BorgWarner(US:BWA)2023-02-08 16:00Revenue 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%, for the year ended December 31, 2022, with an Adjusted Operating margin of 15.0%[49] - The Fuel Systems segment's net sales increased by $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% of net sales[15] - Warranty provision for 2022 was $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%[182] - Total liabilities rose to $9,486 million in 2022, compared to $9,313 million in 2021, indicating an increase of approximately 1.9%[182] Strategic Initiatives - The Company plans to execute a tax-free spin-off of its Fuel Systems and Aftermarket segments into a separate publicly traded company, expected to be completed in late 2023[4] - The company completed the acquisition of AKASOL, contributing to its strategic expansion in the electric vehicle market[190] - The company plans to continue pursuing growth opportunities in alternative fuels, such as hydrogen, following the spin-off[190] - The company has completed or announced five acquisitions over the last two years to support its electrification strategy[102] - The company plans to pursue business ventures, acquisitions, and strategic alliances to enhance its technology capabilities and customer base, although there are risks and uncertainties involved[104] Risks and Challenges - The Company experienced a year-over-year decrease in sales of approximately $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]