XML 18 R8.htm IDEA: XBRL DOCUMENT
v3.21.2

ACQUISITIONS | 6 Months Ended
--- | ---
Jun. 30, 2021
Business Combination and Asset Acquisition [Abstract] |
ACQUISITIONS | ACQUISITIONS AKASOL AG On June 4, 2021, the Company completed its voluntary public takeover offer for shares of AKASOL AG (“AKASOL”), resulting in ownership of 89% of AKASOL’s outstanding shares. The Company paid approximately €648 million ($788 million) to settle the offer from current cash balances, which included proceeds received from its previously announced public offering of 1.00% Senior Notes due 2031 completed on May 19, 2021. Refer to Note 13, “Notes Payable And Debt,” to the Condensed Consolidated Financial Statements for more information. Following the settlement of the offer, AKASOL became a consolidated majority-owned subsidiary of the Company. Subsequent to the completion of the voluntary public takeover offer, and through June 30, 2021, the Company purchased additional shares of AKASOL for €28 million ($33 million) increasing its ownership to 93% as of that date. Upon closing, the Company also consolidated approximately €64 million ($77 million) of gross debt of AKASOL. 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 pack market. The purchase price was allocated on a provisional basis as of June 4, 2021. Assets acquired and liabilities assumed were recorded at estimated fair values based on management’s preliminary estimates, available information, and supportable assumptions that management considered reasonable. Certain estimated values for the acquisition, including goodwill, tangible and intangible assets and deferred taxes are not yet finalized, and the provisional purchase price allocations are subject to change as the Company completes its analysis of the fair value at the date of acquisition. The final valuation of assets acquired and liabilities assumed may be materially different from the estimated values shown below. The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of June 4, 2021, the acquisition date:
(in millions) | Initial Allocation
ASSETS |
Cash and cash equivalents (including restricted cash of $16 million) | $ | 29 |
Receivables, net | 16 |
Inventories, net | 42 |
Prepayments and other current assets | 5 |
Property, plant and equipment, net | 106 |
Goodwill | 707 |
Other intangible assets, net | 130 |
Total assets acquired | 1,035 |
LIABILITIES |
Notes payable and other short-term debt | 8 |
Accounts payable | 22 |
Other current liabilities | 13 |
Long-term debt | 69 |
Other non-current liabilities | 39 |
Total liabilities assumed | 151 |
Noncontrolling interest | 96 |
Net assets and noncontrolling interest acquired | $ | 788 |
Any excess of the purchase price over the estimated fair value of net assets was recognized as goodwill. At the acquisition date, goodwill of $707 million was recorded within the Company’s Air Management segment. The goodwill consists of the Company’s expected future economic benefits that will arise from acquiring this business, which is established in making next-generation products for electric vehicles and the potential development and deployment of future technologies, across a global customer base, in this market and across adjacent industries. The goodwill is not expected to be deductible for tax purposes. In connection with the acquisition, the Company preliminarily recorded $130 million for intangible assets, primarily for developed technology and customer relationships. Various valuation techniques were used to determine the provisional fair value of intangible assets, with the primary techniques being forms of the income approach, specifically the relief-from-royalty and multi-period excess earnings valuation methods. Under these valuation approaches, the Company is required to make estimates and assumptions from a market participant perspective and include revenue growth rates, estimated earnings, royalty rates, obsolescence factors, contributory asset charges, customer attrition and discount rates. Management used a third-party valuation firm to assist in the determination of the provisional purchase accounting fair values; however, management ultimately oversees the third-party valuation firm to ensure that the transaction-specific assumptions are appropriate for the Company. The impact of the AKASOL acquisition on net sales and net earnings was immaterial for the three and six months ended June 30, 2021. Due to its insignificant size relative to the Company, supplemental pro forma financial information of the combined entity for the current and prior reporting period is not provided. Delphi Technologies PLC On October 1, 2020, the Company completed its acquisition of 100% of the outstanding ordinary shares of Delphi Technologies PLC (“Delphi Technologies”) from the shareholders of Delphi Technologies pursuant to the terms of the Transaction Agreement, dated January 28, 2020, as amended on May 6, 2020, by and between the Company and Delphi Technologies (the “Transaction Agreement”). Pursuant to the terms of the Transaction Agreement, the Company issued, in exchange for each Delphi Technologies share, 0.4307 of a share of common stock of the Company, par value $0.01 per share and cash in lieu of any fractional share. In the aggregate, the Company delivered consideration of approximately $2.4 billion. The acquisition strengthens the Company’s electronics and power electronics products, capabilities and scale, positions the Company for greater growth as electrified propulsion systems gain momentum and enhances key combustion, commercial vehicle and aftermarket product offerings. Upon closing, the Company also assumed approximately $800 million (par value) in aggregate principal amount of Delphi Technologies’ outstanding 5.000% Senior Notes due 2025 (the “DT Notes”). On October 5, 2020, the Company completed its offer to exchange new BorgWarner notes for the DT Notes. Approximately $776 million in aggregate principal amount of outstanding DT Notes, representing 97% of the $800 million total outstanding principal amount of the DT Notes, were validly exchanged and cancelled for new BorgWarner notes. Following such cancellation, approximately $24 million in aggregate principal amount of the DT Notes remain outstanding. Since the majority of the DT Notes were exchanged, the Company was able to eliminate substantially all of the restrictive covenants and events of default not related to payment on the $800 million in outstanding senior notes of the Company. The following table summarizes the purchase price for Delphi Technologies:
(in millions, except for share data) |
BorgWarner common stock issued for purchase of Delphi Technologies | 37,188,819
BorgWarner share price at October 1, 2020 | $ | 39.54 |
Fair value of stock consideration | $ | 1,470 |
Stock compensation consideration | 7
Total stock consideration | $ | 1,477 |
Cash consideration | 18 |
Repayment of Delphi Technologies’ debt | 896 |
Total consideration | $ | 2,391 |
The purchase price was allocated on a preliminary basis as of October 1, 2020. Assets acquired and liabilities assumed were recorded at estimated fair values based on management’s estimates, available information, and supportable assumptions that management considered reasonable. The Company is in the process of finalizing all purchase accounting adjustments related to the Delphi Technologies acquisition. Certain estimated values for the acquisition, including goodwill, intangible assets and deferred taxes are not yet finalized, and the preliminary purchase price allocations are subject to change as the Company completes its analysis of the fair value at the date of acquisition. The final valuation of assets acquired and liabilities assumed may be materially different from the estimated values shown below. The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the acquisition date and subsequent measurement period adjustments:
(in millions) | Initial Allocation |  | Measurement Period Adjustments |  | Revised Allocation
ASSETS |  |  |  |  |
Cash and cash equivalents | $ | 460 |  |  | $ | — |  |  | $ | 460 |
Receivables, net | 901 |  |  | (3) |  |  | 898 |
Inventories, net | 398 |  |  | (3) |  |  | 395 |
Prepayments and other current assets | 77 |  |  | (1) |  |  | 76 |
Property, plant and equipment, net | 1,548 |  |  | (5) |  |  | 1,543 |
Investments and other long-term receivables | 103 |  |  | — |  |  | 103 |
Goodwill | 710 |  |  | 23 |  |  | 733 |
Other intangible assets, net | 760 |  |  | — |  |  | 760 |
Other non-current assets | 359 |  |  | 6 |  |  | 365 |
Total assets acquired | 5,316 |  |  | 17 |  |  | 5,333 |
LIABILITIES |  |  |  |  |
Notes payable and other short-term debt | 2 |  |  | — |  |  | 2 |
Accounts payable | 692 |  |  | 1 |  |  | 693 |
Other current liabilities | 609 |  |  | 2 |  |  | 611 |
Long-term debt | 934 |  |  | — |  |  | 934 |
Other non-current liabilities: |  |  |  |  |
Retirement-related | 313 |  |  | — |  |  | 313 |
Other non-current liabilities | 286 |  |  | 14 |  |  | 300 |
Total liabilities assumed | 2,836 |  |  | 17 |  |  | 2,853 |
Noncontrolling interest | 89 |  |  | — |  |  | 89 |
Net assets and noncontrolling interest acquired | $ | 2,391 |  |  | $ | — |  |  | $ | 2,391 |
Any excess of the purchase price over the estimated fair value of net assets was recognized as goodwill. Goodwill of $733 million, including the impact of measurement period adjustments, was allocated across the Company’s four segments, as noted in the table below. The goodwill consists of the Company’s expected future economic benefits that will arise from expected future product sales and operational synergies from combining Delphi Technologies with its existing business and is not deductible for tax purposes.
(in millions) |
Air Management | $ | 151 |
e-Propulsion & Drivetrain | 284 |
Fuel Injection | — |
Aftermarket | 298 |
Total acquisition date goodwill | $ | 733 |
The valuation of intangible assets was determined using an income approach methodology. The fair values of the customer relationship intangible assets were estimated using the multi-period excess earnings method. Assumptions used in these calculations were considered from a market participant perspective and include revenue growth rates, estimated earnings, contributory asset charges, customer attrition and discount rates. The fair values of the developed technology and trade name intangible assets were estimated utilizing the relief from royalty method, which calculates the cost savings associated with owning rather than licensing the assets. Assumed royalty rates are applied to projected revenue for the remaining useful lives of the assets to estimate the royalty savings. Assumptions used in the determination of the fair value of the developed technology included revenue growth rates, royalty rates, obsolescence factors and discount rates. Assumptions used in the determination of the fair value of the trade name included the revenue growth rates, the royalty rate and discount rate. The following table summarizes the other intangible assets acquired:
(in millions) | Estimated Life |  | Estimated Fair Value
Amortized intangible assets: |  |  |
Developed technology | 14 years |  | $ | 270 |
Customer relationships | 15 years |  | 380 |
Total amortized intangible assets |  |  | 650 |
Unamortized trade name | Indefinite |  | 110 |
Total other intangible assets |  |  | $ | 760 |
Generally accepted valuation practice indicates that assets and liabilities may be valued using a range of methodologies. The property, plant and equipment and inventory acquired were valued using a combination of cost and market approaches. Goodwill, identifiable intangible assets, noncontrolling interests and the equity method investment were valued using the income approach. Management used a third-party valuation firm to assist in the determination of the preliminary purchase accounting fair values; however, management ultimately oversees the third-party valuation firm to ensure that the transaction-specific assumptions are appropriate for the Company. On a pro forma basis, the combined net sales of the Company and Delphi Technologies for the three and six months ended June 30, 2020 were $2,054 million and $5,278 million, respectively. Romeo Power, Inc. In May 2019, the Company invested $50 million in exchange for a 20% equity interest in Romeo Systems, Inc., now known as Romeo Power, Inc., (“Romeo”) a technology-leading battery module and pack supplier that was then privately held. The Company accounted for this investment in Series A-1 Preferred Stock of Romeo under the measurement alternative in ASC Topic 321, “Investments - Equity Securities” for equity securities without a readily determinable fair value. Such investments are measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. In September 2019, the Company and Romeo contributed total equity of $10 million and formed a new joint venture, BorgWarner Romeo Power LLC (“Romeo JV”), in which the Company owns a 60% interest. Romeo JV is a variable interest entity focusing on producing battery module and pack technology. The Company is the primary beneficiary of Romeo JV and consolidates Romeo JV in its consolidated financial statements. On December 29, 2020, through the business combination of Romeo Systems, Inc. and special purpose acquisition company RMG Acquisition Corporation, a new entity, Romeo Power, Inc., became a publicly listed company. The Company’s ownership in Romeo was reduced to 14%, and the investment no longer qualified for the measurement alternative under ASC Topic 321 as the investment now has a readily determinable fair value. Therefore, the investment is recorded at fair value on an ongoing basis with changes in fair value being recognized in Unrealized loss on equity securities in the Condensed Consolidated Statements of Operations. During the three and six months ended June 30, 2021, the Company recorded a loss of $4 million and $276 million, respectively, to adjust the carrying value of the Company’s investment to fair value. As of June 30, 2021, the investment’s fair value was $156 million, which is reflected in Investments and other long-term receivables in the Company’s Condensed Consolidated Balance Sheets. During the six months ended June 30, 2020, after completing a qualitative assessment which indicated the Company’s equity securities in Romeo may have been impaired, the Company recorded a $9 million impairment charge to reflect this investment at its estimated fair value of $41 million. The estimated fair value of Romeo was determined using unobservable inputs including quantitative information from lower valuations in recently completed or proposed financings and the liquidation preferences included in the Romeo stock agreements. These unobservable inputs are considered Level 3.

X
- References No definition available. + Details
Name: | us-gaap_BusinessCombinationAndAssetAcquisitionAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
Name: | us-gaap_MergersAcquisitionsAndDispositionsDisclosuresTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration