BorgWarner(BWA) - 2022 Q4 - Annual Report

Revenue and Sales Performance - The Company aims for revenue from electric vehicle products to exceed 25% of total revenue by 2025 and approximately 45% by 2030, with a target of $4.3 billion in EV revenue by 2025[4] - In 2022, the Company's EV-related revenue was approximately$870 million, representing 6% of total revenue[4] - Total net sales for 2022 were $15,801 million, an increase from$14,838 million in 2021, reflecting an 8% growth driven by higher market production and demand[12] - The company reported net sales of $15,801 million for the year ended December 31, 2022, an increase from$14,838 million in 2021, representing a growth of approximately 6.5%[183] - The Air Management segment's net sales increased by $309 million, or 5$77 million, or 3%, for the year ended December 31, 2022, with an Adjusted Operating margin of 10.8%[50] Financial Performance - The Company recorded net earnings of $1,026 million for 2022, up from$639 million in 2021, with earnings per diluted share increasing to $3.99 from$2.24[23] - Net earnings attributable to BorgWarner Inc. were $944 million in 2022, up from$537 million in 2021, representing a significant increase of approximately 75.8%[186] - Earnings per share attributable to BorgWarner Inc. (diluted) rose to $3.99 in 2022 from$2.24 in 2021, marking an increase of approximately 78.1%[183] - Operating income increased to $1,374 million in 2022 from$1,151 million in 2021, reflecting a growth of approximately 19.4%[183] - Gross profit for 2022 was $3,101 million, compared to$2,855 million in 2021, indicating a gross margin improvement[183] Costs and Expenses - The cost of sales for 2022 was $12,700 million, up from$11,983 million in 2021, with material cost inflation impacting costs by approximately 674 million[14] - Selling, general and administrative expenses (SG&A) for 2022 were 1,610 million, compared to $1,460 million in 2021, representing 10.2$117 million, which is 0.7% of net sales, down from 1.5% in 2021 when it was $225 million[91] - Increased commodity costs, particularly for metals and materials used in production, have negatively impacted operating margins, with ongoing inflation posing further risks[128][131] - The company has sought to mitigate rising costs through pass-through provisions in customer contracts and selective hedging of commodity exposures[128] Liquidity and Financial Position - As of December 31, 2022, the Company had liquidity of$3,333 million, including cash and cash equivalents of $1,333 million and an undrawn revolving credit facility of$2,000 million[27] - The Company has a $2.0 billion multi-currency revolving credit facility, maturing in March 2025, with no outstanding borrowings as of December 31, 2022[51] - Cash, cash equivalents, and restricted cash at the end of 2022 were$1,338 million, down from $1,844 million at the end of 2021[182] - Total assets increased to$16,994 million in 2022 from $16,575 million in 2021, reflecting a growth of approximately 2.5$9,486 million in 2022, compared to $9,313 million in 2021, indicating an increase of approximately 1.9$961 million due to foreign currency fluctuations, primarily from the weakening of the Euro, Chinese Renminbi, and Korean Won[13] - The company faces significant foreign currency exchange rate risks, particularly with the Brazilian Real, British Pound, and Euro, and employs strategies such as local production facilities to mitigate these risks[85] - The ongoing investigations related to vehicle emissions standards could result in legal proceedings and fines, adversely affecting the company's financial results[125] - The company faces substantial pressure from OEMs to reduce product prices, which could adversely affect profit margins if cost reductions are not achieved[126] - The integration process of independent businesses is complex and may result in additional unforeseen expenses, which could adversely affect financial performance[107] Pension and Employee Benefits - The Company contributed $22 million,$24 million, and $174 million to its defined benefit pension plans for the years ended December 31, 2022, 2021, and 2020, respectively[33] - The funded status of all pension plans was a net unfunded position of$173 million and $184 million at December 31, 2022, and 2021, respectively, primarily due to a lower projected benefit obligation[57] - The company expects to fund its pension plans through cash generated from operations or other available financing sources for the foreseeable future[59] - The health care cost trend rate assumptions for postretirement employee health care plans were set at 6.5%, declining to an ultimate trend rate of 4.75% by 2026[45] - The company’s discount rates for pension and other postretirement benefit obligations ranged from 1.7% to 12.0%, with a weighted average of 5.5% in the U.S. as of December 31, 2022[94] Audit and Internal Controls - The company maintained effective internal control over financial reporting as of December 31, 2022, based on established criteria[144] - The company’s consolidated financial statements present fairly its financial position as of December 31, 2022, in conformity with generally accepted accounting principles[144] - The company’s internal control over financial reporting includes policies and procedures to ensure accurate financial statement preparation[148] - The company’s management excluded certain recently acquired subsidiaries from its internal control assessment due to their minimal impact on consolidated financial statements[147] - The company’s critical audit matters involved complex judgments related to tax provisions and goodwill impairment analysis[153]