, 2023.
You can also find the Company’s public filings at a website maintained by the SEC, http://www.sec.gov, which contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. 16 Table of Contents Information About Executive Officers of the Company Set forth below are the names, ages, positions and certain other information concerning the executive officers of the Company as of February 8, 2024. 5 Name (Age) Present Position (Effective Date) Positions Held During the Past Five Years (Effective Date) Frederic B.
The Air Management segment’s timing systems enable precise control of air and exhaust flow through the engine, improving fuel economy and emissions.
The Air Management segment’s timing systems enable precise control of air and exhaust flow through the engine, improving fuel economy and emissions. The Air Management segment is a leading manufacturer of timing systems for OEMs around the world.
The e-Propulsion & Drivetrain segment’s battery products include high-performance lithium-ion battery modules and systems for electrified applications that provide long battery life with a high power output for safe, reliable and durable operation.
The Drivetrain & Battery Systems segment’s battery products include high-performance lithium-ion battery systems for electrified bus, truck and off-highway applications. The battery products provide commercial vehicle performance with a high-power output for safe, reliable and durable operation.
The Company’s net R&D expenditures are primarily included in selling, general and administrative expenses of the Consolidated Statements of Operations. Customer reimbursements are netted against gross R&D expenditures as they are considered a recovery of cost.
The Company believes its commitment to R&D will allow it to continue to obtain new orders from its OEM customers. The Company’s net R&D expenditures are primarily included in selling, general and administrative expenses of the Consolidated Statements of Operations. Customer reimbursements are netted against gross R&D expenditures as they are considered a recovery of cost.
Transmission components 2009 66 % China China Automobile Development United Investment Co., Ltd. __________________________ 1 BorgWarner Inc. owns 50% of NSK-Warner, which has a 40% interest in BorgWarner Transmission Systems Korea Ltd.
Transmission components 2009 66 % China China Automobile Development United Investment Co., Ltd. __________________________ 1 BorgWarner Inc. owns 50% of NSK-Warner, which has a 40% interest in BorgWarner Transmission Systems Korea Ltd. This ownership gives the Company an additional indirect effective ownership percentage of 20% in BorgWarner Transmission Systems Korea Ltd., resulting in a total effective ownership interest of 80%.
Joint Ventures As of December 31, 2022, the Company had ten joint ventures in which it had a less-than-100% ownership interest. Results from the seven joint ventures in which the Company is the majority owner and has a controlling financial interest are consolidated as part of the Company’s results.
Results from the six joint ventures in which the Company is the majority owner and has a controlling financial interest are consolidated as part of the Company’s results.
As of December 31, 2022, the Company had a salaried and hourly workforce as follows: Americas 17,400 Asia 14,200 Europe 21,100 Total Employees 52,700 Salaried 16,700 Hourly 36,000 Total Employees 52,700 The Company uses an array of practices to attract, develop and retain highly qualified talent, including the following: • Diversity, Equity & Inclusion (“DE&I”) .
As of December 31, 2023, the Company had a salaried and hourly workforce as follows: Americas 11,800 Asia 12,200 Europe 15,900 Total workforce 39,900 Salaried 13,000 Hourly 26,900 Total workforce 39,900 The Company uses an array of practices to attract, develop and retain highly qualified talent, including the following: • Diversity, Equity & Inclusion (“DE&I”) .
Fans and fan drives 1999 70 % China Ningbo Shenglong Automotive Powertrain Systems Co., Ltd. BorgWarner TorqTransfer Systems Beijing Co. Ltd. Transfer cases 2000 80 % China Beijing Hainachuan Automotive Parts Holding Co., Ltd. SeohanWarner Turbo Systems Ltd. Turbochargers 2003 71 % Korea Korea Flange Company BorgWarner United Transmission Systems Co. Ltd.
Engine management systems 1999 51 % China Beijing Wan Yuan Industry Corporation BorgWarner Shenglong (Ningbo) Co. Ltd. Fans and fan drives 1999 70 % China Ningbo Shenglong Automotive Powertrain Systems Co., Ltd. BorgWarner TorqTransfer Systems Beijing Co. Ltd. Transfer cases 2000 80 % China Beijing Hainachuan Automotive Parts Holding Co., Ltd. BorgWarner United Transmission Systems Co. Ltd.
The Company works collaboratively with a number of stakeholder groups including government agencies, such as the National Highway Traffic Safety Administration, its customers and its suppliers to proactively engage in federal, state and international public policy processes. 14 Table of Contents Refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for a discussion of the impact of environmental regulations on the Company’s business.
The Company works collaboratively with a number of stakeholder groups, including government agencies, such as the National Highway Traffic Safety Administration, its customers and its suppliers to proactively engage in federal, state and international public policy processes.
The e-Propulsion & Drivetrain segment’s torque management products include rear-wheel drive (“RWD”)-all-wheel drive (“AWD”) transfer case systems, front-wheel drive (“FWD”)-AWD coupling systems and cross-axle coupling systems. The segment is developing electronically controlled torque management devices and systems that will benefit vehicle energy efficiency and vehicle dynamics.
The Drivetrain & Battery Systems segment’s torque management products include rear-wheel drive (“RWD”) and all-wheel drive (“AWD”) transfer case systems, front-wheel drive (“FWD”)-AWD coupling systems and cross-axle coupling systems.
Valvetrain and fuel injection equipment 1977 70 % Korea BU RA DA Company Limited BorgWarner Transmission Systems Korea Ltd. 1 Transmission components 1987 60 % Korea NSK-Warner Beijing Delphi Wan Yuan Engine Management Systems Co. Ltd. Engine management systems 1999 51 % China Beijing Wan Yuan Industry Corporation Borg-Warner Shenglong (Ningbo) Co. Ltd.
Turbo Energy Private Limited Turbochargers 1987 32.6 % India Sundaram Finance Limited; Brakes India Limited Consolidated: BuradaWarner LLC Valvetrain and fuel injection equipment 1977 70 % Korea BU RA DA Company Limited BorgWarner Transmission Systems Korea Ltd. 1 Transmission components 1987 60 % Korea NSK-Warner Beijing Delphi Wan Yuan Engine Management Systems Co. Ltd.
On February 10, 2022, the Company completed a merger squeeze-out process to obtain the remaining shares, resulting in 100% ownership. The acquisition further strengthens BorgWarner’s commercial vehicle and industrial electrification capabilities, which positions the Company to capitalize on what it believes to be a fast-growing battery module and pack market.
The acquisition is expected to further strengthen BorgWarner’s commercial vehicle and industrial electrification capabilities, which positions the Company to capitalize on what it believes to be a fast-growing battery module and pack market.
The Company provides formal development opportunities at all levels and stages of the career journey of its employees. These opportunities are delivered in a variety of formats to make its portfolio of solutions flexible, accessible, scalable and translatable to meet the needs of our evolving workplace and workforce.
These opportunities are delivered in a variety of formats to make its portfolio of solutions flexible, accessible, scalable and translatable to meet the needs of our evolving workplace and workforce. The Company is also committed to preparing its workforce for the transition from combustion to electrification.
Farrell (56) Executive Vice President and Chief Strategy Officer (2020) • Delphi Technologies PLC, Senior Vice President Strategy, Sales and Corporate Development (2020) • Delphi Technologies PLC, Senior Vice President Strategy and Corporate Development (2019 – 2020) • Delphi Technologies PLC, Senior Vice President Strategic Planning and Product Marketing (2017 – 2019) Davide Girelli (51) Vice President and President and General Manager, Morse Systems (2022) • Vice President and President and General Manager, Fuel Systems (formerly known as Fuel Injection Systems) (2020 – 2022) • Vice President and General Manager Europe and South America BorgWarner Emissions, Thermal and Turbo Systems (2019 – 2020) • Vice President and General Manager Europe and South America of BorgWarner Turbo Systems (2018 – 2019) 16 Table of Contents Volker Weng (52) Vice President and President and General Manager, Drivetrain & Battery Systems (formerly known as Drivetrain Systems) (2019) • Vice President of the Company and President and General Manager of BorgWarner Emissions Systems LLC and BorgWarner Thermal Systems Inc.
Farrell (57) Executive Vice President and Chief Strategy Officer (2020) • Delphi Technologies PLC, Senior Vice President Strategy, Sales and Corporate Development (2020) • Delphi Technologies PLC, Senior Vice President Strategy and Corporate Development (2019 – 2020) • Delphi Technologies PLC, Senior Vice President Strategic Planning and Product Marketing (2017 – 2019) Isabelle McKenzie (54) Vice President and President and General Manager, Morse Systems (2023) • Vice President & General Manager, Americas, Power-Drive Systems (2020 - 2023) • Vice President Global Engineering, Transmission Systems (2014 - 2020) Volker Weng (53) Vice President and President and General Manager, Drivetrain & Battery Systems (formerly known as Drivetrain Systems) (2019) • Vice President of the Company and President and General Manager, BorgWarner Emissions Systems LLC and BorgWarner Thermal Systems Inc.
It recognizes and rewards employee contributions with competitive pay and benefits. The Company closely monitors employee turnover as part of its efforts to improve retention and to spot any potential opportunities for improvement. In the year ended December 31, 2022, annual voluntary employee turnover was 17%. • Education & Development.
The Company utilizes various strategies to attract, engage and retain the brightest and best talent. It recognizes and rewards employee contributions with competitive pay and benefits. The Company closely monitors employee turnover as part of its efforts to improve retention and to spot any potential opportunities for improvement.
By working closely with OEMs and anticipating their future product needs, the Company’s R&D personnel conceive, design, develop and manufacture new proprietary components and systems. R&D personnel also work to improve current products and production processes. The Company believes its commitment to R&D will allow it to continue to obtain new orders from its OEM customers.
The Company also operates testing facilities such as prototype, measurement and calibration, life-cycle testing and dynamometer laboratories. By working closely with OEMs and anticipating their future product needs, the Company’s R&D personnel conceive, design, develop and manufacture new proprietary components and systems. R&D personnel also work to improve current products and production processes.
AKASOL AG On June 4, 2021, the Company completed a 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.
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. On February 10, 2022, the Company completed a merger squeeze-out process to obtain the remaining shares, resulting in 100% ownership.
The Air Management segment’s emissions, thermal and turbocharger systems provide several benefits including increased power for a given engine size, improved fuel economy, reduced emissions and optimized temperatures in propulsion systems and vehicle cabins.
The Air Management segment’s technologies include turbochargers, eBoosters, eTurbos, timing systems, emissions systems, thermal systems, gasoline ignition technology, smart remote actuators, powertrain sensors, cabin heaters, battery heaters, battery charging and direct current charging stations. 8 Table of Contents The Air Management segment’s emissions, thermal and turbocharger systems provide several benefits, including increased power for a given engine size, improved fuel economy, reduced emissions and optimized temperatures in propulsion systems and vehicle cabins.
During the year ended December 31, 2022, approximately 19% of the Company’s net sales were generated in the United States, and 81% were generated outside the United States. Refer to Note 24, “Reporting Segments and Related Information,” to the Consolidated Financial Statements in Item 8 of this report for additional financial information about geographic areas.
Refer to Note 24, “Reportable Segments and Related Information,” to the Consolidated Financial Statements in Item 8 of this report for additional financial information about geographic areas. 10 Table of Contents Product Lines and Customers During the year ended December 31, 2023, approximately 82% of the Company’s net sales were for light-vehicle applications; approximately 10% were for commercial-vehicle applications; approximately 6% were for off-highway vehicle applications; and approximately 2% were to distributors of aftermarket replacement parts.
Year Ended December 31, (in millions) 2022 2021 2020 Gross R&D expenditures $ 968 $ 930 $ 533 Customer reimbursements (182) (223) (57) Net R&D expenditures $ 786 $ 707 $ 476 Net R&D expenditures as a percentage of net sales were 5.0%, 4.8% and 4.7% for the years ended December 31, 2022, 2021 and 2020, respectively.
Year Ended December 31, (in millions) 2023 2022 2021 Gross R&D expenditures $ 856 $ 787 $ 694 Customer reimbursements (139) (86) (108) Net R&D expenditures $ 717 $ 701 $ 586 Net R&D expenditures as a percentage of net sales were 5.1%, 5.5% and 5.0% for the years ended December 31, 2023, 2022 and 2021, respectively.
The consideration includes 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 $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 payment of the second earn-out.
The Company paid approximately ¥1.0 billion ($157 million) of base purchase price in the year ended December 31, 2022 and no longer expects to recapture a previously anticipated $5 million of post-closing adjustments, which has been recorded in Other operating expense, net.
Historically, model changeovers or vacations have generally resulted in lower sales volume in the Company’s third quarter. 10 Table of Contents Research and Development The Company conducts advanced propulsion research. This advanced engineering function seeks to leverage know-how and expertise across product lines to create new electrified propulsion systems and modules that can be commercialized.
This advanced engineering function seeks to leverage know-how and expertise across product lines to create new electrified propulsion systems and modules that can be commercialized.
The Company cultivates a culture where employees are treated with respect and their differences are valued. The Company is continually reviewing its policies, programs and processes to ensure alignment with its DE&I strategy. The Company undertakes targeted recruitment that serves as a strategic opportunity to build a diverse talent and leadership pipeline.
Ultimate responsibility for DE&I at BorgWarner lies with the Company’s CEO, while the Board of Directors monitors initiatives and performance. The Company cultivates a culture where employees are treated with respect and their differences are valued. The Company is continually reviewing its policies, programs and processes to ensure alignment with its DE&I strategy.
The acquisition strengthens the Company’s vertical integration, scale and portfolio breadth in light vehicle eMotors while allowing for increased speed to market.
Santroll Automotive Components On March 31, 2022, the Company acquired Santroll Automotive Components, a carve-out of Santroll Electric Auto’s eMotor business. 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.
Regulations The Company operates in a constantly evolving global regulatory environment and is subject to numerous and varying regulatory requirements for its product performance and material content.
The scope of this performance indicator is for manufacturing locations that supply directly to original equipment manufacturers, excluding locations during their first 18 months of production and newly acquired sites during their first 18 months with the Company. 15 Table of Contents Regulations The Company operates in a constantly evolving global regulatory environment and is subject to numerous and varying regulatory requirements for its product performance and material content.
Net sales by reporting segment were as follows: Year Ended December 31, (in millions) 2022 2021 2020 Air Management $ 7,129 $ 6,820 $ 5,564 e-Propulsion & Drivetrain 5,625 5,086 3,695 Fuel Systems 2,314 2,237 593 Aftermarket 1,285 1,212 488 Inter-segment eliminations (552) (517) (175) Net sales $ 15,801 $ 14,838 $ 10,165 The sales information presented above does not include the sales by the Company’s unconsolidated joint ventures (see sub-heading “Joint Ventures” below).
Net sales by reportable segment were as follows: Year Ended December 31, (in millions) 2023 2022 2021 Air Management $ 7,833 $ 7,137 $ 6,867 Drivetrain & Battery Systems 4,348 3,735 3,660 ePropulsion 2,166 1,906 1,427 Inter-segment eliminations (149) (143) (151) Net sales $ 14,198 $ 12,635 $ 11,803 The sales information presented above does not include the sales by the Company’s unconsolidated joint ventures (see sub-heading “Joint Ventures” below).
Name (Age) Present Position (Effective Date) Positions Held During the Past Five Years (Effective Date) Frederic B. Lissalde (55) President and Chief Executive Officer (2018) • Executive Vice President and Chief Operating Officer of the Company (2018) • Autoliv, Inc., Member of Board of Directors (2020 – Present) Kevin A.
Lissalde (56) President and Chief Executive Officer (2018) • Autoliv, Inc., Member of Board of Directors (2020 – Present) Kevin A.
Recent Acquisitions Acquisitions are an integral component of the Company’s growth and value creation strategy. Below are summaries of recent acquisitions. Refer to Note 2, “Acquisitions and Dispositions,” to the Consolidated Financial Statements in Item 8 of this report for more information.
Recent Acquisitions Acquisitions are an integral component of the Company’s growth and value creation strategy. Below are summaries of recent acquisitions.
This function oversees the Company's investments in certain venture capital funds that provide seed money for start-up businesses developing new technologies pertinent to the automotive industry and the Company's propulsion strategies.
This function oversees the Company's investments in certain venture capital funds that provide seed money for start-up businesses developing new technologies pertinent to the automotive industry and the Company's propulsion strategies. 11 Table of Contents In addition, each of the Company's businesses within its Air Management, Drivetrain & Battery Systems and ePropulsion reportable segments has its own research and development (“R&D”) organization, including engineers and technicians, engaged in R&D activities at facilities worldwide.
Evidence of the Company’s dedication is in its results: ◦ The Company’s global workforce accident total recordable incident rate through December 31, 2022 was 0.37, while, in comparison, the top quartile for motor vehicle parts manufacturing was lower than or equal to 1.1, and the mean was 2.4 according to the U.S.
The top quartile for motor vehicle parts manufacturing was lower than or equal to 1.2 according to the BLS. 3 ◦ The Company’s global workforce accident LTIR was 0.21.
The Company is committed to preparing its workforce for the transition from combustion to electrification. In 2022, the Company delivered training programs created in partnership with elite universities to increase knowledge, skills and improve time-to-productivity for engineers in new roles in an electrification environment.
In 2023, the Company delivered training programs created in partnership with elite universities to increase the knowledge and skills of its engineers to enable them to work in an electrification environment. • Health & Safety . The safety of the Company’s employees is vitally important, and the Company is dedicated to continuously improving safety performance.
Those goals include: 12 Table of Contents ◦ 35% of global workforce are women by 2026 ◦ 30% of U.S. workforce are racially/ethnically diverse by 2026 ◦ Pay parity for all by 2026 ◦ 80% or above on the BorgWarner Beliefs index score from the Company’s employee engagement survey by 2026 In 2022, the Company also continued the rollout of Unconscious Bias Awareness training to its workforce and promoted the continued development of Employee Belonging Groups.
Those goals include: ◦ 35% of global workforce are women by 2026 ◦ 30% of U.S. workforce are racially/ethnically diverse by 2026 ◦ Pay parity for all by 2026 ◦ 80% or above on the BorgWarner Beliefs index score from the Company’s employee engagement survey by 2026 As of December 31, 2023: ◦ Women composed 30.1% of the Company’s global workforce. 1 ◦ Racial/ethnic minorities composed 29.5% of the Company’s total U.S. workforce. 1 ◦ The Company’s latest pay equity analysis identified that, on average, women received compensation equal to 99.0% of that received by men across the Company’s global workforce for substantially similar work.
Charging Forward - Electrification Portfolio Strategy In 2021, the Company announced its strategy to aggressively grow its electrification product portfolio over time through organic investments and technology-focused acquisitions. The Company believes it is well positioned for the industry’s anticipated migration to electric vehicles (“EV”).
Charging Forward - Electrification Portfolio Strategy In 2021, the Company announced its strategy to aggressively grow its eProducts over time through organic investments and technology-focused acquisitions. eProducts include all products utilized on or for electric vehicles (“EVs”) plus those same products and components that are included in hybrid powertrains whose underlying technologies are adaptable or applicable to those used in or for EVs.
The transaction is subject to satisfaction of customary closing conditions and is expected to close in the first quarter of 2023. 5 Table of Contents Drivetek AG On December 1, 2022, the Company acquired Drivetek AG, an engineering and product development company located in Switzerland.
Drivetek AG On December 1, 2022, the Company acquired Drivetek AG, an engineering and product development company located in Switzerland. This acquisition is expected to strengthen the Company’s power electronics capabilities in auxiliary inverters to accelerate the growth of the High Voltage eFan business.
As of December 31, 2022: ◦ Four of eight board members were women and/or racially/ethnically diverse. ◦ Three of 11 executive management team members were women and/or racially/ethnically diverse. ◦ Women compose 16% of the Company’s leadership (those who participate in the management incentive plan), 24% of the Company’s salaried workforce, 40% of the Company’s new hires and 31% of the Company’s global workforce. ◦ Racial/ethnic minorities compose 21% of the Company’s U.S. leadership (those who participate in the management incentive plan), 23% of the Company’s U.S. salaried workforce, 43% of the Company’s U.S. new hires and 27% of the Company’s total U.S. workforce. ◦ The Company is committed to the principle of equal pay for equal work and seeks to ensure employees are paid equitably for substantially similar work.
In addition to the Company’s DE&I goals progress, as of December 31, 2023: ◦ Five of eight board members (63%) were women and/or racially/ethnically diverse. ◦ Four of 10 executive management team members (40%) were women and/or racially/ethnically diverse. ◦ Women composed 17.4% of the Company’s leadership (those who participate in the management incentive plan), 25.0% of the Company’s salaried workforce, 32.9% of the Company’s hourly workforce, and 36.3% of the Company’s new hires in 2023. 1 ◦ Racial/ethnic minorities composed 20.6% of the Company’s U.S. leadership, 23.6% of the Company’s U.S. salaried workforce, 34.9% of the Company’s U.S. hourly workforce, and 44.9% of the Company’s U.S. new hires in 2023. 1 • Engagement & Retention .
In 2022, the Company set goals to advance diversity, equity, and inclusion and support its commitment to creating an inclusive and sustainable workforce of the future.
The Company undertakes a variety of recruitment and retention initiatives that serve as a strategic opportunity to build a diverse talent and leadership pipeline. 13 Table of Contents In 2022, the Company set goals to advance DE&I and support its commitment to creating an inclusive and sustainable workforce.
Consequently, the Company’s segments may experience seasonal fluctuations to the extent vehicle production slows, such as in the summer months when many customer plants typically close for model year changeovers or vacations.
Consequently, the Company’s segments may experience seasonal fluctuations to the extent vehicle production slows at certain times of the year.
The Air Management segment is a leading manufacturer of timing systems for OEMs around the world. 7 Table of Contents The Air Management segment’s powertrain products include an array of highly engineered products that complement and enhance the efficiency improvements delivered by many other air management technologies. e-Propulsion & Drivetrain The Company’s e-Propulsion & Drivetrain segment’s technologies include rotating electrical components, power electronics, electric drive motors, control modules, software, battery products, friction and mechanical products for automatic transmissions and torque-management products.
The Air Management segment’s powertrain products include an array of highly engineered products that complement and enhance the efficiency improvements delivered by many other air management technologies.
This acquisition strengthens the Company’s power electronics capabilities in auxiliary inverters, which it expects to accelerate the growth of the 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 payments over the three years following closing.
The total consideration was ₣27 million ($29 million) of base purchase price paid at closing, and ₣10 million ($10 million) of estimated earn-out payments that could be paid in the form of contingent payments over the three years following closing.
Narrative Description of Reporting Segments The Company reports its results under four reporting segments: Air Management, e-Propulsion & Drivetrain, Fuel Systems and Aftermarket. In the first quarter of 2022, the Company announced that the starter and alternator business, previously reported in its e-Propulsion & Drivetrain segment, would transition to the Aftermarket segment.
In the first quarter of 2023, the Company elected to disaggregate Air Management and ePropulsion & Drivetrain segments into Air Management, Drivetrain & Battery Systems and ePropulsion and reported its results in a total of five reportable segments: Air Management, Drivetrain & Battery Systems, ePropulsion, Fuel Systems and Aftermarket.
The Company paid $131 million at closing, and up to $30 million could be paid in the form of contingent payments over the three years following closing. Santroll Automotive Components On March 31, 2022, the Company acquired Santroll Automotive Components, a carve-out of Santroll Electric Auto’s eMotor business.
The Company paid $131 million at closing, and up to $30 million could be paid in the form of contingent payments over the three years following closing. 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.
The acquisition has strengthened the Company’s electronics and power electronics products, strengthened its capabilities and scale, enhanced key combustion, commercial vehicle and aftermarket product offerings, and positioned the Company for greater growth as electrified propulsion systems gain momentum. 6 Table of Contents Financial Information About Reporting Segments Refer to Note 24, “Reporting Segments and Related Information,” to the Consolidated Financial Statements in Item 8 of this report for financial information about the Company's reporting segments.
Financial Information About Reportable Segments Refer to Note 24, “Reportable Segments and Related Information,” to the Consolidated Financial Statements in Item 8 of this report for financial information about the Company's reportable segments. Narrative Description of Reportable Segments The Company reports its results under three reportable segments: Air Management, Drivetrain & Battery Systems and ePropulsion.
Hubei Surpass Sun Electric Charging Business On September 20, 2022, the Company announced that it had entered into an Equity Transfer Agreement under which BorgWarner will acquire the electric vehicle solution, smart grid and smart energy businesses of Hubei Surpass Sun Electric.
Hubei Surpass Sun Electric Charging Business On March 1, 2023, the Company completed its acquisition of the electric vehicle solution, smart grid and smart energy businesses of Hubei Surpass Sun Electric, pursuant to an Equity Transfer Agreement. The acquisition is expected to complement the Company’s existing European and North American charging footprint by adding a presence in China.
Bureau of Labor Statistics (the “BLS”). 1 The Company’s most recent pay equity study was conducted in 2022 based on compensation as of December 31, 2021.
The Company’s safety performance is rooted in robust safety management systems consisting of leading safety indicators, integrating detailed metrics into safety scorecards, engaging employees at every level, training and 1 Data excludes employees acquired through the Eldor acquisition. 2 The Company’s most recent pay equity study was conducted in 2023 based on compensation and employees as of December 31, 2022.
(2019) • Vice President and General Manager, Europe for BorgWarner Emissions Systems LLC and BorgWarner Thermal Systems Inc. (2017 – 2019)
(2019) • Vice President and General Manager, Europe, BorgWarner Emissions Systems LLC and BorgWarner Thermal Systems Inc. (2017 – 2019) 5 On November 30, 2023, Kevin A. Nowlan, Executive Vice President and Chief Financial Officer of the Company, notified the Company of his intention to retire as Executive Vice President and Chief Financial Officer effective March 1, 2024.
Removed
The Company is targeting its revenue from products for pure electric vehicles to be over 25% of its total revenue by 2025 and approximately 45% of its total revenue by 2030. The Company believes it is on track to exceed its 2025 organic EV-related sales target and over the last two years has announced or completed five acquisitions.
Added
The Company believes it is well positioned for the industry’s anticipated migration to EVs. In June 2023, the Company announced the next phase of its Charging Forward strategy, which focuses on profitably growing eProducts while maximizing the value of the Company’s Foundational products portfolio.
Removed
On December 6, 2022, the Company announced its intention to execute a tax-free spin-off of its Fuel Systems and Aftermarket segments into a separate, publicly traded company.
Added
Foundational products include all products utilized on internal combustion engines plus those same products and components that are also included in hybrid powertrains.
Removed
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.
Added
As a result of executing its strategy, the Company expects that by 2027, it will achieve over $10 billion in annual eProduct sales, deliver eProduct adjusted operating margin of approximately 7% and maintain its double-digit adjusted operating margin for its Foundational products portfolio.
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The Company expects to complete the transaction in late 2023, subject to satisfaction of customary conditions. In 2022, the Company’s EV-related revenue was approximately $870 million, or 6%, of its total revenue. Based on new business awards and actions announced to date, the Company believes it is on track to achieve $4.3 billion of EV revenue by 2025.
Added
During the year ended December 31, 2023, the Company’s eProduct revenue was approximately $2.0 billion, or 14% of its total revenue.
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The transaction has an enterprise value up to ¥410 million ($60 million), of which approximately ¥267 million ($39 million) will be delivered at or soon after closing, and up to ¥143 million ($21 million) could be paid in the form of contingent payments over approximately two years following the closing.
Added
On July 3, 2023, BorgWarner completed the previously announced spin-off (“Spin-Off”) of its Fuel Systems and Aftermarket segments in a transaction intended to qualify as tax free to the Company’s stockholders for U.S. federal income tax purposes, which was accomplished by the distribution of 100% of the outstanding common stock of PHINIA, Inc.
Removed
The acquisition complements the Company’s existing European and North American charging footprint by adding a presence in China.
Added
(“PHINIA”) to holders of record of common stock of the Company on a pro-rata basis. Each holder of record of common stock of the Company received one share of PHINIA common stock for every five shares of common stock of the Company held on June 23, 2023, the record date for the distribution (“Distribution Date”).
Removed
The total final consideration was $192 million, which reflects a reduction of approximately $20 million in the base purchase price since the acquisition closing date resulting from an amendment to the Equity Transfer Agreement and finalization of post-closing adjustments.
Added
In lieu of fractional shares of PHINIA, shareholders of the Company received cash. PHINIA is an independent public company trading under the symbol “PHIN” on the New York Stock Exchange. The historical results of operations and the financial position of PHINIA for periods prior to the Spin-Off are presented as discontinued operations in the accompanying Consolidated Financial Statements.
Removed
Delphi Technologies PLC On October 1, 2020, the Company completed its acquisition 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”).

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

63 edited+14 added−26 removed71 unchanged
We may not meet our goals due to many factors, including any of the risks identified in the paragraph that follows, failure to develop new products that our customers will purchase, and technology changes that could render our products obsolete, or the introduction of new technology to which we do not have access, among other things.
We may not meet our goals due to many factors, including any of the risks identified in the paragraph that follows, failure to develop new products that our customers will purchase, technology changes that could render our products obsolete, or the introduction of new technology to which we do not have access, among other things.
Future attacks or disruptions could potentially lead to the inappropriate disclosure of confidential information, including our intellectual property, improper use of our systems and networks, access to and manipulation and destruction of our or third-party data, production downtimes, lost revenues, inappropriate disbursement of funds and both internal and external supply shortages.
Future attacks or disruptions could potentially lead to the inappropriate disclosure of confidential information, including our intellectual property or employee data, improper use of our systems and networks, access to and manipulation and destruction of our or third-party data, production downtimes, lost revenues, inappropriate disbursement of funds and both internal and external supply shortages.
Following non-contractual negotiations, we reached cost-recovery agreements with various customers in 2022, but these agreements did not enable us to recover 100 percent of our increased costs, and as a result, our operating margins were negatively impacted.
Following non-contractual negotiations, we reached cost-recovery agreements with various customers in 2022 and 2023, but these agreements did not enable us to recover 100 percent of our increased costs, and as a result, our operating margins were negatively impacted.
Any of the following could materially and adversely affect our business: the loss of or changes in supply contracts or sourcing strategies of our major customers or suppliers; start-up expenses associated with new vehicle programs or delays or cancellation of such programs; low levels of utilization of our manufacturing facilities, which can be dependent on a single product line or customer; inability to recover engineering and tooling costs; market and financial consequences of recalls that may be required on products we supplied; delays or difficulties in new product development; the possible introduction of similar or superior technologies by others; global excess capacity and vehicle platform proliferation; and the impact of fire, flood, or other natural disasters including pandemics and quarantines.
Any of the following could materially and adversely affect our business: the loss of or changes in supply contracts or sourcing strategies of our major customers or suppliers; start-up expenses associated with new vehicle programs or delays or cancellation of such programs; low levels of utilization of our manufacturing facilities, which can be dependent on a single product line or customer; inability to recover engineering and tooling costs; market and financial consequences of recalls that may be required on products we supplied; delays or difficulties in new product development; the possible introduction of similar or superior technologies by others; global excess capacity and vehicle platform proliferation; and the impact of fire, flood, or other natural disasters, including pandemics and quarantines. 29 Table of Contents
In addition, we will incur one-time costs and ongoing costs in connection with, or as a result of, the spin-off, including costs of operating as independent, publicly-traded companies that the separate businesses will no longer be able to share. Those costs may exceed our estimates or could negate some of the benefits we expect to realize.
In addition, we have incurred one-time costs and may incur ongoing costs in connection with, or as a result of, the spin-off, including costs of operating as independent, publicly-traded companies that the separate businesses will no longer be able to share. Those costs may exceed our estimates or could negate some of the benefits we expect to realize.
It is possible that the integration process could result in the loss of key employees, the disruption of our operations, the inability to maintain or increase our competitive presence, inconsistencies in standards, controls, procedures and policies, difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the acquisition, the diversion of management’s attention to integration matters and/or difficulties in the assimilation of employees and corporate cultures.
It is possible that the integration process could result in the loss of key employees, the disruption of our operations, the inability to maintain or increase 18 Table of Contents our competitive presence, inconsistencies in standards, controls, procedures and policies, difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the acquisition, the diversion of management’s attention to integration matters and/or difficulties in the assimilation of employees and corporate cultures.
The automotive industry is increasingly focused on improved vehicle efficiency and reduced emissions, including the development of hybrid and electric vehicles, largely as a result of changing consumer preferences and increasingly stringent global regulatory requirements related to climate change, and of 20 Table of Contents advanced driver assistance technologies, with the goal of developing and introducing a commercially viable, fully automated driving experience.
The automotive industry is increasingly focused on improved vehicle efficiency and reduced emissions, including the development of hybrid and electric vehicles, largely as a result of changing consumer preferences and increasingly stringent global regulatory requirements related to climate change, and of advanced driver-assistance technologies, with the goal of developing and introducing a commercially viable, fully automated driving experience.
If any of the following risks occur, our business including our financial performance, financial condition, operating results and cash flows could be adversely affected. Risks related to our strategy Our Charging Forward strategy may prove unsuccessful. In 2021, we announced our strategy to aggressively grow our electrification product portfolio over time through organic investments and technology-focused acquisitions.
If any of the following risks occur, our business, including our financial performance, financial condition, operating results and cash flows, could be adversely affected. Risks related to our strategy Our Charging Forward strategy may prove unsuccessful. In 2021, we announced our strategy to aggressively grow our eProduct portfolio over time through organic investments and technology-focused acquisitions.
A significant disruption in the supply of a key component due to supply 23 Table of Contents constraints, such as the constraints experienced in 2021 and 2022 related to semiconductor chips, or due to a work stoppage or production shutdown at one of our suppliers or any other supplier could have the same consequences and, accordingly, have an adverse effect on our financial results.
A significant disruption in the supply of a key component due to supply constraints, such as the constraints experienced in 2021 and 2022 related to semiconductor chips, or due to a work stoppage or production shutdown at one of our suppliers or any other supplier could have the same consequences and, accordingly, have an adverse effect on our financial results.
We cannot predict with certainty the potential adverse effects these costs might have on our business. 28 Table of Contents We are subject to possible insolvency of financial counterparties. We engage in numerous financial transactions and contracts including insurance policies, letters of credit, credit line agreements, financial derivatives, and investment management agreements involving various counterparties.
We cannot predict with certainty the potential adverse effects these costs might have on our business. We are subject to possible insolvency of financial counterparties. We engage in numerous financial transactions and contracts, including insurance policies, letters of credit, credit line agreements, financial derivatives, and investment management agreements involving various counterparties.
Alleged violations by BorgWarner of existing or future emissions standards could result in government investigations and other legal proceedings, the recall of one or more of our products, negotiated remedial actions, fines, disgorgement of profits, restricted product offerings, reputational harm or a combination of any of those items.
Alleged violations by BorgWarner of existing or future emissions standards could result in government investigations and other legal proceedings, the recall of one or more of our products, negotiated remedial actions, fines, 21 Table of Contents disgorgement of profits, restricted product offerings, reputational harm or a combination of any of those items.
Some cyber-attacks depend on human error or manipulation, including phishing attacks or schemes that use social engineering to gain access to systems or carry out disbursement of funds or other frauds, which raise the risks from such 22 Table of Contents events and the costs associated with protecting against such attacks.
Some cyber-attacks depend on human error or manipulation, including phishing attacks or schemes that use social engineering to gain access to systems or carry out disbursement of funds or other frauds, which raise the risks from such events and the costs associated with protecting against such attacks.
In particular, any unplanned turnover or inability to attract and retain key employees and employees with engineering, technical and software capabilities in numbers sufficient for our needs could adversely affect our business. Our profitability and results of operations may be adversely affected by program launch difficulties.
In particular, any unplanned turnover or inability to attract and retain key employees and employees with engineering, technical and software capabilities in numbers sufficient for our needs could adversely affect our business. 23 Table of Contents Our profitability and results of operations may be adversely affected by program launch difficulties.
Changes in interest rates and asset returns could increase our pension funding obligations and reduce our profitability. We have unfunded obligations under certain of our defined benefit pension and other postretirement benefit plans.
Changes in interest rates and asset returns could increase our pension funding obligations and reduce our profitability. We have unfunded obligations under certain of our defined benefit pension and other postemployment benefit plans.
In addition, a recall claim could require us to review our entire product portfolio to assess whether similar issues are present in other product lines, which could result in significant disruption to our business and could have an adverse impact on our results of operations.
In addition, a recall claim could require us to review our entire product portfolio to assess whether similar issues are present in other product lines, which could result in significant disruption to our business and could have 25 Table of Contents an adverse impact on our results of operations.
During 2021, and to a lesser extent in 2022, trailing impacts of the shutdowns and production declines related, in part, to COVID-19, created supply constraints of certain components, particularly semiconductor chips. These supply constraints have had, and are expected to continue to have, significant impacts on global industry production levels.
During 2021, and to a lesser extent in 2022, trailing impacts of the shutdowns and production declines related, in part, to COVID-19, created supply constraints of certain components, particularly semiconductor chips. These supply constraints have had significant impacts on global industry production levels.
If we are unable to maintain our position in the Chinese 26 Table of Contents market or if vehicle sales in China decrease, our business and financial results could be adversely affected. A downgrade in the ratings of our debt could restrict our ability to access the debt capital markets.
If we are unable to maintain our position in the Chinese market or if vehicle sales in China decrease, our business and financial results could be adversely affected. A downgrade in the ratings of our debt could restrict our ability to access the debt capital markets.
Part of our workforce is unionized which could subject us to work stoppages. As of December 31, 2022, approximately 13% of our U.S. workforce was unionized. We have a domestic collective bargaining agreement for one facility in New York, which expires in September 2024. The workforce at certain of our international facilities is also unionized.
Part of our workforce is unionized, which could subject us to work stoppages. As of December 31, 2023, approximately 12.5% of our U.S. workforce was unionized. We have a domestic collective bargaining agreement for one facility in New York, which expires in September 2024. The workforce at certain of our international facilities is also unionized.
Resolution of any tax matters involves uncertainties, and there are no assurances that the outcomes will be favorable. We are subject to risks related to our international operations. We have manufacturing and technical facilities in many regions including Europe, Asia, and the Americas. For 2022, approximately 81% of our consolidated net sales were outside the U.S.
Resolution of any tax matters involves uncertainties, and there are no assurances that the outcomes will be favorable. 26 Table of Contents We are subject to risks related to our international operations. We have manufacturing and technical facilities in many regions, including Europe, Asia, and the Americas. For 2023, approximately 84% of our consolidated net sales were outside the U.S.
Increased competition could adversely affect our business. In addition, any of our competitors may foresee the course of market development more accurately than we do, develop products that are superior to our products, produce similar products at a cost that is lower than our cost, or adapt more quickly than we do to new technologies or evolving customer requirements.
In addition, any of our competitors may foresee the course of market development more accurately than we do, develop products that are superior to our products, produce similar products at a cost that is lower than our cost, or adapt more quickly than we do to new technologies or evolving customer requirements.
Whether or not the spin-off is completed, we may face material challenges in connection with the intended separation, including but not limited to, the diversion of management time on matters relating to the spin-off; the impact of having to operate under the terms of any transition service agreements; the impact on our ability to retain talent; and potential impacts on our relationships with customers, suppliers, employees and other counterparties.
We may face material challenges in connection with the Spin-Off, including but not limited to, the diversion of management time on matters relating to the Spin-Off; the impact of having to operate under the terms of transition service agreements; the impact on our ability to retain talent; and potential impacts on our relationships with customers, suppliers, employees and other counterparties.
However, the amount of information we can obtain about a potential growth opportunity can be limited, and we can give no assurance that past or future business ventures, acquisitions, and strategic alliances will positively affect our financial performance or will perform as planned.
However, the amount of information we can obtain about a potential growth opportunity can be limited, and we can give no assurance that past or future business ventures, acquisitions, and strategic alliances will positively affect our financial performance or will perform as planned. Assessing a price for potential transactions is inexact.
To maintain our profit margins, we seek price reductions from our suppliers, improved production processes to increase manufacturing efficiency, and streamlined product designs to reduce costs, and we attempt to develop new products, the benefits of which support stable or increased prices.
OEM customers expect annual price reductions in our business. To maintain our profit margins, we seek price reductions from our suppliers, improved production processes to increase manufacturing efficiency, and streamlined product designs to reduce costs, and we attempt to develop new products, the benefits of which support stable or increased prices.
However, there can be no assurance that capacity limitations, industry shortages, labor or social unrest, weather emergencies, commercial disputes, government actions, riots, wars, such as Russia’s invasion of Ukraine in 2022, sabotage, cyber-attacks, non-conforming parts, acts of terrorism, “Acts of God,” or other problems that our suppliers experience will not result in occasional shortages or delays in their supply of components to us.
We expect that they will deliver to our stated written expectations. 28 Table of Contents However, there can be no assurance that capacity limitations, industry shortages, labor or social unrest, weather emergencies, commercial disputes, government actions, riots, wars, such as Russia’s invasion of Ukraine in 2022, sabotage, cyber-attacks, non-conforming parts, acts of terrorism, “Acts of God,” or other problems that our suppliers experience will not result in occasional shortages or delays in their supply of components to us.
These factors may impact our decisions to construct new facilities. 24 Table of Contents We have liabilities related to environmental, product warranties, litigation and other claims.
These factors may impact our decisions to construct new facilities. We have liabilities related to environmental, product warranties, litigation and other claims.
If taxing authorities were to disagree with our tax positions in connection with any such restructurings, our effective tax rate could be materially affected. Our tax filings for various periods are subject to audit by the tax authorities in most jurisdictions where we conduct business.
In addition, we may periodically restructure our legal entity organization. If taxing authorities were to disagree with our tax positions in connection with any such restructurings, our effective tax rate could be materially affected. Our tax filings for various periods are subject to audit by the tax authorities in most jurisdictions where we conduct business.
Changes that could impact the legal environment include new legislation, new regulations, new policies, investigations and legal proceedings, and new interpretations of existing legal rules and regulations, in particular, changes in import and export control laws or exchange control laws, additional restrictions on doing business in countries subject to sanctions, additional limitations on greenhouse gas emissions or other matters related to climate change and other changes in laws in countries where we operate or intend to operate. 25 Table of Contents Changes in tax laws or tax rates taken by taxing authorities and tax audits could adversely affect our business.
Changes that could impact the legal environment include new legislation, new regulations, new policies, investigations and legal proceedings, and new interpretations of existing legal rules and regulations, in particular, changes in import and export control laws or exchange control laws, additional restrictions on doing business in countries subject to sanctions, additional limitations on greenhouse gas emissions or other matters related to climate change and other changes in laws in countries where we operate or intend to operate.
We are subject to the risk that one or more of these counterparties may become insolvent and, therefore, be unable to meet its obligations under such contracts. Risks related to COVID-19 We face risks related to COVID-19 that could adversely affect our business and financial performance.
We are subject to the risk that one or more of these counterparties may become insolvent and, therefore, be unable to meet its obligations under such contracts. Other risks A variety of other factors could adversely affect our business.
In addition, the actual integration may result in additional and unforeseen expenses, which could reduce the anticipated benefits of the acquisitions. The combination of independent businesses is a complex, costly and time-consuming process that requires significant management attention and resources.
Further, there is potential for unknown or inestimable liabilities relating to the acquired businesses. In addition, the actual integration may result in additional and unforeseen expenses, which could reduce the anticipated benefits of the acquisitions. The combination of independent businesses is a complex, costly and time-consuming process that requires significant management attention and resources.
Our worldwide sales in 2022 to Ford and Volkswagen constituted approximately 13% and 8% of our 2022 consolidated net sales, respectively. Sales to the Company’s top ten customers represented 62% of sales for the year ended December 31, 2022. 27 Table of Contents We are sensitive to the effects of our major customers’ labor relations.
Our worldwide sales in 2023 to Ford and Volkswagen constituted approximately 14% and 11% of our 2023 consolidated net sales, respectively. Sales to the Company’s top ten customers represented 68% of sales for the year ended December 31, 2023. We are sensitive to the effects of our major customers’ labor relations.
We compete globally with a number of other manufacturers and distributors that produce and sell similar products. Price, quality, delivery, technological innovation, engineering development and program launch support are the primary elements of competition. Our competitors include vertically integrated units of our major OEM customers, as well as a large number of independent domestic and international suppliers.
Price, quality, delivery, technological innovation, engineering development and program launch support are the primary elements of competition. Our competitors include vertically integrated units of our major OEM customers, as well as a large number of independent domestic and international suppliers.
Changes in tax laws or tax rates, the resolution of tax assessments or audits by various tax authorities, and the inability to fully utilize our tax loss carryforwards and tax credits could adversely affect our operating results. In addition, we may periodically restructure our legal entity organization.
Changes in tax laws or tax rates taken by taxing authorities and tax audits could adversely affect our business. Changes in tax laws or tax rates, the resolution of tax assessments or audits by various tax authorities, and the inability to fully utilize our tax loss carryforwards and tax credits could adversely affect our operating results.
We continue to face volatile costs of commodities used in the production of our products and elevated levels of inflation. We use a variety of commodities (including aluminum, copper, nickel, plastic resins, steel, other raw materials and energy) and materials purchased in various forms such as castings, powder metal, forgings, stampings and bar stock.
We use a variety of commodities (including aluminum, copper, nickel, plastic resins, steel, other raw materials and energy) and materials purchased in various forms such as castings, powder metal, forgings, stampings and bar stock.
We cannot be assured that any of these indemnification provisions will fully protect us, and as a result may face unexpected liabilities that adversely affect our business, financial condition and results of operations. In addition, we may experience fewer synergies than expected, and the impact of the disposition on our financial results may be larger than projected.
We cannot be assured that any of these indemnification provisions will fully protect us, and as a result may face unexpected liabilities that adversely affect our business, financial condition and results of operations.
Our competitors may develop technologies that are similar or superior to our proprietary technologies or design around the patents we own or license. Further, as we expand our operations in jurisdictions where the enforcement of intellectual property rights is less robust, the risk of others duplicating our proprietary technologies increases, despite efforts we undertake to protect them.
Further, as we expand our operations in jurisdictions where the enforcement of intellectual property rights is less robust, the risk of others duplicating our proprietary technologies increases, despite efforts we undertake to protect them.
Additionally, a material deterioration in the funded status of the plans could significantly increase our pension expenses and reduce profitability in the future. We also sponsor post-employment medical benefit plans in the U.S. that are unfunded. If medical costs continue to increase or actuarial assumptions are modified, this could have an adverse effect on our business.
Additionally, a material deterioration in the funded status of the plans could significantly increase our pension expenses and reduce profitability in the future. We also sponsor post-employment medical benefit plans in the U.S. that are unfunded.
Our traditional OEM customers, faced with intense international competition, have continued to expand their global sourcing of components. As a result, we have experienced competition from suppliers in other parts of the world that enjoy economic advantages, such as lower labor costs, lower health care costs, lower tax rates and, in some cases, export or raw materials subsidies.
As a result, we have experienced competition from suppliers in other parts of the world that enjoy economic advantages, such as lower labor costs, lower health care costs, lower tax rates and, in some cases, export or raw materials subsidies. Increased competition could adversely affect our business.
Although OEMs have indicated that they will continue to rely on outside suppliers, a number of major OEM customers manufacture products for their own uses that directly compete with our products. These OEMs could elect to manufacture such products for their own uses in place of the products we currently supply.
Although many OEMs have indicated that they will continue to rely on outside suppliers, a number of major OEM customers have indicated their intent to insource certain components that we produce, and many do manufacture products for their own uses that directly compete with our products.
The success of our acquisitions is dependent, in part, on our ability to realize the expected benefits from combining our businesses and businesses that we acquire. To realize these anticipated benefits, both companies must be successfully combined, which is subject to our ability to consolidate operations, corporate cultures and systems and to eliminate redundancies and costs.
To realize these anticipated benefits, both companies must be successfully combined, which is subject to our ability to consolidate operations, corporate cultures and systems and to eliminate redundancies and costs. If we are unsuccessful in combining companies, the anticipated benefits of the acquisitions may not be realized fully or at all or may take longer to realize than expected.
We could incur additional restructuring charges as we continue to execute actions in an effort to improve future profitability and competitiveness and to optimize our product portfolio and may not achieve the anticipated savings and benefits from these actions.
Further, an increase in the level of our indebtedness and related interest costs may increase our vulnerability to adverse general economic and industry conditions and may affect our ability to obtain additional financing. 27 Table of Contents We could incur additional restructuring charges as we continue to execute actions in an effort to improve future profitability and competitiveness and to optimize our product portfolio and may not achieve the anticipated savings and benefits from these actions.
Further, while it is intended that the transaction will be tax-free to the Company’s stockholders for U.S. 19 Table of Contents federal income tax purposes, there is no assurance that the transaction will qualify for this treatment.
Further, while it is intended that the transaction will be tax-free to the Company’s stockholders for U.S. federal income tax purposes, there is no assurance that the transaction will qualify for this treatment. If the Spin-Off is ultimately determined to be taxable, either the Company, PHINIA, or the Company’s stockholders could incur income tax liabilities that could be significant.
We have sought to alleviate the impact of increasing costs by including a material pass-through provision in our customer contracts wherever possible and by selectively hedging certain commodity exposures.
We have sought to alleviate the impact of increasing costs by including material pass-through provisions in our customer contracts wherever possible and by selectively hedging certain commodity exposures. The discontinuation or lessening of our ability to pass through or hedge increasing commodity costs could adversely affect our business. From time to time, commodity prices may also fall rapidly.
Risks related to our business We are under substantial pressure from OEMs to reduce the prices of our products. There is substantial and continuing pressure on OEMs to reduce costs, including costs of products we supply. OEM customers expect annual price reductions in our business.
Any of these actions could have a material adverse effect on our business and financial results. Risks related to our business We are under substantial pressure from OEMs to reduce the prices of our products. There is substantial and continuing pressure on OEMs to reduce costs, including costs of products we supply.
If the U.S. or other countries impose additional tariffs, that will have a further adverse impact on us. We use important intellectual property in our business. If we are unable to protect our intellectual property or if a third party makes assertions against us or our customers relating to intellectual property rights, our business could be adversely affected.
If the U.S. or other countries impose additional tariffs, that will have a further adverse impact on us. 22 Table of Contents We use important intellectual property in our business.
The operation of automotive parts manufacturing plants entails risks in these areas, and we cannot assure that we will not incur material costs or liabilities as a result.
Our operations are subject to laws governing, among other things, emissions to air, discharges to waters, and the generation, management, transportation and disposal of waste and other materials. The operation of automotive parts manufacturing plants entails risks in these areas, and we cannot assure that we will not incur material costs or liabilities as a result.
The same may be true of transportation carriers and energy providers. If these supply interruptions occur, it could adversely affect our business. In addition, during 2022, many global economies, including the United States, experienced elevated levels of inflation more generally, which drove an increase in input costs.
In addition, during 2022 and 2023, many global economies, including the United States, experienced elevated levels of inflation more generally, which drove an increase in input costs.
If the spin-off is ultimately determined to be taxable, either the Company, NewCo, or the Company’s stockholders could incur income tax liabilities that could be significant. If we do not realize the anticipated benefits of the spin-off it could adversely affect our business, results of operations, cash flows and financial condition.
If we do not realize the anticipated benefits of the Spin-Off, it could adversely affect our business, results of operations, cash flows and financial condition. Potential indemnification liabilities pursuant to the spin-off of PHINIA could materially and adversely affect our business.
Our ability to pass through increased raw material costs to our OEM customers is limited, with cost recovery often less than 100% and often on a delayed basis. Inability to reduce costs in an amount equal to annual price reductions, increases in raw material costs, and increases in employee wages and benefits could have an adverse effect on us.
Our ability to pass through increased raw material or other inflationary costs to our OEM customers is limited, with cost recovery often less than 100% and often on a delayed basis.
Similarly, a majority of our global customers' operations outside of North America are also represented by various unions. Any extended work stoppage at one or more of our customers could have an adverse effect on our business. Risks related to our suppliers We could be adversely affected by supply shortages of components from our suppliers.
Any extended work stoppage at one or more of our customers could have an adverse effect on our business. Risks related to our suppliers We could be adversely affected by supply shortages of components from our suppliers. In an effort to manage and reduce the cost of purchased goods and services, we have been rationalizing our supply base.
Assessing a price for potential transactions is inexact, particularly in a market that generally favors sellers and attaches a high multiple or premium on technology. We may not be able to successfully assimilate or integrate companies that we have acquired or will acquire in the future, including their personnel, financial systems, distribution, operations and general operating procedures.
We may not be able to successfully assimilate or integrate companies that we have acquired or will acquire in the future, including their personnel, financial systems, distribution, operations and general operating procedures. Failure to execute our growth strategy could adversely affect our business.
Significant negative industry or macroeconomic trends, disruptions to our business, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use of the assets, dispositions, and market capitalization declines may impair these assets, and any of these factors may be exacerbated by the ongoing COVID-19 pandemic. 18 Table of Contents We review goodwill and indefinite-lived intangible assets for impairment either annually or whenever changes in circumstances indicate that the carrying value may not be recoverable.
Significant negative industry or macroeconomic trends, disruptions to our business, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use of the assets, dispositions and market capitalization declines may impair these assets.
We own important intellectual property, including patents, trademarks, copyrights, and trade secrets and are involved in numerous licensing arrangements. Our intellectual property plays an important role in maintaining our competitive position in a number of the markets that we serve.
Our intellectual property plays an important role in maintaining our competitive position in a number of the markets that we serve. Our competitors may develop technologies that are similar or superior to our proprietary technologies or design around the patents we own or license.
As a result, the difference between the carrying value of the reporting unit and its fair value (typically referred to as “headroom”) is smaller at the time of acquisition. Until this headroom grows over time, due to business growth or lower carrying value of the reporting unit, a relatively small decrease in reporting unit fair value can trigger impairment charges.
Until this headroom grows over time, due to business growth or lower carrying value of the reporting unit, a relatively small decrease in reporting unit fair value can trigger impairment charges. When impairment charges are triggered, they tend to be material due to the size of the assets involved. Future acquisitions could present similar risks.
Automotive and truck production and sales are cyclical and sensitive to general economic conditions and other factors including interest rates, consumer credit, and consumer spending and preferences. Economic declines that result in significant reduction in automotive or truck production would have an adverse effect on our sales to OEMs. We face strong competition.
Economic declines that result in significant reduction in automotive or truck production would have an adverse effect on our sales to OEMs. 20 Table of Contents We face strong competition. We compete globally with a number of other manufacturers and distributors that produce and sell similar products.
Failure to execute our growth strategy could adversely affect our business. 17 Table of Contents The failure to realize the expected benefits of acquisitions and other risks associated with acquisitions could adversely affect our business.
The failure to realize the expected benefits of acquisitions and other risks associated with acquisitions could adversely affect our business. The success of our acquisitions is dependent, in part, on our ability to realize the expected benefits from combining our businesses and businesses that we acquire.
There is no assurance that following the spin-off each separate company will be successful.
We cannot predict with certainty when the benefits expected from the Spin-Off will occur or the extent to which they will be achieved. There is no assurance that following the Spin-Off each separate company will be successful.
The risk of impairment to goodwill and indefinite-lived intangible assets is higher during the early years following an acquisition. This is because the fair values of these assets align very closely with what was paid to acquire the reporting units to which these assets are assigned.
This is because the fair values of these assets align very closely with what was paid to acquire the reporting units to which these assets are assigned. As a result, the difference between the carrying value of the reporting unit and its fair value (typically referred to as “headroom”) is smaller at the time of acquisition.
We select suppliers based on total value (including total landed price, quality, delivery, and technology), taking into consideration their production capacities and financial condition. We expect that they will deliver to our stated written expectations.
As a result, we remain dependent on fewer sources of supply for certain components used in the manufacture of our products. We select suppliers based on total value (including total landed price, quality, delivery, and technology), taking into consideration their production capacities and financial condition.
The discontinuation or lessening of our ability to pass through or hedge increasing commodity costs could adversely affect our business. 21 Table of Contents From time to time, commodity prices may also fall rapidly. If this happens, suppliers may withdraw capacity from the market until prices improve which may cause periodic supply interruptions.
If this happens, suppliers may withdraw capacity from the market until prices improve, which may cause periodic supply interruptions. The same may be true of transportation carriers and energy providers. If these supply interruptions occur, it could adversely affect our business.
All three of our primary North American customers, Ford, Stellantis, and General Motors, have major union contracts with the United Automobile, Aerospace and Agricultural Implement Workers of America. Because of domestic OEMs’ dependence on a single union, we are affected by labor difficulties and work stoppages at OEMs’ facilities.
All three of our primary North American customers, Ford, Stellantis, and General Motors, have major union contracts with the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”). Additionally, there is effort from the UAW to unionize other North American OEM plants, the outcome of which is difficult to predict.
The spin-off may not achieve the anticipated benefits and may expose us to additional risks. We may not realize the anticipated strategic, financial, operational or other benefits of the spin-off. We cannot predict with certainty when the benefits expected from the spin-off will occur or the extent to which they will be achieved.
Any charges relating to such impairments could adversely affect our results of operations in the periods recognized. 19 Table of Contents Risks related to the Spin-Off of PHINIA Inc. The Spin-Off may not achieve the anticipated benefits and may expose us to additional risks. We may not realize the anticipated strategic, financial, operational or other benefits of the Spin-Off.
The trading price of our common stock may be more volatile around the time of the intended separation. Risks related to our industry Conditions in the automotive industry may adversely affect our business. Our financial performance depends on conditions in the global automotive industry.
Risks related to our industry Conditions in the automotive industry may adversely affect our business. Our financial performance depends on conditions in the global automotive industry. Automotive and truck production and sales are cyclical and sensitive to general economic conditions and other factors, including interest rates, consumer credit, and consumer spending and preferences.
The interest cost on our revolving credit agreement is based on a rating grid. Further, an increase in the level of our indebtedness and related interest costs may increase our vulnerability to adverse general economic and industry conditions and may affect our ability to obtain additional financing.
The interest cost on our revolving credit agreement is based on a rating grid.
Removed
We believe we are well positioned for the industry’s anticipated migration to EV. We are targeting revenue from products for pure electric vehicles to be over 25% of total revenue by 2025 and approximately 45% of total revenue by 2030.
Added
We believe we are well positioned for the industry’s anticipated migration to EV. In June 2023, we announced the next phase of our Charging Forward strategy which focuses on profitably growing eProducts while maximizing the value of our Foundational product portfolio.
Removed
We believe we are on track to exceed our 2025 organic EV-related sales target and over the last two years have announced or completed five acquisitions. As discussed above, on December 6, 2022, we announced our intention to execute a tax-free spin-off of our Fuel Systems and Aftermarket segments into a separate, publicly traded company.
Added
As a result of executing this strategy, we expect that by 2027, we will achieve over $10 billion in annual eProduct sales, deliver eProduct adjusted operating margin of approximately 7% and maintain double-digit adjusted operating margins for our Foundational products portfolio.
Removed
The intended separation of our Fuel Systems and Aftermarket segments would be an important next step in furthering our pivot to EV and advancing our vision of a clean, energy-efficient world, while at the same time creating a new, focused company with strong financials to support the new company’s future.
Added
In addition, we may experience fewer synergies than expected or even negative synergies from separating a business, and the impact of the disposition on our financial results may be larger than projected.
Removed
Additionally, there is no certainty that we will be able to dispose of certain internal combustion assets on favorable terms, if at all, and the disposition process is expected to consume significant management resources.
Added
We review goodwill and indefinite-lived intangible assets for impairment either annually or whenever changes in circumstances indicate that the carrying value may not be recoverable. The risk of impairment to goodwill and indefinite-lived intangible assets is higher during the early years following an acquisition.
Removed
If we are unsuccessful in combining companies, the anticipated benefits of the acquisitions may not be realized fully or at all or may take longer to realize than expected. Further, there is potential for unknown or inestimable liabilities relating to the acquired businesses.
Added
In connection with the Spin-Off, we entered into a separation and distribution agreement and related agreements with PHINIA to govern the Spin-Off and the relationship between the two companies following the completion of the Spin-Off. These agreements provide for specific indemnity and liability obligations of each party and could lead to disputes between us.
Removed
When impairment charges are triggered, they tend to be material due to the size of the assets involved. Future acquisitions could present similar risks. Any charges relating to such impairments could adversely affect our results of operations in the periods recognized.
Added
If we are required to indemnify the other parties under the circumstances set forth in these agreements, we may be subject to future liabilities.
Removed
Risks related to the intended separation of the Fuel Systems and Aftermarket Segments The intended separation of our Fuel Systems and Aftermarket segments may not be completed in accordance with the expected plans or anticipated timeline, or at all, and may not achieve the expected results.
Added
In addition, with respect to the liabilities for which the other parties have agreed to indemnify us under these agreements, there can be no assurance that the indemnity rights we have against such other parties will be sufficient to protect us against the full amount of the liabilities or that such other parties will be able to fully satisfy its indemnification obligations.
Removed
On December 6, 2022, we announced our intention to execute a tax-free spin-off of our Fuel Systems and Aftermarket segments into a separate, publicly traded company (“NewCo”). The transaction is intended to qualify as a tax-free spin-off for U.S. federal income tax purposes.
Added
It is also possible that a court could disregard the allocation of assets and liabilities agreed to between the Company and such other parties and require the Company to assume responsibility for obligations allocated to such other parties. Each of these risks could negatively affect our business and financial statements.
Removed
We expect to complete the transaction in late 2023, subject to satisfaction of customary conditions, including among others, final approval from the BorgWarner Board of Directors, filing and effectiveness of a registration statement on Form 10 with the Securities and Exchange Commission, receipt of a tax opinion, satisfactory completion of financing, completion of information and consultations processes with works councils and other employee representative bodies, as required, and receipt of necessary consents and other regulatory approvals.

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Item 2. Properties

Properties — owned and leased real estate

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Item 2. Properties As of December 31, 2022, the Company had 92 manufacturing, assembly and technical locations worldwide. The Company’s worldwide headquarters are located in a leased facility in Auburn Hills, Michigan. In general, the Company believes its facilities to be suitable and adequate to meet its current and reasonably anticipated needs.
Item 2. Properties As of December 31, 2023, the Company had 82 manufacturing, assembly and technical locations worldwide. The Company’s worldwide headquarters are located in a leased facility in Auburn Hills, Michigan. In general, the Company believes its facilities to be suitable and adequate to meet its current and reasonably anticipated needs.
Segments Americas Europe Asia Total Air Management 14 15 17 46 e-Propulsion & Drivetrain 14 6 11 31 Fuel Systems 2 5 6 13 Aftermarket 1 1 — 2 The table above excludes unconsolidated joint ventures as of December 31, 2022 and administrative offices. Of the facilities noted above, 40 have leased land rights or a leased facility. Item 3.
The following is additional information concerning principal manufacturing, assembly and technical facilities operated by the Company, its subsidiaries, and affiliates. Segments Americas Europe Asia Total Air Management 14 13 16 43 Drivetrain & Battery Systems 4 5 7 16 ePropulsion 8 6 9 23 The table above excludes unconsolidated joint ventures as of December 31, 2023 and administrative offices.
Removed
The following is additional information concerning principal manufacturing, assembly and technical facilities operated by the Company, its subsidiaries, and affiliates.
Added
Of the facilities noted above, 35 have leased land rights or a leased facility. 31 Table of Contents Item 3.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Item 3. Legal Proceedings 30 Item 4 . Mine Safety Disclosures 30 PART II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 31 Item 6 . [Reserved] 33 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33 Item 7A.
Item 3. Legal Proceedings 32 Item 4 . Mine Safety Disclosures 32 PART II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 33 Item 6 . [Reserved] 35 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 35 Item 7A.
Quantitative and Qualitative Disclosures About Market Risk 55 Item 8. Financial Statements and Supplementary Data 56
Quantitative and Qualitative Disclosures About Market Risk 58 Item 8. Financial Statements and Supplementary Data 59

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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The BorgWarner Inc. 2018 Stock Incentive Plan provides that the withholding obligations be settled by the Company retaining stock that is part of the award. Withheld shares will be deemed common stock held in treasury and may subsequently be reissued for general corporate purposes.
The BorgWarner Inc. 2023 Stock Incentive Plan provides that the withholding obligations be settled by the Company retaining stock that is part of the award. Withheld shares will be deemed common stock held in treasury and may subsequently be reissued for general corporate purposes.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s common stock is listed for trading on the New York Stock Exchange under the symbol BWA. As of February 3, 2023, there were 1,488 holders of record of common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s common stock is listed for trading on the New York Stock Exchange under the symbol BWA. As of February 2, 2024, there were 1,464 holders of record of common stock.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among BorgWarner Inc., the S&P 500 Index, and SIC 374 Motor Vehicle Parts ___________ *$100 invested on 12/31/2017 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. Copyright© 2023 Standard & Poor’s, a division of S&P Global.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN 1 Among BorgWarner Inc., the S&P 500 Index, and SIC 3714 Motor Vehicle Parts ___________ 1 $100 invested on 12/31/2018 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. Copyright© 2024 Standard & Poor’s, a division of S&P Global.
This share repurchase authorization does not expire. As of December 31, 2022, the Company had repurchased $456 million of common stock under this repurchase program. Shares purchased under this authorization may be repurchased in the open market at prevailing prices and at times and in amounts to be determined by management as market conditions and the Company's capital position warrant.
As of December 31, 2023, the Company had repurchased $177 million of common stock under this repurchase authorization. Shares purchased under this authorization may be repurchased in the open market at prevailing prices and at times and in amounts to be determined by management as market conditions and the Company’s capital position warrant.
The following table provides information about the Company’s purchases of its equity securities that are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) during the quarter ended December 31, 2022: Issuer Purchases of Equity Securities Period Total number of shares purchased Average price per share Total number of shares purchased as part of publicly announced plans or programs Approximate dollar value of shares that may yet be purchased under plans or programs (in millions) October 1, 2022 - October 31, 2022 Common Stock Repurchase Program — $ — — $ 544 Employee transactions 2,630 $ 33.18 — November 1, 2022 - November 30, 2022 Common Stock Repurchase Program — $ — — $ 544 Employee transactions 4,848 $ 41.59 — December 1, 2022 - December 31, 2022 Common Stock Repurchase Program — $ — — $ 544 Employee transactions — $ — — 32 Table of Contents Equity Compensation Plan Information As of December 31, 2022, the number of shares of options, warrants and rights outstanding under the Company’s equity compensation plans, the weighted average exercise price of outstanding options, restricted common stock, warrants and rights and the number of securities remaining available for issuance were as follows: Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) Plan category (a) (b) (c) Equity compensation plans approved by security holders 1,835,424 $ 48.40 2,247,280 Equity compensation plans not approved by security holders — $ — — Total 1,835,424 $ 48.40 2,247,280
The following table provides information about the Company’s purchases of its equity securities that are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) during the quarter ended December 31, 2023: Issuer Purchases of Equity Securities Period Total number of shares purchased Average price per share Total number of shares purchased as part of publicly announced plans or programs Approximate dollar value of shares that may yet be purchased under plans or programs (in millions) October 1, 2023 - October 31, 2023 Common Stock Repurchase Program — $ — — $ 544 Employee transactions — $ — — November 1, 2023 - November 30, 2023 Common Stock Repurchase Program 3,000,000 $ 33.65 3,000,000 $ 443 Employee transactions 4,573 $ 34.15 — December 1, 2023 - December 31, 2023 Common Stock Repurchase Program 2,264,923 $ 33.52 2,264,923 $ 367 Employee transactions 194 $ 33.95 — 34 Table of Contents Equity Compensation Plan Information As of December 31, 2023, the number of shares of options, warrants and rights outstanding under the Company’s equity compensation plans, the weighted average exercise price of outstanding options, restricted common stock, warrants and rights and the number of securities remaining available for issuance were as follows: Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) Plan category (a) (b) (c) Equity compensation plans approved by security holders 1,817,795 $ 47.48 9,126,458 Equity compensation plans not approved by security holders — $ — — Total 1,817,795 $ 47.48 9,126,458
All rights reserved. 31 Table of Contents BWA and S&P 500 data are from Capital IQ; SIC Code Index data is from Research Data Group December 31, 2017 2018 2019 2020 2021 2022 BorgWarner Inc. 1 $ 100.00 $ 69.03 $ 87.78 $ 79.71 $ 94.37 $ 85.71 S&P 500 2 $ 100.00 $ 95.62 $ 125.72 $ 148.85 $ 191.58 $ 156.89 SIC Code Index 3 $ 100.00 $ 74.17 $ 95.51 $ 113.36 $ 120.39 $ 86.80 ________________ 1 BorgWarner Inc. 2 S&P 500 — Standard & Poor’s 500 Total Return Index 3 Standard Industrial Code (“SIC”) 3714-Motor Vehicle Parts Purchase of Equity Securities In January 2020, the Company’s Board of Directors authorized the purchase of up to $1 billion of the Company's common stock, which replaced the previous share repurchase program.
All rights reserved. 33 Table of Contents BWA and S&P 500 data are from Capital IQ; SIC Code Index data is from Research Data Group December 31, 2018 2019 2020 2021 2022 2023 BorgWarner Inc. 1 $ 100.00 $ 127.16 $ 115.46 $ 136.71 $ 124.16 $ 127.65 S&P 500 2 $ 100.00 $ 131.49 $ 155.68 $ 200.37 $ 164.08 $ 207.21 SIC Code Index 3 $ 100.00 $ 128.74 $ 152.65 $ 162.23 $ 117.41 $ 116.08 ________________ 1 BorgWarner Inc. 2 S&P 500 — Standard & Poor’s 500 Total Return Index 3 Standard Industrial Code (“SIC”) 3714-Motor Vehicle Parts Purchase of Equity Securities In January 2020, the Company’s Board of Directors authorized the purchase of up to $1 billion of the Company's common stock.
Added
This share repurchase authorization expired in January 2023 with approximately $544 million remaining for repurchase under that authorization. In November 2023, the Company’s Board of Directors authorized the purchase of up to $544 million of the Company’s common stock, which replaced the previous repurchase authorization. This share repurchase authorization does not expire.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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In 2022, following non-contractual negotiations, the Company reached agreement for the pass through and recovery of higher costs with various customers. These agreements did not enable the Company to recover 100 percent of its increased costs, and as a result, the Company’s operating margins were negatively impacted. Foreign Currency Impacts. The rapid strengthening of the U.S.
In 2022 and 2023, following non-contractual negotiations, the Company reached agreement for the pass through and recovery of higher costs with various customers. These agreements did not enable the Company to recover 100 percent of its increased costs, and as a result, the Company’s operating margins were negatively impacted. Foreign Currency Impacts. The rapid strengthening of the U.S.
Pension and other postretirement defined benefits The Company provides postretirement defined benefits to a number of its current and former employees. Costs associated with postretirement defined benefits include pension and postretirement health care expenses for employees, retirees and surviving spouses and dependents. The Company’s defined benefit pension and other postretirement plans are accounted for in accordance with ASC Topic 715.
Postretirement defined benefits The Company provides postretirement defined benefits to a number of its current and former employees. Costs associated with postretirement defined benefits include pension and other postemployment health care expenses for former employees, retirees and surviving spouses and dependents. The Company’s defined benefit pension and other postemployment benefit plans are accounted for in accordance with ASC Topic 715.
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. 47 Table of Contents Impairment of long-lived assets, including definite-lived intangible assets The Company reviews the carrying value of its long-lived assets, whether held for use or disposal, including other amortizing intangible assets, when events and circumstances warrant such a review under ASC Topic 360.
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. 50 Table of Contents Impairment of long-lived assets, including definite-lived intangible assets The Company reviews the carrying value of its long-lived assets, whether held for use or disposal, including other amortizing intangible assets, when events and circumstances warrant such a review under ASC Topic 360.
During the year ended December 31, 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.
During the year ended December 31, 2022, the Company recorded an impairment charge of $30 million to remove the AKASOL indefinite-lived trade name as the Company no longer plans to utilize this trade name in the business.
Environmental The Company and certain of its current and former direct and indirect corporate predecessors, subsidiaries and divisions have been identified by the United States Environmental Protection Agency and certain state environmental agencies and private parties as potentially responsible parties (“PRPs”) at various hazardous waste disposal sites under the Comprehensive Environmental Response, Compensation and Liability Act (“Superfund”) and equivalent state laws and, as such, may presently be liable for the cost of clean-up and other remedial activities at 26 such sites.
Environmental The Company and certain of its current and former direct and indirect corporate predecessors, subsidiaries and divisions have been identified by the United States Environmental Protection Agency and certain state environmental agencies and private parties as potentially responsible parties (“PRPs”) at various hazardous waste disposal sites under the Comprehensive Environmental Response, Compensation and Liability Act (“Superfund”) and equivalent state laws and, as such, may be presently liable for the cost of clean-up and other remedial activities at 17 such sites.
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.
I n 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.
The Company has certain U.S. state income tax returns and certain non-U.S. income tax returns that are currently under various stages of audit by applicable tax authorities. At December 31, 2022, the Company had a liability for tax positions the Company estimates are not more-likely-than-not to be sustained based on the technical merits, which is included in Other non-current liabilities.
The Company has certain U.S. state income tax returns and certain non-U.S. income tax returns that are currently under various stages of audit by applicable tax authorities. At December 31, 2023, the Company had a liability for tax positions the Company estimates are not more-likely-than-not to be sustained based on the technical merits, which is included in Other non-current liabilities.
The significant foreign currency translation adjustments, including the impact of the net investment hedges discussed above, during the years ended December 31, 2022 and 2021, are shown in the following table, which provides the percentage change in U.S. Dollars against the respective currencies and the approximate impacts of these changes recorded within other comprehensive income (loss) for the respective periods.
The significant foreign currency translation adjustments, including the impact of the net investment hedges discussed above, during the years ended December 31, 2023 and 2022, are shown in the following table, which provides the percentage change in U.S. Dollars against the respective currencies and the approximate impacts of these changes recorded within other comprehensive income (loss) for the respective periods.
When a plan of separation requires approval by or consultation with the relevant labor organization or government, the costs are recorded upon agreement. Costs associated with benefits that are contingent on the employee continuing to provide service are accrued over the required service period. Income taxes The Company accounts for income taxes in accordance with ASC Topic 740.
When a plan of separation requires approval by or consultation with the relevant labor organization or government, the costs are recorded upon agreement. Costs associated with benefits that are contingent on the employee continuing to provide service are expensed over the required service period. Income taxes The Company accounts for income taxes in accordance with ASC Topic 740.
Management will continue to balance the Company’s needs for organic growth, inorganic growth, debt reduction, cash conservation and return of cash to shareholders. Pension and Other Postretirement Employee Benefits The Company’s policy is to fund its defined benefit pension plans in accordance with applicable government regulations and to make additional contributions when appropriate.
Management will continue to balance the Company’s needs for organic growth, inorganic growth, debt reduction, cash conservation and return of cash to shareholders. Postretirement Defined Benefits The Company’s policy is to fund its defined benefit pension plans in accordance with applicable government regulations and to make additional contributions when appropriate.
Refer to Note 21, “Contingencies,” to the Consolidated Financial Statements in Item 8 of this report for further details and information respecting the Company’s environmental liability. 46 Table of Contents CRITICAL ACCOUNTING POLICIES AND ESTIMATES The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).
Refer to Note 21, “Contingencies,” to the Consolidated Financial Statements in Item 8 of this report for further details and information respecting the Company’s environmental liability. 49 Table of Contents CRITICAL ACCOUNTING POLICIES AND ESTIMATES The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).
Commodity forward and option contracts are occasionally executed to offset exposure to potential change in prices mainly for various non-ferrous metals and natural gas consumption used in the manufacturing of vehicle components. As of December 31, 2022 and 2021, the Company had no outstanding commodity swap contracts.
Commodity forward and option contracts are occasionally executed to offset exposure to potential change in prices mainly for various non-ferrous metals and natural gas consumption used in the manufacturing of vehicle components. As of December 31, 2023 and 2022, the Company had no outstanding commodity swap contracts.
Prices for commodities remain volatile, and since the beginning of 2021, the Company has experienced price increases for base metals (e.g., steel, aluminum and nickel), precious metals (e.g., palladium), and raw materials that are primarily used in batteries for electric vehicles (e.g., lithium and cobalt).
Prices for commodities remain volatile, and since the beginning of 2021, the Company has experienced price increases for base metals (e.g., steel, aluminum and nickel), precious metals (e.g., palladium), silicon carbide, and raw materials that are primarily used in batteries for electric vehicles (e.g., lithium and cobalt).
The U.S. and U.K. discount rates reflect the fact that the U.S. and U.K. pension plans have been closed for new participants. • Health care cost trend : For postretirement employee health care plan accounting, the Company reviews external data and Company-specific historical trends for health care cost to determine the health care cost trend rate assumptions.
The U.S. and U.K. discount rates reflect the fact that the U.S. and U.K. pension plans have been closed for new participants. • Health care cost trend : For postemployment employee health care plan accounting, the Company reviews external data and Company-specific historical trends for health care cost to determine the health care cost trend rate assumptions.
Segment Adjusted Operating Income is comprised of operating income adjusted for restructuring, merger, acquisition and divestiture expense, intangible asset amortization expense, impairment charges and other items not reflective of ongoing operating income or loss. The Company believes Segment Adjusted Operating Income is most reflective of the operational profitability or loss of its reporting segments.
Segment Adjusted Operating Income (Loss) is comprised of operating income adjusted for restructuring, merger, acquisition and divestiture expense, intangible asset amortization expense, impairment charges and other items not reflective of ongoing operating income or loss. The Company believes Segment Adjusted Operating Income (Loss) is most reflective of the operational profitability or loss of its reportable segments.
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 n 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.
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.
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. 51 Table of Contents • Revenue growth rates: The Company used a global automotive market industry growth rate forecast adjusted to estimate its own market participation for product lines.
Dollar. • Cost of sales was also impacted by material cost inflation of approximately $674 million arising from non-contractual commercial negotiations with the Company’s suppliers and normal contractual supplier commodity pass-through arrangements.
Dollar. • Cost of sales was also impacted by material cost inflation of approximately $170 million arising from non-contractual commercial negotiations and normal contractual supplier commodity pass-through arrangements with the Company’s suppliers.
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.
Based on the assumptions outlined above, the impairment testing conducted in the fourth quarter of 2023 indicated the Company’s goodwill assigned to the respective reporting units was not impaired.
For quantitative disclosures about market risk, refer to Note 17, “Financial 53 Table of Contents Instruments,” to the Consolidated Financial Statements in Item 8 of this report for information with respect to interest rate risk, foreign currency exchange rate risk and commodity purchase price risk.
For quantitative disclosures about market risk, refer to Note 17, “Financial Instruments,” to the Consolidated Financial Statements in Item 8 of this report for information with respect to interest rate risk, foreign currency exchange rate risk and commodity purchase price risk.
The increase excluding the impact of foreign currencies was primarily due to approximately $514 million of volume, mix and net new business driven by increased demand for the Company’s products and higher weighted average market production compared to the prior year and approximately $277 million from non-contractual commercial negotiations with the Company’s customers and normal contractual customer commodity pass-through arrangements.
The increase excluding the impact of foreign currencies was primarily due to approximately $596 million of volume, mix and net new business driven by increased demand for the Company’s products and higher weighted average market production compared to the prior year, non-contractual commercial negotiations and normal contractual customer commodity pass-through arrangements with the Company’s customers.
The market valuation models and other financial ratios used by the 48 Table of Contents 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 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 increase excluding these items was primarily due to approximately $507 million of volume, mix and net new business driven by increased demand for the Company’s products and higher weighted average market production compared to the prior year and approximately $221 million from non-contractual commercial negotiations with the Company’s customers and normal contractual customer commodity pass-through arrangements.
The increase excluding these items was primarily due to approximately $604 million of volume, mix and net new business driven by increased demand for the Company’s products and higher weighted average market production compared to the prior year, non-contractual commercial negotiations and normal contractual customer commodity pass-through arrangements with the Company’s customers.
PBO 25 basis point decrease in discount rate $ 3 $ 45 25 basis point increase in discount rate $ (3) $ (42) The sensitivity to a 25 basis-point change in the discount rate assumption and to the assumed health care cost trend related to the Company’s OPEB obligation and service and interest cost is expected to be negligible.
PBO 25 basis point decrease in discount rate $ 3 $ 16 25 basis point increase in discount rate $ (3) $ (16) The sensitivity to a 25 basis-point change in the discount rate assumption and to the assumed health care cost trend related to the Company’s OPEB obligation and service and interest cost is expected to be negligible.
The increase excluding the impact of foreign currencies was primarily due to approximately $147 million of volume, mix and net new business driven by higher weighted average market production compared to the prior year and approximately $55 million from non-contractual commercial negotiations with the Company’s customers and normal contractual customer commodity pass-through arrangements.
The increase excluding the impact of foreign currencies was primarily due to approximately $224 million of volume, mix and net new business driven by higher weighted average market production compared to the prior year, non-contractual commercial negotiations and normal contractual customer commodity pass-through arrangements with the Company’s customers.
The determination of the Company’s obligation and expense for its pension and other postretirement employee benefits, such as retiree health care, is dependent on certain assumptions used by actuaries in calculating such amounts.
The determination of the Company’s obligation and expense for its pension and other postemployment benefits, such as retiree health care, is dependent on certain assumptions used by actuaries in calculating such amounts.
The accrual is represented as $142 million in Other current liabilities and $103 million in Other non-current liabilities on the Consolidated Balance Sheets. Refer to Note 13, “Product Warranty,” to the Consolidated Financial Statements in Item 8 of this report for more information regarding product warranties.
The accrual is represented as $91 million in Other current liabilities and $105 million in Other non-current liabilities on the Consolidated Balance Sheets. Refer to Note 13, “Product Warranty,” to the Consolidated Financial Statements in Item 8 of this report for more information regarding product warranties.
Disclosure Regarding Forward-Looking Statements The matters discussed in this Item 7 include forward looking statements. See “Forward Looking Statements” at the beginning of this Annual Report on Form 10-K.
Disclosure Regarding Forward-Looking Statements The matters discussed in this Item 7 include forward looking statements. See “Forward Looking Statements” at the beginning of this Annual Report on Form 10-K. 57 Table of Contents
This increase was primarily driven by higher weighted average market production as estimated by the Company, which was up approximately 4% from the year ended December 31, 2021. The remaining increase primarily reflects the sales growth above market production, which the Company believes reflects higher demand for its products.
This increase was primarily driven by higher weighted average market production as estimated by the Company, which was up approximately 11% from the year ended December 31, 2022. The remaining increase primarily reflects the sales growth above market production, which the Company believes reflects higher demand for its products.
As of December 31, 2022, the Company had liquidity of $3,333 million, comprised of cash and cash equivalent balances of $1,333 million and an undrawn revolving credit facility of $2,000 million. The Company was in full compliance with its covenants under the revolving credit facility and had full access to its undrawn revolving credit facility.
As of December 31, 2023, the Company had liquidity of $3,534 million, comprised of cash and cash equivalent balances of $1,534 million and an undrawn revolving credit facility of $2,000 million. The Company was in full compliance with its covenants under the revolving credit facility and had full access to its undrawn revolving credit facility.
As of December 31, 2022 and 2021, the Company recorded a deferred gain of $196 million and $10 million, respectively, both before taxes, for designated net investment hedges within accumulated other comprehensive income (loss).
As of December 31, 2023 and 2022, the Company recorded a deferred gain of $112 million and $196 million, respectively, both before taxes, for designated net investment hedges within accumulated other comprehensive income (loss).
This facility matures in March 2025. The credit facility 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 December 31, 2022. At December 31, 2022 and 2021, the Company had no outstanding borrowings under this facility.
This facility matures in September 2028. The credit facility 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 December 31, 2023. At December 31, 2023 and 2022, the Company had no outstanding borrowings under this facility.
OTHER MATTERS Contingencies In the normal course of business, the Company is party to various commercial and legal claims, actions and complaints, including matters involving warranty claims, intellectual property claims, general liability and other risks.
OTHER MATTERS Contingencies In the normal course of business, the Company is party to various commercial and legal claims, actions and complaints, including matters involving warranty claims, intellectual property claims, governmental investigations and related proceedings, general liability and other risks.
In the ordinary course of the Company’s business, there are many transactions and calculations where the ultimate tax 52 Table of Contents determination is less than certain.
In the ordinary course of the Company’s business, there are many transactions and calculations where the ultimate tax determination is less than certain.
During the year ended December 31, 2022, the Company recorded a pre-tax gain of $22 million in connection with the sale of its interest in BorgWarner Romeo Power LLC (“Romeo JV”), in which the Company owned a 60% interest.
During the year ended December 31, 2022, the Company recorded a gain of $22 million in connection with the sale of its interest in BorgWarner Romeo Power LLC, in which the Company owned a 60% interest.
Rhombus Energy Solutions On July 29, 2022, the Company acquired Rhombus Energy Solutions (“Rhombus”), a provider of charging solutions in the North American market. The acquisition complements the Company’s existing European charging footprint to accelerate organic growth and adds North American regional presence to its charging business.
Rhombus Energy Solutions On July 29, 2022, the Company acquired Rhombus Energy Solutions, a provider of charging solutions in the North American market. The acquisition is expected to complement the Company’s existing European charging footprint to accelerate organic growth and adds North American regional presence to its charging business.
The acquisition further strengthens BorgWarner’s commercial vehicle and industrial electrification capabilities, which positions the Company to capitalize on what it believes to be a fast-growing battery module and pack market. 34 Table of Contents Refer to Note 2, “Acquisitions and Dispositions,” to the Consolidated Financial Statements in Item 8 of this report for more information.
The acquisition is expected to further strengthen BorgWarner’s commercial vehicle and industrial electrification capabilities, which positions the Company to capitalize on what it believes to be a fast-growing battery module and pack market. Refer to Note 2, “Acquisitions and Dispositions,” to the Consolidated Financial Statements in Item 8 of this report for more information.
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%.
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 2023, the amounts by which the estimated fair values of the Company’s goodwill reporting units exceeded their carrying values ranged from 22% to 139%.
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 primary assumptions affecting the Company’s 2023 goodwill quantitative impairment review are as follows: • Discount rates: The Company used a range of 12.5% to 14.5% weighted average cost of capital (“WACC”) as the discount rates for future cash flows.
Actual returns on German pension assets were (19.7)% and 5.4% for the years ended December 31, 2022 and 2021, respectively, compared to the expected rate of return assumptions of 4.0% and 5.0%, respectively, for the same years ended. • Discount rate : The discount rate is used to calculate pension and other postretirement employee benefit (“OPEB”) obligations.
Actual returns on German pension assets were 9.9% and (19.7)% for the years ended December 31, 2023 and 2022, respectively, compared to the expected rate of return assumptions of 4.5% and 4.0%, respectively, for the same years ended. • Discount rate : The discount rate is used to calculate pension and other postemployment benefit (“OPEB”) obligations.
Actual returns on U.K. pension assets were (34.8)% and 5.4% for the years ended December 31, 2022 and 2021, respectively, compared to the expected rate of return assumption of 4.1% and 4.0%, respectively, for the same years ended.
Actual returns on U.K. pension assets were 3.2% and (34.8)% for the years ended December 31, 2023 and 2022, respectively, compared to the expected rate of return assumption of 5.3% and 4.1%, respectively, for the same years ended.
Of the total net unfunded amounts, $34 million and $89 million at December 31, 2022 and 2021, respectively, were related to plans in Germany, where there is no tax deduction allowed under the 45 Table of Contents applicable regulations to fund the plans; hence, the common practice is to make contributions as benefit payments become due.
Of the total net unfunded amounts, $39 million and $34 million at December 31, 2023 and 2022, respectively, were related to plans in Germany, where there is no tax deduction allowed under the applicable regulations to fund the plans; hence, the common practice is to make contributions as benefit payments become due.
As of December 31, 2022, non-cancelable lease obligations were $239 million. Refer to Note 22, “Leases and Commitments,” to the Consolidated Financial Statements in Item 8 of this report for more information. Capital spending obligations were $241 million as of December 31, 2022.
As of December 31, 2023, non-cancelable lease obligations were $225 million. Refer to Note 22, “Leases and Commitments,” to the Consolidated Financial Statements in Item 8 of this report for more information. Capital spending obligations were $148 million as of December 31, 2023.
Segment Adjusted Operating Income excludes certain corporate costs, which primarily represent headquarters’ expenses not directly attributable to the individual segments. Corporate expenses not allocated to Segment Adjusted Operating Income were $289 million and $302 million for the years ended December 31, 2022 and 2021, respectively.
Segment Adjusted Operating Income excludes certain corporate costs, which primarily represent headquarters’ expenses not directly attributable to the individual segments. Corporate expenses not allocated to Segment Adjusted Operating Income were $278 million and $282 million for the years ended December 31, 2023 and 2022, respectively.
Weighted average market production reflects light and commercial vehicle production as reported by IHS weighted for the Company’s geographic exposure, as estimated by the Company. 36 Table of Contents • Fluctuations in foreign currencies resulted in a year-over-year decrease in sales of approximately $961 million primarily due to the weakening of the Euro, Chinese Renminbi and Korean Won relative to the U.S.
Weighted average market production reflects light and commercial vehicle production as reported by IHS weighted for the Company’s geographic exposure, as estimated by the Company. • Fluctuations in foreign currencies resulted in a year-over-year decrease in sales of approximately $66 million, primarily due to the weakening of the Chinese Renminbi and Korean Won, partially offset by the strengthening of the Euro, in each case relative to the U.S.
The Company’s management does not expect that an adverse outcome in any of these commercial and legal claims, actions and complaints that are currently pending will have a material adverse effect on the Company’s results of operations, financial position or cash flows. An adverse outcome could, nonetheless, be material to the results of operations or cash flows.
The Company’s management does not believe that adverse outcomes in any of these commercial and legal claims, actions and complaints are reasonably likely to have a material adverse effect on the Company’s results of operations, financial position or cash flows. An adverse outcome could, nonetheless, be material to the results of operations or cash flows.
The change in net sales for the year ended December 31, 2022 was primarily driven by the following: • Favorable volume, mix and net new business increased sales approximately $1,235 million, or 8%.
The change in net sales for the year ended December 31, 2023 was primarily driven by the following: • Favorable volume, mix and net new business increased sales approximately $1,418 million, or 10%.
The principal amount of notes payable and long-term debt was $4,196 million as of December 31, 2022. The projected interest payments over the terms of that debt were $1,052 million as of December 31, 2022. Refer to Note 14, “Notes Payable and Debt,” to the Consolidated Financial Statements in Item 8 of this report for more information.
The principal amount of notes payable and long-term debt was $3,785 million as of December 31, 2023. The projected interest payments over the terms of that debt were $761 million as of December 31, 2023. Refer to Note 14, “Notes Payable and Debt,” to the Consolidated Financial Statements in Item 8 of this report for more information.
In determining the projected benefit obligation for postretirement employee health care plans as of December 31, 2022, the Company used health care cost trend rates of 6.5%, declining to an ultimate trend rate of 4.75% by the year 2026.
In determining the projected benefit obligation for postemployment health care plans as of December 31, 2023, the Company used health care cost trend rates of 6.3%, declining to an ultimate trend rate of 4.75% by the year 2026.
The change in cost of sales for the year ended December 31, 2022 was primarily driven by the following: • Higher sales volume, mix and net new business increased cost of sales by approximately $1,051 million. • Fluctuations in foreign currencies resulted in a year-over-year decrease in cost of sales of approximately $780 million primarily due to the weakening of the Euro, Korean Won and Chinese Renminbi relative to the U.S.
The change in cost of sales for the year ended December 31, 2023 was primarily driven by the following: • Higher sales volume, mix and net new business increased cost of sales by approximately $1,012 million. • Fluctuations in foreign currencies resulted in a year-over-year decrease in cost of sales of approximately $30 million, primarily due to the weakening of the Chinese Renminbi and Korean Won, partially offset by the strengthening of the Euro, in each case relative to the U.S.
The change in SG&A was primarily attributable to: • Increased research and development (“R&D”) costs of $79 million. R&D costs, net of customer reimbursements, were 5.0% of net sales in the year ended December 31, 2022, compared to 4.8% of net sales in the year ended December 31, 2021.
The change in SG&A was primarily attributable to: • Research and development (“R&D”) costs increased $16 million. R&D costs, net of customer reimbursements, were 5.1% of net sales in the year ended December 31, 2023, compared to 5.5% of net sales in the year ended December 31, 2022.
Selling, general and administrative expenses (“SG&A”) SG&A for the year ended December 31, 2022 was $1,610 million as compared to $1,460 million for the year ended December 31, 2021. SG&A as a percentage of net sales was 10.2% and 9.8% for the years ended December 31, 2022 and 2021, respectively.
Selling, general and administrative expenses (“SG&A”) SG&A for the year ended December 31, 2023 was $1,316 million as compared to $1,290 million for the year ended December 31, 2022. SG&A as a percentage of net sales was 9.3% and 10.2% for the years ended December 31, 2023 and 2022, respectively.
(in millions, except for percentages) December 31, 2022 Chinese Renminbi (8) % $ (201) Euro (6) % $ (46) British Pound (11) % $ (40) Korean Won (6) % $ (25) India Rupee (10) % $ (11) (in millions, except for percentages) December 31, 2021 Korean Won (9) % $ (72) Euro (7) % $ (55) Brazilian Real (7) % $ (13) Japanese Yen (10) % $ (9) Chinese Renminbi 3 % $ 63 54 Table of Contents Commodity Price Risk Commodity price risk is the possibility that the Company will incur economic losses due to adverse changes in the cost of raw materials used in the production of its products.
(in millions, except for percentages) December 31, 2023 Chinese Renminbi (3) % $ (61) Korean Won (3) % $ (11) Euro 3 % $ 9 (in millions, except for percentages) December 31, 2022 Chinese Renminbi (8) % $ (201) Euro (6) % $ (46) British Pound (11) % $ (40) Korean Won (6) % $ (25) India Rupee (10) % $ (11) Commodity Price Risk Commodity price risk is the possibility that the Company will incur economic losses due to adverse changes in the cost of raw materials used in the production of its products.
In addition, the Company may test goodwill in between annual test dates if an event occurs or circumstances change that could more-likely-than-not reduce the fair value of a reporting unit below its carrying value. During the fourth quarter of 2022, the Company performed a quantitative analysis on each reporting unit to refresh its respective fair value.
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. The Company performs a quantitative analysis on each reporting unit to refresh its respective fair value using a combined income and market approach.
The increase in R&D costs, net of customer reimbursements, was primarily due to increasing net investment related to the Company’s electrification product portfolio. The Company will continue to invest in R&D programs, which are necessary to support short- and long-term growth.
The increase in R&D costs, net of customer reimbursements, was primarily due to increasing net investment related to the Company’s eProduct portfolio. The Company will continue to invest in R&D programs, which are necessary to support short- and long-term growth. • Increased administrative expenses of $19 million, primarily related to IT and travel.
Other postretirement employee benefits primarily consist of postretirement health care benefits for certain employees and retirees of the Company’s U.S. operations. The Company funds these benefits as retiree claims are incurred. Other postretirement employee benefits had an unfunded status of $37 million and $54 million at December 31, 2022 and 2021, respectively.
Other postemployment benefits primarily consist of health care benefits for certain former employees and retirees of the Company’s U.S. operations. The Company funds these benefits as retiree claims are 48 Table of Contents incurred. Other postemployment benefits had an unfunded status of $33 million and $37 million at December 31, 2023 and 2022, respectively.
Net earnings attributable to the noncontrolling interest, net of tax of $82 million for the year ended December 31, 2022 decreased by $20 million compared to the year ended December 31, 2021.
Net earnings attributable to the noncontrolling interest, net of tax of $70 million for the year ended December 31, 2023 decreased by $12 million compared to the year ended December 31, 2022.
Cash and cash equivalents held by these subsidiaries are used to fund foreign operational activities and future investments, including acquisitions. The majority of cash and cash equivalents held outside the United States is available for repatriation.
As of December 31, 2023, cash balances of $891 million were held by the Company’s subsidiaries outside of the United States. Cash and cash equivalents held by these subsidiaries are used to fund foreign operational activities and future investments, including acquisitions. The majority of cash and cash equivalents held outside the United States is available for repatriation.
For its significant plans, the Company used discount rates ranging from 1.7% to 12.0% to determine its pension and other benefit obligations as of December 31, 2022, including weighted average discount rates of 5.5% in the U.S., 4.9% outside of the U.S. (including 4.9% in the U.K.) and 5.4% for U.S. other postretirement health care plans.
For its significant plans, the Company used discount rates ranging from 1.8% to 11.8% to determine its pension and other benefit obligations as of December 31, 2023, including weighted average discount rates of 5.1% in the U.S., 4.2% outside of the U.S. (including 4.6% in the U.K.) and 5.1% for U.S. other postemployment health care plans.
The Company enters into derivative instruments only with high credit quality counterparties and diversifies its positions across such counterparties in order to reduce its exposure to credit losses. The Company does not engage in any derivative instruments for purposes other than hedging specific operating risks.
Other commodity purchase price risk is occasionally addressed by hedging strategies, which include forward contracts. The Company enters into derivative instruments only with high credit quality counterparties and diversifies its positions across such counterparties in order to reduce its exposure to credit losses. The Company does not engage in any derivative instruments for purposes other than hedging specific operating risks.
The sensitivity to a 25 basis-point change in the assumptions for discount rate and expected return on assets related to 2023 pre-tax pension expense for Company sponsored U.S. and non-U.S. pension plans is expected to be negligible. 51 Table of Contents The following table illustrates the sensitivity to a change in discount rate for Company sponsored U.S. and non-U.S. pension plans on its pension obligations: (in millions) Impact on U.S.
The sensitivity to a 25 basis-point change in the assumptions for discount rate and expected return on assets related to 2024 pre-tax pension expense for Company sponsored U.S. and non-U.S. pension plans is expected to be negligible.
Equity in affiliates’ earnings, net of tax was $38 million and $48 million in the years ended December 31, 2022 and 2021, respectively. This line item is driven by the results of the Company’s unconsolidated joint ventures. Unrealized loss on debt and equity securities was $73 million and $362 million for the years ended December 31, 2022 and 2021, respectively.
This line item is driven by the results of the Company’s unconsolidated joint ventures. Realized and unrealized loss on debt and equity securities was $174 million and $73 million for the years ended December 31, 2023 and 2022, respectively.
In 2022, the Company recognized discrete tax benefits of $33 million, primarily related to a reduction in certain unrecognized tax benefits and accrued interest related to a matter for which the statute of limitations had lapsed and favorable provision-to-return adjustments.
During the year ended December 31, 2022, the Company recognized discrete tax benefits of $23 million, primarily related to a reduction in certain unrecognized tax benefits and accrued interest for a matter in which the statute of limitations had lapsed.
Dollar in 2022 relative to major foreign currencies, including the Euro, Korean Won and Chinese Renminbi, and related translation of these currencies to the U.S. Dollar, unfavorably impacted the Company’s net sales, earnings and cash flows. Continued significant fluctuations of foreign currencies against the U.S. Dollar may further negatively impact the Company’s financial results.
Dollar in 2022, which continued in 2023, albeit to a lesser extent, relative to major foreign currencies, including the Euro, Korean Won and Chinese Renminbi, and related translation of these currencies to the U.S. Dollar, unfavorably impacted 37 Table of Contents the Company’s net sales, earnings and cash flows. Continued significant fluctuations of foreign currencies against the U.S.
Refer to Note 13, “Product Warranty,” to the Consolidated Financial Statements in Item 8 of this report for more information. 2 In 2022, the Company recognized discrete tax benefits of $33 million, primarily related to a reduction in certain unrecognized tax benefits and accrued interest related to a matter for which the statute of limitations had lapsed and favorable provision-to-return adjustments.
In 2022, the Company recognized discrete tax benefits of $23 million, primarily related to a reduction in certain unrecognized tax benefits and accrued interest related to a matter for which the statute of limitations had lapsed and favorable provision-to-return adjustments. 41 Table of Contents For further details, see Note 7, “Income Taxes,” to the Consolidated Financial Statements in Item 8 of this report.
Foreign currencies resulted in a year-over-year decrease in sales of approximately $504 million primarily due to the weakening of the Euro, Korean Won and Chinese Renminbi relative to the U.S. Dollar.
Foreign currencies resulted in a year-over-year decrease in sales of approximately $17 million, primarily due to the weakening of the Chinese Renminbi, partially offset by the strengthening of the Euro, in each case relative to the U.S. Dollar.
Under this agreement, beginning in 2024, the Company will purchase silicon carbide parts with an aggregate total price equal to or greater than the corridor amount totaling a minimum of $184 million, annually through 2029.
Under this agreement, beginning in 2024, the Company will purchase silicon carbide parts with an aggregate total price equal to or greater than the corridor amount totaling a minimum of $184 million, annually through 2029. On September 21, 2023, and November 15, 2023, the Company sold $100 million and the remaining $400 million, respectively, of the Wolfspeed convertible debt securities.
At December 31, 2022, all legal funding requirements had been met. The Company contributed $22 million, $24 million and $174 million to its defined benefit pension plans in the years ended December 31, 2022, 2021 and 2020, respectively.
At December 31, 2023, all legal funding requirements had been met. The Company contributed $21 million, $22 million and $24 million to its defined benefit pension plans in the years ended December 31, 2023, 2022 and 2021, respectively. The Company expects to contribute a total of $20 million to $30 million into its defined benefit pension plans during 2024.
These dividends were paid on March 15, 2022, June 15, 2022, September 15, 2022 and December 15, 2022, respectively. From a credit quality perspective, the Company has a credit rating of BBB+ from Fitch Ratings, BBB from Standard & Poor's and Baa1 from Moody's. The current outlook from each of Fitch, Standard & Poor’s and Moody’s is stable.
From a credit quality perspective, the Company has a credit rating of BBB from Standard & Poor’s, Baa1 from Moody’s and BBB+ from Fitch Ratings. The current outlook from each of Fitch, Standard & Poor’s and Moody’s is stable.
The Company had no outstanding borrowings under this program as of December 31, 2022 and 2021. 42 Table of Contents The total current combined borrowing capacity under the multi-currency revolving credit facility and commercial paper program cannot exceed $2.0 billion.
The Company had no outstanding borrowings under this program as of December 31, 2023 and 2022. The total current combined borrowing capacity under the multi-currency revolving credit facility and commercial paper program cannot exceed $2.0 billion. In addition to the revolving credit facility, the Company’s universal shelf registration statement filed with the U.S.
The Aftermarket segment’s net sales for the year ended December 31, 2022 increased $73 million, or 6%, and Segment Adjusted Operating Income increased $32 million, or 19.5%, from the year ended December 31, 2021. Foreign currencies resulted in a year-over-year decrease in sales of approximately $42 million primarily due to the weakening of the Euro relative to the U.S. Dollar.
The ePropulsion segment’s net sales for the year ended December 31, 2023 increased $260 million, or 14%, and Segment Adjusted Operating Loss increased $2 million from the year ended December 31, 2022. Foreign currencies resulted in a year-over-year decrease in sales of approximately $43 million, primarily due to the weakening of the Chinese Renminbi relative to the U.S. Dollar.
Estimates of future taxable income, including income generated from prudent and feasible tax planning strategies resulting from actual or planned business and operational developments, could change in the near term, perhaps materially, which may require the Company to consider any potential impact to the assessment of the recoverability of the related deferred tax asset.
Existing deferred tax assets, net operating losses and tax credits by jurisdiction and expectations of the ability to utilize these tax attributes are assessed through a review of past, current and estimated future taxable income and tax planning strategies. 55 Table of Contents Estimates of future taxable income, including income generated from prudent and feasible tax planning strategies resulting from actual or planned business and operational developments, could change in the near term, perhaps materially, which may require the Company to consider any potential impact to the assessment of the recoverability of the related deferred tax asset.
Gross profit and gross margin were $3,101 million and 19.6%, respectively, during the year ended December 31, 2022 compared to $2,855 million and 19.2%, respectively, during the year ended December 31, 2021. The increase in gross margin was primarily due to the factors discussed above.
Gross profit and gross margin were $2,568 million and 18.1%, respectively, during the year ended December 31, 2023 compared to $2,369 million and 18.7%, respectively, during the year ended December 31, 2022. The decrease in gross margin was primarily due to the factors discussed above.
The increase for the year ended December 31, 2022, compared with the year ended December 31, 2021, was primarily due to higher net earnings adjusted for non-cash charges and improved working capital. 43 Table of Contents Investing Activities Year Ended December 31, (in millions) 2022 2021 INVESTING Capital expenditures, including tooling outlays $ (723) $ (666) Capital expenditures for damage to property, plant and equipment — (2) Insurance proceeds received for damage to property, plant and equipment — 5 Payments for businesses acquired, net of cash and restricted cash acquired (312) (759) Proceeds from sale of businesses, net of cash divested 27 22 Proceeds from settlement of net investment hedges, net 40 11 Payments for investments in debt and equity securities, net (473) (20) Proceeds from asset disposals and other, net 23 14 Net cash used in investing activities $ (1,418) $ (1,395) Net cash used in investing activities was $1,418 million and $1,395 million in the years ended December 31, 2022 and 2021, respectively.
The increase for the year ended December 31, 2023, compared with the year ended December 31, 2022, was primarily due to higher net earnings adjusted for non-cash charges partially offset by changes in working capital. 46 Table of Contents Investing Activities Year Ended December 31, (in millions) 2023 2022 INVESTING ACTIVITIES OF CONTINUING OPERATIONS Capital expenditures, including tooling outlays $ (832) $ (622) Payments for businesses acquired, net of cash and restricted cash acquired (109) (312) Proceeds from sale of businesses, net of cash divested 9 27 Proceeds from settlement of net investment hedges, net 25 40 Proceeds from (payments for) investments in debt and equity securities, net 284 (473) Proceeds from asset disposals and other, net 30 20 Net cash used in investing activities from continuing operations $ (593) $ (1,320) Net cash used in investing activities was $593 million and $1,320 million in the years ended December 31, 2023 and 2022, respectively.
This includes an increase of approximately $585 million related to recoveries from the Company’s customers of material cost inflation arising from non-contractual commercial negotiations with those customers and normal contractual customer commodity pass-through arrangements. • Acquisitions, primarily AKASOL, contributed $154 million in additional sales during the year ended December 31, 2022.
Dollar. 39 Table of Contents • Recoveries from the Company’s customers of material cost inflation arising from non-contractual commercial negotiations with those customers and normal contractual customer commodity pass-through arrangements increased net sales by approximately $158 million. • Acquisitions contributed $53 million in additional sales during the year ended December 31, 2023.
Cost of sales and gross profit Cost of sales and cost of sales as a percentage of net sales were $12,700 million and 80.4%, respectively, during the year ended December 31, 2022, compared to $11,983 million and 80.8%, respectively, during the year ended December 31, 2021.
Cost of sales and gross profit Cost of sales and cost of sales as a percentage of net sales were $11,630 million and 81.9%, respectively, during the year ended December 31, 2023, compared to $10,266 million and 81.3%, respectively, during the year ended December 31, 2022.
The Company selectively uses interest rate swaps to reduce market value risk associated with changes in interest rates (fair value hedges). At December 31, 2022, all of the Company’s long-term debt had fixed interest rates.
The Company selectively uses interest rate swaps to reduce market value risk associated with changes in interest rates (fair value hedges).
In 2021, the Company recognized a $55 million tax benefit related to a reduction in certain unrecognized tax benefits and accrued interest related to a matter for which the statute of limitations had lapsed.
In 2023, the Company recognized a discrete tax benefit of approximately $19 million related to the resolution of tax audits and reductions in certain unrecognized tax benefits and accrued interest related to matters for which the statute of limitation had lapsed.
The Fuel Systems segment’s net sales for the year ended December 31, 2022 increased $77 million, or 3%, and Segment Adjusted Operating Income increased $14 million, or 6.0%, from the year ended December 31, 2021.
The Drivetrain & Battery Systems segment’s net sales for the year ended December 31, 2023 increased $613 million, or 16%, and Segment Adjusted Operating Income increased $96 million from the year ended December 31, 2022.
Actual returns on U.S. pension assets were (17.9)% and 3.1% for the years ended December 31, 2022 and 2021, respectively, compared to the expected rate of return assumptions of 4.8% and 5.8%, respectively, for the same years ended.
In determining its pension expense for the year ended December 31, 2023, the Company used long-term rates of return on plan assets ranging from 1.3% to 12% outside of the U.S. and 5% in the U.S. 53 Table of Contents Actual returns on U.S. pension assets were 5.2 % and (17.9)% for the years ended December 31, 2023 and 2022, respectively, compared to the expected rate of return assumptions of 5% and 4.8%, respectively, for the same years ended.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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For information regarding the level of business outside the United States, which is subject to foreign currency exchange rate market risk, refer to Note 24, “Reporting Segments and Related Information,” to the Consolidated Financial Statements in Item 8 of this report. 55 Table of Contents
For information regarding the level of business outside the United States, which is subject to foreign currency exchange rate market risk, refer to Note 24, “Reportable Segments and Related Information,” to the Consolidated Financial Statements in Item 8 of this report. 58 Table of Contents

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