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ACQUISITIONS | 3 Months Ended
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Mar. 31, 2022
Business Combination and Asset Acquisition [Abstract] |
ACQUISITIONS | ACQUISITIONS In accordance with ASC Topic 805, “Business Combinations,” acquisitions are recorded using the acquisition method of accounting. The Company recognizes and measures the acquisition date fair value of the identifiable assets acquired, liabilities assumed, and any non-controlling interest using a range a methodologies as indicated by generally accepted valuation practices. Various valuation techniques are used to determine the fair value of intangible assets, with the primary techniques being forms of the income approach, specifically the relief-from-royalty and multi-period excess earnings valuation methods. Under these valuation approaches, the Company is required to make estimates and assumptions from a market participant perspective and may include revenue growth rates, estimated earnings, royalty rates, obsolescence factors, contributory asset charges, customer attrition and discount rates. Santroll Automotive Components On March 31, 2022, the Company completed its acquisition of 100% of Santroll Automotive Components (“Santroll”), a carve-out of Santroll Electric Auto’s eMotor business, pursuant to the terms of an Equity Transfer Agreement (“ETA”). The total consideration is $212 million, including approximately ¥1.1 billion ($172 million) of base purchase price and ¥0.25 billion ($40 million) of estimated earn-out payments. The Company paid $157 million of base purchase price in the three months ended March 31, 2022. The remaining $15 million of base purchase price is payable in May 2022 and is recorded in Other current liabilities in the Company’s Condensed Consolidated Balance Sheet as of March 31, 2022. Pursuant to the ETA, the obligation of the Company to remit up to ¥0.3 billion (approximately $47 million) of earn-out payments is contingent upon achievement of certain sales volume targets and certain estimated future volume targets associated with newly awarded business. As of March 31, 2022, the Company’s current estimate of the earn-out payments is approximately $40 million, of which $16 million is recorded in Other current liabilities and $24 million in Other non-current liabilities in the Company’s Condensed Consolidated Balance Sheet. The acquisition is expected to strengthen the Company’s vertical integration, scale and portfolio breadth in light vehicle eMotors while allowing for increased speed to market. The purchase price was allocated on a provisional basis as of March 31, 2022. 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 March 31, 2022, the acquisition date:
(in millions) | Initial Allocation |  |  |  |
ASSETS |  |  |  |  |
Receivables, net | $ | 7 |  |  |  |  |
Inventories, net | 1 |  |  |  |  |
Property, plant and equipment, net | 9 |  |  |  |  |
Goodwill | 132 |  |  |  |  |
Other intangible assets, net | 87 |  |  |  |  |
Total assets acquired | 236 |  |  |  |  |
LIABILITIES |  |  |  |  |
Accounts payable | 2 |  |  |  |  |
Other non-current liabilities | 22 |  |  |  |  |
Total liabilities assumed | 24 |  |  |  |  |
Net assets acquired | $ | 212 |  |  |  |  |
Any excess of the purchase price over the estimated fair value of net assets was recognized as goodwill. Goodwill of $132 million was recorded within the Company’s e-Propulsion & Drivetrain segment. The goodwill consists of the Company’s expected future economic benefits that will arise from future product sales and the added capabilities from vertical integration of eMotors. The goodwill is not expected to be deductible for tax purposes. In connection with the acquisition, the Company preliminarily recorded $87 million for intangible assets, primarily for customer relationships and manufacturing processes (know-how). As described above, various valuation techniques were used to determine the provisional fair value of intangible assets. 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 Santroll acquisition on net sales and net earnings was immaterial for the three months ended March 31, 2022. Due to its insignificant size relative to the Company, supplemental pro forma financial information of the combined entity for the current and prior reporting periods is not provided. 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 public offering of 1.00% Senior Notes due 2031 completed on May 19, 2021. Following the settlement of the offer, AKASOL became a consolidated majority-owned subsidiary of the Company. Upon that settlement, the Company also consolidated approximately €64 million ($77 million) of gross debt of AKASOL. Subsequent to the completion of the voluntary public takeover offer, the Company purchased additional shares of AKASOL for €28 million ($33 million) increasing its ownership to 93% as of December 31, 2021. 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. On August 2, 2021, the Company initiated a merger squeeze-out process under German law for the purpose of acquiring 100% of AKASOL. On December 17, 2021, the shareholders of AKASOL voted to mandatorily transfer to ABBA BidCo. AG, a wholly owned indirect subsidiary of the Company, each issued and outstanding share of AKASOL held by shareholders that did not tender their shares in the Company’s previously completed exchange offer for AKASOL shares (the “Squeeze Out”). In exchange for the AKASOL shares transferred in the Squeeze Out, the Company paid appropriate cash compensation, in the amount of €119.16 per share, which was determined after an assessment by a third-party valuation firm, the adequacy of which was examined by an independent, court-appointed auditor. At December 31, 2021, the noncontrolling interest in AKASOL of approximately €51 million ($58 million) to be acquired through the Squeeze Out was reclassified to Other current liabilities in the Company’s Condensed Consolidated Balance Sheet as it was deemed mandatorily redeemable. No shareholder objections were filed during the statutory contestation period, and on February 10, 2022, the Company completed the registration of the Squeeze Out resulting in 100% ownership. The Company settled the Squeeze Out with AKASOL minority shareholders in the first quarter of 2022. The purchase price was allocated on a preliminary basis as of June 4, 2021. Assets acquired and liabilities assumed were recorded at estimated fair values based on management’s estimates, available information, and supportable assumptions that management considered reasonable. Certain estimated values for the acquisition, including goodwill and deferred taxes, are not yet finalized, and the preliminary purchase price allocations are subject to change as the Company completes its analysis of the fair value at the date of acquisition. The final valuation of assets acquired and liabilities assumed may be materially different from the 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 |  | Measurement Period Adjustments |  | Revised Allocation
ASSETS |  |  |  |  |
Cash and cash equivalents (including restricted cash of $16 million) | $ | 29 |  |  | $ | — |  |  | $ | 29 |
Receivables, net | 16 |  |  | — |  |  | 16 |
Inventories, net | 42 |  |  | (2) |  |  | 40 |
Prepayments and other current assets | 5 |  |  | — |  |  | 5 |
Property, plant and equipment, net | 106 |  |  | (3) |  |  | 103 |
Goodwill | 707 |  |  | (3) |  |  | 704 |
Other intangible assets, net | 130 |  |  | — |  |  | 130 |
Other non-current assets | — |  |  | 7 |  |  | 7 |
Total assets acquired | 1,035 |  |  | (1) |  |  | 1,034 |
LIABILITIES |  |  |  |  |
Notes payable and other short-term debt | 8 |  |  | — |  |  | 8 |
Accounts payable | 22 |  |  | — |  |  | 22 |
Other current liabilities | 13 |  |  | 6 |  |  | 19 |
Long-term debt | 69 |  |  | — |  |  | 69 |
Other non-current liabilities | 39 |  |  | (7) |  |  | 32 |
Total liabilities assumed | 151 |  |  | (1) |  |  | 150 |
Noncontrolling interest | 96 |  |  | — |  |  | 96 |
Net assets and noncontrolling interest acquired | $ | 788 |  |  | $ | — |  |  | $ | 788 |
Any excess of the purchase price over the estimated fair value of net assets was recognized as goodwill. Goodwill of $704 million, including the impact of measurement period adjustments, 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. The following table summarizes the other intangible assets acquired:
(in millions) | Estimated Life |  | Estimated Fair Value
Amortized intangible assets: |  |  |
Developed technology | 5 years |  | $ | 70 |
Customer relationships | 11 years |  | 25 |
Total amortized intangible assets |  |  | 95 |
Unamortized trade name | Indefinite |  | 35 |
Total other intangible assets |  |  | $ | 130 |
The property, plant and equipment acquired were valued using a combination of cost and market approaches. Goodwill and identifiable intangible assets were valued using the income approach. Noncontrolling interests were valued using a market 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. Due to its insignificant size relative to the Company, supplemental pro forma financial information of the combined entity for the current and prior reporting periods is not provided. 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. On December 29, 2020, through the business combination of Romeo Systems, Inc. and special purpose acquisition company RMG Acquisition Corporation, a new entity, Romeo Power, Inc., became a publicly listed company. The Company’s ownership in Romeo was reduced to 14%, and the investment was recorded at fair value on an ongoing basis with changes in fair value being recognized in Unrealized loss on equity securities in the Condensed Consolidated Statements of Operations. During the three months ended March 31, 2021, the Company recorded a loss of $272 million, to adjust the carrying value of the Company’s investment to fair value. As of December 31, 2021, the investment’s fair value was $70 million, which is reflected in Investments and long-term receivables in the Company’s Condensed Consolidated Balance Sheet. During the three months ended March 31, 2022, the Company recorded a loss of $39 million and liquidated its investment in Romeo shares at a fair value of $31 million. As of March 31, 2022, the Company no longer holds any investment in Romeo. In September 2019, the Company and Romeo contributed total equity of $10 million and formed a new joint venture, BorgWarner Romeo Power LLC (“Romeo JV”), in which the Company owned a 60% interest. Romeo JV was a variable interest entity focusing on producing battery module and pack technology. The Company was the primary beneficiary of Romeo JV and had consolidated Romeo JV in its consolidated financial statements. On October 25, 2021, the Company delivered written notice to Romeo that the Company was electing to exercise its right to put its ownership stake in Romeo JV to Romeo. Based on an independent appraisal, the Company’s interest in Romeo JV was valued at $30 million. In February 2022, the Company completed the sale of its 60% interest in Romeo JV for $29 million, the fair value of $30 million reduced by a 5% discount pursuant to the joint venture agreement. During the three months ended March 31, 2022, the Company recorded a gain of $24 million in Other operating (income) expense, net, which represented the difference between the Company’s book value of its interest in Romeo JV compared to the fair value of consideration received. As a result of the sale, the Company has no further rights in or involvement with Romeo JV.

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- 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
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