SEC Info - Borgwarner Inc. - ‘10-Q’ for 6/30/20

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		Alternative Formats (Word, et al.) Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 (Unaudited) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 (Unaudited) Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and six months ended June 30, 2020 and 2019 (Unaudited) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019 (Unaudited) Controls and Procedures Exhibits Financial Statements Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Notes to Condensed Consolidated Financial Statements (Unaudited) Part I. Financial Information Part II. Other Information Quantitative and Qualitative Disclosures About Market Risk Risk Factors Signatures Unregistered Sales of Equity Securities and Use of Proceeds
1	1st Page – Filing Submission
"	Part I. Financial Information
"	Item 1. Financial Statements
"	Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 (Unaudited)
"	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019 (Unaudited)
"	Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and six months ended June 30, 2020 and 2019 (Unaudited)
"	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 (Unaudited)
"	Notes to Condensed Consolidated Financial Statements (Unaudited)
"	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
"	Item 3. Quantitative and Qualitative Disclosures About Market Risk
"	Item 4. Controls and Procedures
"	Part II. Other Information
"	Item 1. Legal Proceedings
"	Item 1A. Risk Factors
"	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
"	Item 6. Exhibits
"	Signatures

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

For the quarterly period ended i June 30, 2020

For the transition period from to

Commission file number: i 1-12162

________________________________________________

(Exact name of registrant as specified in its charter)

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

i Common Stock, par value $0.01 per share

i BWA

i New York Stock Exchange

i 1.80% Senior Notes due 2022

i BWA22

i New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

As of July 31, 2020, the registrant had i 207,254,182 shares of voting common stock outstanding.

THREE AND SIX MONTHS ENDED JUNE 30, 2020

CAUTIONARY STATEMENTS FOR FORWARD-LOOKING STATEMENTS

Statements in this Quarterly Report on Form 10-Q (“Form 10-Q”) (including Management's Discussion and Analysis of Financial Condition and Results of Operations) may constitute forward-looking statements as contemplated by the 1995 Private Securities Litigation Reform Act (the “Act”) that are based on management's current outlook, expectations, estimates and projections. Words such as "anticipates," "believes," "continues," "could," "designed," "effect," "estimates," "evaluates," "expects," "forecasts," "goal," "guidance," "initiative," "intends," "may," "outlook," "plans," "potential," "predicts," "project," "pursue," "seek," "should," "target," "when," "will," "would," and variations of such words and similar expressions are intended to identify such forward-looking statements. Further, all statements, other than statements of historical fact contained or incorporated by reference in this Form 10-Q, that we expect or anticipate will or may occur in the future regarding our financial position, business strategy and measures to implement that strategy, including changes to operations, competitive strengths, goals, expansion and growth of our business and operations, plans, references to future success and other such matters, are forward-looking statements. Accounting estimates, such as those described under the heading "Critical Accounting Policies" in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019 (“Form 10-K”), are inherently forward-looking. All forward-looking statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. Forward-looking statements are not guarantees of performance and the Company's actual results may differ materially from those expressed, projected, or implied in or by the forward-looking statements.

You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q. Forward-looking statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed, projected or implied in or by the forward-looking statements. These risks and uncertainties, among others, include: uncertainties regarding the extent and duration of impacts of matters associated with COVID-19/coronavirus ("COVID-19"), including additional production disruptions; the failure to complete our anticipated acquisition of Delphi Technologies PLC (“Delphi Technologies”), as a result of, by way of example, the failure to: satisfy the conditions to the completion of the transaction, obtain the regulatory approvals required for the transaction on the terms expected or on the anticipated schedule or otherwise; our dependence on automotive and truck production, both of which are highly cyclical; our reliance on major original equipment manufacturer ("OEM") customers; commodities availability and pricing; supply disruptions; fluctuations in interest rates and foreign currency exchange rates; availability of credit; our dependence on key management; our dependence on information systems; the uncertainty of the global economic environment; the outcome of existing or any future legal proceedings, including litigation with respect to various claims; future changes in laws and regulations, including, by way of example, tariffs, in the countries in which we operate; and the other risks, including, by way of example, pandemics and quarantines, noted in reports that we file with the Securities and Exchange Commission, including Item 1A, "Risk Factors" in our most recently-filed Form 10-K as updated by Item 1A of this report. We do not undertake any obligation to update or announce publicly any updates to or revisions to any of the forward-looking statements in this Form 10-Q to reflect any change in our expectations or any change in events, conditions, circumstances, or assumptions underlying the statements.

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

believe are immaterial, also may impair our business, operations, liquidity, financial condition and prospects.

Use of Non-GAAP Financial Measures

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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(in millions)	June 30, 2020		December 31, 2019
ASSETS
Cash and cash equivalents	$	i 2,003	$	i 832

Receivables, net	i 1,535		i 1,921
Inventories, net	i 836		i 807
Prepayments and other current assets	i 267		i 276
Total current assets	i 4,641		i 3,836

Property, plant and equipment, net	i 2,781		i 2,925
Investments and other long-term receivables	i 315		i 318
Goodwill	i 1,830		i 1,842
Other intangible assets, net	i 375		i 402
Other non-current assets	i 395		i 379
Total assets	$	i 10,337	$	i 9,702

LIABILITIES AND EQUITY
Notes payable and other short-term debt	$	i 297	$	i 286
Accounts payable and accrued expenses	i 1,654		i 1,977
Income taxes payable	i 19		i 66
Total current liabilities	i 1,970		i 2,329

Long-term debt	i 2,762		i 1,674

Other non-current liabilities:
Retirement-related liabilities	i 299		i 306
Other	i 543		i 549
Total other non-current liabilities	i 842		i 855

Common stock	i 3		i 3
Capital in excess of par value	i 1,115		i 1,145
Retained earnings	i 5,903		i 5,942
Accumulated other comprehensive loss	( i 787)		( i 727)
Common stock held in treasury, at cost	( i 1,623)		( i 1,657)
Total BorgWarner Inc. stockholders’ equity	i 4,611		i 4,706
Noncontrolling interest	i 152		i 138
Total equity	i 4,763		i 4,844
Total liabilities and equity	$	i 10,337	$	i 9,702

See accompanying Notes to Condensed Consolidated Financial Statements.

BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Loss) earnings before income taxes and noncontrolling interest

See accompanying Notes to Condensed Consolidated Financial Statements.

BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

____________________________________

*Net of income taxes.

See accompanying Notes to Condensed Consolidated Financial Statements.

BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended
June 30,

(in millions)

2020

2019

OPERATING

Net earnings

i 53

i 353

Adjustments to reconcile net earnings to net cash flows from operations:

Depreciation and amortization

i 224

i 214

Restructuring expense, net of cash paid

i 45

i 12

Asset impairments

i 26

i —

Stock-based compensation expense

i 16

i 17

Gain on insurance proceeds received for property damage

( i 9)

i —

Deferred income tax (benefit) provision

( i 24)

i 35

Pension settlement loss

i —

i 26

Tax reform adjustments to provision for income taxes

i —

i 16

Equity in affiliates’ earnings, net of dividends received, and other

( i 8)

( i 4)

Net earnings adjusted for non-cash charges to operations

i 323

i 669

Changes in assets and liabilities:

Receivables

i 362

( i 90)

Inventories

( i 40)

Prepayments and other current assets

( i 8)

( i 22)

Accounts payable and accrued expenses

( i 284)

( i 48)

Prepaid taxes and income taxes payable

( i 23)

i 6

Other assets and liabilities

( i 3)

( i 8)

Net cash provided by operating activities

i 327

i 467

INVESTING

Capital expenditures, including tooling outlays

( i 171)

( i 244)

Insurance proceeds received for damage to property, plant and equipment

i 22

i —

Proceeds from settlement of net investment hedges

i 6

i —

Payments for business acquired, net of cash acquired

( i 2)

( i 10)

Payments for investments in equity securities

( i 1)

( i 48)

Proceeds from sale of business, net of cash divested

i —

i 24

Proceeds from asset disposals and other, net

( i 1)

i 1

Net cash used in investing activities

( i 147)

( i 277)

FINANCING

Additions to debt

i 1,143

i 30

Payments for debt issuance costs

( i 10)

i —

Repayments of debt, including current portion

( i 35)

( i 39)

Payments for purchase of treasury stock

i —

( i 100)

Payments for stock-based compensation items

( i 13)

( i 15)

Dividends paid to BorgWarner stockholders

( i 70)

Dividends paid to noncontrolling stockholders

( i 16)

( i 24)

Net cash provided by (used in) financing activities

i 999

( i 218)

Effect of exchange rate changes on cash

( i 8)

( i 1)

Net increase (decrease) in cash and cash equivalents

i 1,171

( i 29)

Cash and cash equivalents at beginning of year

i 832

i 739

Cash and cash equivalents at end of period

i 2,003

i 710

SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid during the period for:

Interest

i 29

i 33

Income taxes, net of refunds

i 83

i 89

See accompanying Notes to Condensed Consolidated Financial Statements.

BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) i Basis of Presentation

i The accompanying unaudited Condensed Consolidated Financial Statements of BorgWarner Inc. and Consolidated Subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes necessary for a comprehensive presentation of financial position, results of operations and cash flow activity required by GAAP for complete financial statements. In the opinion of management, all normal recurring adjustments necessary for a fair statement of results have been included. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. The balance sheet as of December 31, 2019 was derived from the audited financial statements as of that date. For further information, refer to the Consolidated Financial Statements and Footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

Certain prior period amounts have been reclassified to conform to current period presentation. Management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and accompanying notes, as well as the amounts of revenues and expenses reported during the periods covered by those financial statements and accompanying notes. Actual results could differ from these estimates.

A novel strain of COVID-19/coronavirus ("COVID-19") was first identified in Wuhan, China in December 2019 and subsequently declared a pandemic by the World Health Organization on March 11, 2020. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions, closing of borders and business slowdowns or shutdowns in affected areas. As a result, COVID-19 has impacted the Company's business globally. Many OEMs temporarily suspended certain manufacturing operations, particularly in North America and Europe, due to market conditions and matters associated with COVID-19. Additionally, as a global manufacturer, the Company has responded to shelter-in-place and similar government orders in various locations around the world, including throughout the United States and Europe, which has resulted in the temporary closures of or reduced operations at the Company's manufacturing and assembly facilities.

The Company assessed certain accounting matters that require consideration of forecasted financial information, including, but not limited to, its allowance for credit losses, the carrying value of the Company's goodwill, intangible assets, and other long-lived assets and valuation allowances on deferred tax assets with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of June 30, 2020 and through the date of this report. As a result of these assessments, there were no impairments or material increases in credit allowances or valuation allowances that impacted the Company's Condensed Consolidated Financial Statements as of and for the six months ended June 30, 2020. Although the Company's operations have resumed, partially or in full at its various facilities, the Company's future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Consolidated Financial Statements in future reporting periods.

(2) i New Accounting Pronouncements

Recently Adopted Accounting Standards

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-4, "Reference Rate Reform (Topic 848)." It provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. These optional expedients and exceptions allow a company to choose not to apply certain modification accounting requirements under GAAP to contracts affected by reference rate reform. A company that makes this election would present and account for a modified contract as a continuation of the existing contract. It also enables a company to continue to apply hedge accounting for hedging relationships in which the critical terms change due to rate reform. This guidance was effective March 12, 2020 and provides relief to contract modifications through December 31, 2022. The Company adopted this guidance on March 12, 2020, and there was no impact to the Condensed Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)." It requires implementation costs incurred by customers in cloud computing arrangements to be deferred and recognized over the term of the arrangement, if those costs would be capitalized by the customer in a software licensing arrangement under the internal-use software guidance (Subtopic 350-40). This guidance was effective for interim and annual periods beginning after December 15, 2019. The Company adopted this guidance as of January 1, 2020, and the impact on its Condensed Consolidated Financial Statements was immaterial.

In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820)." It removes disclosure requirements on fair value measurements including the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. It also amends and clarifies certain disclosures and adds new disclosure requirements including the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This guidance was effective for interim and annual periods beginning after December 15, 2019. The Company adopted this guidance as of January 1, 2020, and there was no impact to the Condensed Consolidated Financial Statements.

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326)." It replaces the current incurred loss impairment method with a new method that reflects expected credit losses. Under this new model an entity would recognize an impairment allowance equal to its current estimate of credit losses on financial assets measured at amortized cost. This guidance was effective for annual periods beginning after December 15, 2019. The Company adopted this guidance as of January 1, 2020, and the impact on its Condensed Consolidated Financial Statements was immaterial.

Accounting Standards Not Yet Adopted

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

December 15, 2020, and early adoption is permitted. The Company is still evaluating the impact of this guidance on its Condensed Consolidated Financial Statements.

In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes." It removes certain exceptions to the general principles in Accounting Standards Codification ("ASC") Topic 740 and improves consistent application of and simplifies GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance. This guidance is effective for interim and annual reporting periods beginning after December 15, 2020. The Company is currently evaluating the impact of this guidance on its Condensed Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20)." It (i) requires the removal of disclosures that are no longer considered cost beneficial; (ii) clarifies specific requirements of certain disclosures; and (iii) adds new disclosure requirements, including the weighted average interest crediting rates for cash balance plans and other plans with promised interest crediting rates, and reasons for significant gains and losses related to changes in the benefit obligation. This guidance is effective for annual periods beginning after December 15, 2020, and early adoption is permitted. The Company does not expect this guidance to have a material impact and it will include enhanced disclosures in the Consolidated Financial Statements upon adoption.

(3) i Revenue from Contracts with Customers

The Company manufactures and sells products, primarily to OEMs of light vehicles and, to a lesser extent, to other OEMs of commercial vehicles, off-highway vehicles, certain tier one vehicle systems suppliers and into the aftermarket. Although the Company may enter into long-term supply arrangements with its major customers, the prices and volumes are not fixed over the life of the arrangements, and a contract does not exist for purposes of applying ASC Topic 606, "Revenue from Contracts with Customers," until volumes are contractually known. Revenue is recognized when performance obligations under the terms of a contract are satisfied, which generally occurs with the transfer of control of the Company's products. For most of the Company's products, transfer of control occurs upon shipment or delivery; however, a limited number of the Company's customer arrangements for highly customized products with no alternative use provide the Company with the right to payment during the production process. As a result, for these limited arrangements, revenue is recognized as goods are produced and control transfers to the customer using the input cost-to-cost method. The Company recorded a contract asset of $ i 8 million and $ i 10 million at June 30, 2020 and December 31, 2019, respectively, for these arrangements. These amounts are reflected in Prepayments and other current assets in the Company's Condensed Consolidated Balance Sheets.

Revenue is measured at the amount of consideration the Company expects to receive in exchange for transferring the goods. The Company has a limited number of arrangements with customers where the price paid by the customer is dependent on the volume of product purchased over the term of the arrangement. In other limited arrangements, the Company will provide a rebate to customers based on the volume of products purchased during the course of the arrangement. The Company estimates the volumes to be sold over the term of the arrangement and recognizes revenue based on the estimated amount of consideration to be received from these arrangements.

The Company’s payment terms with customers are customary and vary by customer and geography but typically range from i 30 to 90 days. The Company has evaluated the terms of its arrangements and determined that they do not contain significant financing components. The Company provides warranties on some of its products. Provisions for estimated expenses related to product warranty are made at the time products are sold. Refer to Note 9, "Product Warranty," to the Condensed Consolidated Financial Statements for more information. Shipping and handling fees billed to customers are included in sales, while costs of shipping and handling are included in cost of sales. The Company has elected to apply the

accounting policy election available under ASC Topic 606 and accounts for shipping and handling activities as a fulfillment cost.

In limited instances, certain customers have provided payments in advance of receiving related products, typically at the onset of an arrangement prior to the beginning of production. These contract liabilities are reflected as Accounts payable and accrued expenses and Other non-current liabilities in the Condensed Consolidated Balance Sheets and were $ i 12 million and $ i 6 million at June 30, 2020 and $ i 10 million and $ i 12 million at December 31, 2019, respectively. These amounts are reflected as revenue over the term of the arrangement (typically i 3 to i 7 years) as the underlying products are shipped.

The Company continually seeks business development opportunities and at times provides customer incentives for new program awards. The Company evaluates the underlying economics of each amount of consideration payable to a customer to determine the proper accounting by understanding the reasons for the payment, the rights and obligations resulting from the payment, the nature of the promise in the contract, and other relevant facts and circumstances. When the Company determines that the payments are incremental and incurred only if the new business is obtained and expects to recover these amounts from the customer over the term of the new business arrangement, the Company capitalizes these amounts. The Company recognizes a reduction to revenue, when the products that any such payments are related to, are transferred to the customer based on the total amount of products expected to be sold over the term of the arrangement (generally i 3 to i 7 years). The Company evaluates the amounts capitalized each period end for recoverability and expenses any amounts that are no longer expected to be recovered over the term of the business arrangement. The Company had $ i 38 million and $ i 37 million recorded in Prepayments and other current assets in the Condensed Consolidated Balance Sheets at June 30, 2020 and December 31, 2019, respectively. The Company had $ i 171 million and $ i 180 million recorded in Other non-current assets in the Condensed Consolidated Balance Sheets at June 30, 2020 and December 31, 2019, respectively.

The Company's business is comprised of i two reporting segments: Engine and Drivetrain. Refer to Note 20, "Reporting Segments," to the Condensed Consolidated Financial Statements for more information. i The following table represents a disaggregation of revenue from contracts with customers by segment and region:

Three Months Ended June 30,

2020

2019

(In millions)

Engine

Drivetrain

Total

Engine

Drivetrain

Total

North America

i 167

i 190

i 357

i 407

i 461

i 868

Europe

i 338

i 90

i 428

i 760

i 211

i 971

Asia

i 306

i 324

i 630

i 356

i 317

i 673

Other

i 8

i 3

i 11

i 30

i 9

i 39

Total

i 819

i 607

i 1,426

i 1,553

i 998

i 2,551

Six Months Ended June 30,

2020

2019

(In millions)

Engine

Drivetrain

Total

Engine

Drivetrain

Total

North America

i 554

i 613

i 1,167

i 819

i 906

i 1,725

Europe

i 1,049

i 281

i 1,330

i 1,561

i 438

i 1,999

Asia

i 597

i 566

i 1,163

i 696

i 620

i 1,316

Other

i 38

i 7

i 45

i 61

i 16

i 77

Total

i 2,238

i 1,467

i 3,705

i 3,137

i 1,980

i 5,117

(4) i Research and Development Expenditures

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

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

The Company has contracts with several customers at the Company's various R&D locations. None of the Company's R&D-related customer reimbursements under these contracts exceeded i 5% of net R&D expenditures in any of the periods presented.

(5) i Other Expense, Net

Items included in Other expense, net consist of:

Three Months Ended June 30,

Six Months Ended June 30,

(in millions)

2020

2019

2020

2019

Restructuring expense

i 37

i 13

i 52

i 27

Merger, acquisition and divestiture expense

i 21

i 5

i 42

i 6

Asset impairments

i 17

i —

i 26

i —

Net gain on insurance proceeds for property damage

( i 6)

i —

( i i 6 / )

i —

Unfavorable arbitration loss

i —

i 14

Other income

( i 1)

( i 2)

( i 1)

( i 2)

Other expense, net

i 68

i 16

i 113

i 45

During the three and six months ended June 30, 2020, the Company recorded restructuring expense of $ i 37 million and $ i 52 million, respectively, primarily related to actions to reduce structural costs. During the three and six months ended June 30, 2019, the Company recorded restructuring expense of $ i 13 million and $ i 27 million, respectively. This restructuring expense primarily related to Drivetrain and Engine segment actions designed to improve future profitability and competitiveness. Refer to Note 18, "Restructuring," to the Condensed Consolidated Financial Statements for more information.

During the three and six months ended June 30, 2020, the Company recorded merger, acquisition and divestiture expense of $ i 21 million and $ i 42 million, respectively, primarily related to professional fees associated with the Company's anticipated acquisition of Delphi Technologies PLC ("Delphi Technologies"). During the three and six months ended June 30, 2019, the Company recorded merger, acquisition and divestiture expense of $ i 5 million and $ i 6 million, respectively, primarily related to its review of strategic acquisition targets, including its i 20% equity interest in Romeo Systems, Inc. ("Romeo") and divestiture activities for non-core pipe and thermostat product lines.

During the three and six months ended June 30, 2020, the Company recorded asset impairment costs of $ i i 9 / million in the Engine segment and $ i i 8 / million in the Drivetrain segment, related to the write down of property, plant and equipment associated with the recently announced closures of i two European facilities. During the three months ended March 31, 2020, the Company also recorded $ i 9 million of asset impairment cost to record its investment in Romeo at its fair value of $ i 41 million. Refer to Note 21, "Recent Transactions and Events," to the Condensed Consolidated Financial Statements for more information.

During the three and six months ended June 30, 2020, the Company recorded a $ i i 6 / million net gain from insurance recovery proceeds from damages created by a tornado that struck the Company's facility in Seneca, South Carolina (the "Seneca Plant"). Refer to Note 21, "Recent Transactions and Events," to the Condensed Consolidated Financial Statements for more information.

During the six months ended June 30, 2019, the Company recorded $ i 14 million of expense related to the receipt of a final unfavorable arbitration decision associated with the resolution of a matter related to a previous acquisition.

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

The Company's effective tax rate for the six months ended June 30, 2020 was i 44.6%. This rate was unfavorably impacted by $ i 94 million of restructuring expenses and merger, acquisition and divestiture expenses that were largely non-deductible for tax purposes, resulting in only $ i 9 million of tax benefit being recognized. This rate was further unfavorably impacted by $ i 26 million of asset impairment costs for which no tax benefit was recognized as full valuation allowances were recorded against the corresponding deferred tax assets. The Company also recorded reductions in income tax expense of $ i 10 million for other one-time adjustments primarily related to tax law changes in India that were enacted during the first three months of 2020 and the release of certain unrecognized tax benefits due to the closure of an audit.

The Company's effective tax rate for three months ended June 30, 2020 was i 6.0%. The rate includes restructuring expenses, merger, acquisition and divestiture expenses, and asset impairment costs that are largely non-deductible for tax purposes. During the three months ended June 30, 2020, the Company recorded $ i 75 million of such expenses for which only a $ i 5 million tax benefit was recognized.

The Company's effective tax rate for the six months ended June 30, 2019 was i 31.7%. This rate includes reductions of income tax expense of $ i 7 million related to restructuring expense, $ i 6 million related to other postretirement expense, and $ i 5 million for other one-time tax adjustments. This rate also includes an increase in income tax expense of $ i 22 million due to the U.S. Department of the Treasury's issuance of the final regulations during the first three months of 2019 related to the calculation of the one-time transition tax associated with the Tax Cuts and Jobs Act of 2017.

The annual effective tax rates differ from the U.S. statutory rate primarily due to foreign rates which differ from those in the U.S., U.S. taxes on foreign earnings, the realization of certain business tax credits, including foreign tax credits, and favorable permanent differences between book and tax treatment for certain items, including equity in affiliates' earnings.

(7) i Inventories, Net

Certain U.S. inventories are measured by the last-in, first-out (“LIFO”) method at the lower of cost or market, while other U.S. and foreign operations use the first-in, first-out (“FIFO”) or average-cost methods at the lower of cost and net realizable value. i Inventories, net consisted of the following:

(8) i Property, Plant and Equipment, Net

As of June 30, 2020 and December 31, 2019, accounts payable of $ i 60 million and $ i 102 million, respectively, were related to property, plant and equipment purchases.

Interest costs capitalized for the six months ended June 30, 2020 and 2019 were $ i 5 million and $ i 9 million, respectively.

(9) i Product Warranty

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

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

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

(10) i Notes Payable and Long-Term Debt

As of June 30, 2020 and December 31, 2019, the Company had short-term and long-term debt outstanding as follows:

i 4.625% Senior notes due 09/15/20 ($ i 250 million par value)

i 1.800% Senior notes due 11/07/22 (€ i 500 million par value)

i 3.375% Senior notes due 03/15/25 ($ i 500 million par value)

i 2.650% Senior notes due 07/01/27 ($ i 1,100 million par value)

i 7.125% Senior notes due 02/15/29 ($ i 121 million par value)

i 4.375% Senior notes due 03/15/45 ($ i 500 million par value)

The Company may utilize uncommitted lines of credit for short-term working capital requirements. As of June 30, 2020 and December 31, 2019, the Company had $ i 45 million and $ i 34 million, respectively, in borrowings under these facilities, which are classified in Notes payable and short-term debt on the Condensed Consolidated Balance Sheets.

The weighted average interest rate on short-term borrowings outstanding as of June 30, 2020 and December 31, 2019 was i 2.6% and i 2.5%, respectively. The weighted average interest rate on all borrowings outstanding, including the effects of outstanding swaps, as of June 30, 2020 and December 31, 2019 was i 2.5% and i 2.8%.

On June 19, 2020, in anticipation of the acquisition of Delphi Technologies and to refinance the Company's $ i 250 million i 4.625% senior notes due in September 2020, the Company issued $ i 1.1 billion in i 2.650% senior notes due July 2027. Interest is payable semi-annually in arrears on January 1 and July 1 of each year. These senior notes are not guaranteed by any of the Company’s subsidiaries. This issuance was not conditioned upon the consummation of this acquisition; however, if the acquisition is not consummated on or prior to April 28, 2021 or the transaction agreement is cancelled, then the Company will be required to redeem and repay the senior notes at i 101% of the principal amount, including accrued interest.

On April 29, 2020, the Company entered into a $ i 750 million delayed-draw term loan which was subsequently cancelled on June 19, 2020 in accordance with its terms, following the Company's issuance of the $ i 1.1 billion in senior notes.

On March 13, 2020, the Company amended its multi-currency revolving credit facility by increasing the size of the facility from $ i 1.2 billion to $ i 1.5 billion and by extending the maturity until March 13, 2025. The multi-currency revolving credit agreement provides for the facility to automatically increase to $ i 2.0 billion upon the closing of the anticipated acquisition of Delphi Technologies. Additionally, the agreement allows the Company the ability to increase the facility by $ i 1.0 billion with bank group approval. The credit agreement contains customary events of default and one key financial covenant which is a debt to Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") ratio. The Company was in compliance with the financial covenant at June 30, 2020. At June 30, 2020 and December 31, 2019, the Company had no outstanding borrowings under this facility.

The Company's commercial paper program allows the Company to issue short-term, unsecured commercial paper notes. Under this program, the Company may issue notes from time to time and use the proceeds for general corporate purposes. The Company had no outstanding borrowings under this program as of June 30, 2020 and December 31, 2019.

The total current combined borrowing capacity under the multi-currency revolving credit facility and commercial paper program cannot exceed $ i 1.5 billion.

As of June 30, 2020 and December 31, 2019, the estimated fair values of the Company’s senior unsecured notes totaled $ i 3,145 million and $ i 2,025 million, respectively. The estimated fair values were $ i 138 million higher than their carrying value at June 30, 2020 and $ i 106 million higher than their carrying value at December 31, 2019. Fair market values of the senior unsecured notes are developed using observable values for similar debt instruments, which are considered Level 2 inputs as defined by ASC Topic 820. The carrying values of the Company's multi-currency revolving credit facility and commercial paper program approximates fair value. The fair value estimates do not necessarily reflect the values the Company could realize in the current markets.

The Company had outstanding letters of credit of $ i i 28 / million at June 30, 2020 and December 31, 2019. The letters of credit typically act as guarantees of payment to certain third parties in accordance with specified terms and conditions.

(11) i Fair Value Measurements

ASC Topic 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC Topic 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair values as follows:

Level 1:Observable inputs such as quoted prices for identical assets or liabilities in active markets;

Level 2:Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3:Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value are based on one or more of the following three valuation techniques noted in ASC Topic 820:

A.Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets or liabilities, such as a business.

B.Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost).

C.Income approach: Techniques to convert future amounts to a single present amount based upon market expectations (including present value techniques, option-pricing and excess earnings models).

The following tables classify assets and liabilities measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019:

(12) i Financial Instruments

The Company’s financial instruments include cash and cash equivalents, marketable securities and accounts receivable. Due to the short-term nature of these instruments, their book value approximates their fair value. The Company’s financial instruments may include long-term debt, interest rate and cross-currency swaps and options, commodity derivative contracts and foreign currency derivative contracts. All derivative contracts are placed with counterparties that have an S&P, or equivalent, investment grade credit rating at the time of the contracts’ placement. At June 30, 2020 and December 31, 2019, the Company had no derivative contracts that contained credit risk-related contingent features.

The Company uses certain commodity derivative contracts to protect against commodity price changes related to forecasted raw material and component purchases. The Company primarily utilizes forward and option contracts, which are designated as cash flow hedges. i At June 30, 2020 and December 31, 2019, the following commodity derivative contracts were outstanding:

Commodity derivative contracts

Commodity

Volume hedged June 30, 2020

Volume hedged December 31, 2019

Units of measure

Duration

Copper

i 95

i 203

Metric Tons

Dec - 20

The Company manages its interest rate risk by balancing its exposure to fixed and variable rates while attempting to optimize its interest costs. The Company selectively uses interest rate swaps and options to reduce market value risk associated with changes in interest rates (fair value hedges and cash flow hedges). At December 31, 2019, the Company had no outstanding interest rate swaps. On February 19, 2020, the Company executed a € i 750 million notional interest rate swaption contract that expired on June 30, 2020, and was designated as a cash flow hedge to mitigate against interest rate fluctuations on anticipated debt issuance. The premium cost for this contract was immaterial.

The Company uses foreign currency forward and option contracts to protect against exchange rate movements for forecasted cash flows, including capital expenditures, purchases, operating expenses or sales transactions designated in currencies other than the functional currency of the operating unit. In addition, the Company uses foreign currency forward contracts to hedge exposure associated with its net investment in certain foreign operations (net investment hedges). The Company has also designated its Euro-denominated debt as a net investment hedge of the Company's investment in European subsidiaries. Foreign currency derivative contracts require the Company, at a future date, to either buy or sell foreign currency in exchange for the operating units’ local currency. i At June 30, 2020 and December 31, 2019, the following foreign currency derivative contracts were outstanding:

The Company selectively uses cross-currency swaps and certain foreign currency-denominated debt to hedge the foreign currency exposure associated with its net investment in certain foreign operations (net investment hedges). i At June 30, 2020 and December 31, 2019, the following cross-currency swap contracts were outstanding:

Cross-Currency Swaps

(in millions)

June 30, 2020

December 31, 2019

Duration

US dollar to Euro:

Fixed receiving notional

i 1,100

i —

Jul - 27

Fixed paying notional

€

i 976

€

i —

Jul - 27

US dollar to Euro:

Fixed receiving notional

i 500

Mar - 25

Fixed paying notional

€

i 450

€

i 450

Mar - 25

US dollar to Japanese yen:

Fixed receiving notional

i 100

Feb - 23

Fixed paying notional

i 10,978

Feb - 23

At June 30, 2020 and December 31, 2019, the following amounts were recorded in the Condensed Consolidated Balance Sheets as being payable to or receivable from counterparties under ASC Topic 815:

(in millions)

Assets

Liabilities

Derivatives designated as hedging instruments Under 815:

Location

Location

Foreign currency

Prepayments and other current assets

i 1

i —

Accounts payable and accrued expenses

i 2

i 1

Net investment hedges

Other non-current assets

i 23

i 3

Other non-current liabilities

i 11

i 8

Derivatives not designated as hedging instruments

Foreign currency

Prepayments and other current assets

i 1

i —

Accounts payable and accrued expenses

i —

Effectiveness for cash flow hedges is assessed at the inception of the hedging relationship and quarterly, thereafter. Gains and losses arising from these contracts that are included in the assessment of effectiveness are deferred into Accumulated other comprehensive (income) loss ("AOCI") and reclassified into income as the underlying operating transactions are recognized. These realized gains or losses offset the hedged transaction and are recorded on the same line in the statement of operations. The initial value of any component excluded from the assessment of effectiveness will be recognized in income using a systematic and rational method over the life of the hedging instrument. Any difference between the change in fair value of the excluded component and amounts recognized in income under that systematic and rational method will be recognized in AOCI.

Effectiveness for net investment hedges is assessed at the inception of the hedging relationship and quarterly, thereafter. Gains and losses arising from these contracts that are included in the assessment of effectiveness are deferred into foreign currency translation adjustments and only released when the subsidiary being hedged is sold or substantially liquidated. The initial value of any component excluded from the assessment of effectiveness will be recognized in income using a systematic and rational method over the life of the hedging instrument. Any difference between the change in fair value of the excluded component and amounts recognized in income under that systematic and rational method will be recognized in AOCI.

The table below shows deferred gains (losses) reported in AOCI as well as the amount expected to be reclassified to income in one year or less. The amount expected to be reclassified to income in one year or less assumes no change in the current relationship of the hedged item at June 30, 2020 market rates.

(in millions)

Deferred gain (loss) in AOCI at

Gain (loss) expected to be reclassified to income in one year or less

Contract Type

June 30, 2020

December 31, 2019

Foreign currency

( i 1)

i —

( i 1)

Net investment hedges:

Foreign currency

i 6

i 5

i —

Cross-currency swaps

i 34

i 16

i —

Foreign currency-denominated debt

( i 19)

( i 17)

i —

Total

i 20

i 4

( i 1)

Derivative instruments designated as cash flow hedge instruments as defined by ASC Topic 815 held during the period resulted in the following gains and losses recorded in income:

Three Months Ended June 30, 2020

(in millions)

Net sales

Cost of sales

Selling, general and administrative expenses

Other comprehensive income (loss)

Total amounts of earnings and other comprehensive income(loss) line items in which the effects of cash flow hedges are recorded

i 1,426

i 1,252

i 184

i 14

Gain (loss) on cash flow hedging relationships:

Foreign currency

Gain (loss) recognized in other comprehensive income (loss)

i 1

Gain (loss) reclassified from AOCI to income

i —

( i 1)

Six Months Ended June 30, 2020

(in millions)

Net sales

Cost of sales

Selling, general and administrative expenses

Other comprehensive income(loss)

Total amounts of earnings and other comprehensive income(loss) line items in which the effects of cash flow hedges are recorded

i 3,705

i 3,084

i 397

( i 60)

Gain (loss) on cash flow hedging relationships:

Foreign currency

Gain (loss) recognized in other comprehensive income (loss)

( i 2)

Gain (loss) reclassified from AOCI to income

i —

( i 1)

Three Months Ended June 30, 2019

(in millions)

Net sales

Cost of sales

Selling, general and administrative expenses

Other comprehensive income (loss)

Total amounts of earnings and other comprehensive income(loss) line items in which the effects of cash flow hedges are recorded

i 2,551

i 2,038

i 212

i 5

Gain (loss) on cash flow hedging relationships:

Foreign currency

Gain (loss) recognized in other comprehensive income (loss)

( i 1)

Gain (loss) reclassified from AOCI to income

( i 1)

i 1

i —

Six Months Ended June 30, 2019

(in millions)

Net sales

Cost of sales

Selling, general and administrative expenses

Other comprehensive income(loss)

Total amounts of earnings and other comprehensive income(loss) line items in which the effects of cash flow hedges are recorded

i 5,117

i 4,085

i 438

i 4

Gain (loss) on cash flow hedging relationships:

Foreign currency

Gain (loss) recognized in other comprehensive income (loss)

( i 1)

Gain (loss) reclassified from AOCI to income

( i 2)

i 1

The gains or losses recorded in income related to components excluded from the assessment of effectiveness for derivative instruments designated as cash flow hedges were immaterial for the periods presented.

Gains and (losses) on derivative instruments designated as net investment hedges were recognized in other comprehensive income (loss) during the periods presented below.


(in millions)	Three Months Ended June 30,						Six Months Ended June 30,
Net investment hedges	2020		2019		2020		2019
Foreign currency	$	i —	$	i —	$	i 1	$	i —
Cross-currency swaps	$	( i 17)	$	( i 4)	$	i 18	$	i 5
Foreign currency-denominated debt	$	( i 10)	$	( i 7)	$	( i 2)	$	i 5

Derivatives designated as net investment hedge instruments as defined by ASC Topic 815 held during the period resulted in the following gains recorded in Interest expense and finance charges on components excluded from the assessment of effectiveness:


(in millions)	Three Months Ended June 30,						Six Months Ended June 30,
Net investment hedges	2020		2019		2020		2019

Cross-currency swaps	$	i 3	$	i 2	$	i 7	$	i 5

There were no gains or losses recorded in income related to components excluded from the assessment of effectiveness for foreign currency-denominated debt designated as net investment hedges. There were no gains and losses reclassified from AOCI for net investment hedges during the periods presented.

Derivatives not designated as hedging instruments are used to hedge remeasurement exposures of monetary assets and liabilities denominated in currencies other than the operating units' functional currency. These derivatives resulted in the following gains and (losses) recorded in income:


(in millions)		Three Months Ended June 30,						Six Months Ended June 30,
Contract Type	Location	2020		2019		2020		2019
Foreign Currency	Selling, general and administrative expenses	$	i —	$	( i 1)	$	i 3	$	( i 3)

(13) i Retirement Benefit Plans

The Company has a number of defined benefit pension plans and other postretirement benefit plans covering eligible salaried and hourly employees and their dependents. The estimated contributions to the Company's defined benefit pension plans for 2020 range from $ i 15 million to $ i 20 million, of which $ i 10 million has been contributed through the first six months of the year. The other postretirement benefit plans, which provide medical and life insurance benefits, are funded on a pay-as-you-go basis.

During the three months ended June 30, 2019, the Company settled approximately $ i 50 million of its U.S. pension projected benefit obligation by liquidating approximately $ i 50 million in plan assets through a lump-sum disbursement made to an insurance company. Pursuant to this agreement, the insurance company has unconditionally and irrevocably guaranteed all future payments to certain participants that were receiving payments from the U.S. pension plan. The insurance company has assumed all investment risk associated with the assets that were delivered as part of this transaction. Additionally, during the three months ended June 30, 2019, the Company discharged certain U.S. pension plan obligations by making lump-sum payments of $ i 13 million to former employees of the Company. As a result, the Company settled $ i 63 million of U.S. pension projected benefit obligation by liquidating pension plan assets and recorded a non-cash settlement loss of $ i 26 million related to the accelerated recognition of unamortized losses.

The components of net periodic benefit cost recorded in the Condensed Consolidated Statements of Operations are as follows:

Pension benefits


	June 30,		December 31,
(in millions)	2020		2019
Land, land use rights and buildings	$	i 863	$	i 860
Machinery and equipment	i 3,059		i 2,971
Construction in progress	i 335		i 360
Finance lease assets	i 1		i 1
Total property, plant and equipment, gross	i 4,258		i 4,192
Less: accumulated depreciation	( i 1,707)		( i 1,513)
Property, plant and equipment, net, excluding tooling	i 2,551		i 2,679
Tooling, net of amortization	i 230		i 246
Property, plant and equipment, net	$	i 2,781	$	i 2,925


	Shares subject to restriction (thousands)	Weighted average grant date fair value
Nonvested at December 31, 2019	i 1,664	$	i 44.26
Granted	i 766	$	i 34.05
Vested	( i 466)	$	i 46.00
Forfeited	( i 9)	$	i 42.23
Nonvested at March 31, 2020	i 1,955	$	i 39.87
Granted	i 31	$	i 29.67
Vested	( i 75)	$	i 41.19
Forfeited	( i 24)	$	i 40.49
Nonvested at June 30, 2020	i 1,887	$	i 39.65


	Three Months Ended June 30,
	2020		2019
Non-comparable items:
Restructuring expense	$	(0.15)	$	(0.05)
Merger, acquisition and divestiture expense	(0.10)		(0.02)
Asset impairments	(0.08)		—
Net gain on insurance proceeds for property damage	0.02		—
Delayed-draw term loan cancellation	(0.01)		—
Pension settlement loss	—		(0.10)
Tax adjustments	(0.01)		—
Total impact of non-comparable items per share — diluted	$	(0.33)	$	(0.17)


	Six Months Ended June 30,
	2020		2019
Non-comparable items:
Restructuring expense	$	(0.21)	$	(0.10)
Merger, acquisition and divestiture expense	(0.20)		(0.02)
Asset impairments	(0.12)		—
Net gain on insurance proceeds for property damage	0.02		—
Delayed-draw term loan cancellation	(0.01)		—
Pension settlement loss	—		(0.10)
Unfavorable arbitration loss	—		(0.07)
Officer stock awards modification	—		(0.01)
Tax adjustments	0.05		(0.09)
Total impact of non-comparable items per share - diluted	$	(0.47)	$	(0.39)


(in millions, except for percentages)	Three months ended June 30, 2020						Six months ended June 30, 2020
Euro (including impacts from net investment hedges)	(2)	%	$	9	—	%	$	14
Korean won	(2)	%	$	7	4	%	$	(14)
Chinese renminbi	—	%	$	2	1	%	$	(17)
British pound	—	%	$	(2)	6	%	$	(17)
Brazilian real	5	%	$	(3)	26	%	$	(22)

Borgwarner Inc. – ‘10-Q’ for 6/30/20

On: Wednesday, 8/5/20, at 12:23pm ET · For: 6/30/20 · Accession #: 908255-20-73 · File #: 1-12162

Previous ‘10-Q’: ‘10-Q’ on 5/6/20 for 3/31/20 · Next: ‘10-Q’ on 10/29/20 for 9/30/20 · Latest: ‘10-Q’ on 11/2/23 for 9/30/23 · 4 References:

Quarterly Report — Form 10-Q
Filing Table of Contents

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i ☑			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


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


			Page No.
PART I. Financial Information

Item 1. Financial Statements

Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 (Unaudited)			1

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019 (Unaudited)			2

Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and six months ended June 30, 2020 and 2019 (Unaudited)			3

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 (Unaudited)			4

Notes to Condensed Consolidated Financial Statements (Unaudited)			5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			31

Item 3. Quantitative and Qualitative Disclosures About Market Risk			40

Item 4. Controls and Procedures			42

PART II. Other Information

Item 1. Legal Proceedings			43

Item 1A. Risk Factors			43

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			44

Item 6. Exhibits			45

SIGNATURES			46


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)
Month Ended April 30, 2020
Common Stock Repurchase Program	—	$	—	—	$	1,000
Employee transactions	19,341	$	22.65	—
Month Ended May 31, 2020
Common Stock Repurchase Program	—	$	—	—	$	1,000
Employee transactions	—	$	—	—
Month Ended June 30, 2020
Common Stock Repurchase Program	—	$	—	—	$	1,000
Employee transactions	1,432	$	35.22	—




			Exhibit 1.1						Underwriting Agreement, dated June 16, 2020, between BorgWarner Inc. and BofA Securities, Inc., Citigroup Global Markets Inc. and Deutsche Bank Securities Inc., as Representatives of the several underwriters named therein (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed June 19, 2020).

			Exhibit 2.1						Amendment and Consent Agreement, dated May 6, 2020, by and between BorgWarner Inc. and Delphi Technologies PLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed May 6, 2020).

			Exhibit 4.1						Sixth Supplemental Indenture, dated June 19, 2020, between BorgWarner Inc. and Deutsche Bank Trust Company Americas, as trustee (including the form of Global Note attached as Exhibit A to the Sixth Supplemental Indenture) (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed June 19, 2020).

			Exhibit 10.1						Form of 2020 BorgWarner Inc. 2018 Stock Incentive Plan Restricted Stock Agreement for Non-Employee Directors.*

			Exhibit 10.2						Revised Offer Letter, dated as of June 7, 2020, between BorgWarner Inc. and Daniel R. Etue.*

			Exhibit 31.1						Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer.*

			Exhibit 31.2						Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer.*

			Exhibit 32.1						Section 1350 Certifications.*



			Exhibit 101.SCH						XBRL Taxonomy Extension Schema Document.*

			Exhibit 101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document.*

			Exhibit 101.LAB						XBRL Taxonomy Extension Label Linkbase Document.*

			Exhibit 101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document.*

			Exhibit 101.DEF						XBRL Taxonomy Extension Definition Linkbase Document.*

			Exhibit 104.1						The cover page from this Quarterly Report on Form 10-Q, formatted as Inline XBRL.*

This ‘10-Q’ Filing	Date	Other Filings

	3/13/25
	12/31/22
	4/28/21	4, 8-K, DEF 14A
	12/31/20	10-K, 11-K, 11-K/A, SD
	12/15/20
	9/15/20	4
Filed on:	8/5/20	8-K
	8/1/20
	7/31/20	8-K
	7/29/20	8-K
For Period end:	6/30/20
	6/19/20	8-K, DEFA14A
	6/16/20	424B5, 8-K, DEFA14A, FWP
	6/15/20
	5/31/20
	5/6/20	10-Q, 8-K, DEFA14A
	4/30/20	8-K
	4/29/20	4, 8-K, DEF 14A
	4/13/20	8-K
	3/31/20	10-Q, 8-K, DEFA14A
	3/30/20	8-K
	3/16/20	8-K
	3/13/20
	3/12/20	DEFA14A
	3/11/20	8-K
	2/19/20
	2/12/20	4, SC 13G, SC 13G/A
	1/28/20	8-K, DEFA14A
	1/1/20
	12/31/19	10-K, 11-K, SD
	12/15/19
	10/30/19	8-K
	6/30/19	10-Q
	3/31/19	10-Q
	1/2/19
	12/31/18	10-K, 11-K, SD
	7/31/18	4
	4/25/18	4, 4/A, 8-K, DEF 14A
	9/7/17
		List all Filings

Borgwarner Inc. – ‘10-Q’ for 6/30/20

On: Wednesday, 8/5/20, at 12:23pm ET · For: 6/30/20 · Accession #: 908255-20-73 · File #: 1-12162

Quarterly Report — Form 10-QFiling Table of Contents

‘10-Q’ — Quarterly ReportDocument Table of Contents

This is an HTML Document rendered as filed. [ Alternative Formats ]

Dates Referenced Herein and Documents Incorporated by Reference

4 Subsequent Filings that Reference this Filing

Quarterly Report — Form 10-Q
Filing Table of Contents

‘10-Q’ — Quarterly Report
Document Table of Contents