BorgWarner Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; quarterly figures below identify the fourth quarter where available. Financial results reflect Fuel Systems and Aftermarket as discontinued operations following the July 3, 2023 spin-off of PHINIA, so comparisons are not fully like-for-like with previously reported consolidated results.
Business context
BorgWarner supplies propulsion, drivetrain, battery, power-electronics, emissions and related technologies to vehicle and equipment manufacturers worldwide. Its continuing reportable segments are Air Management, Drivetrain & Battery Systems, and ePropulsion. Approximately 84% of 2023 net sales were generated outside the United States. The company completed acquisitions of Hubei Surpass Sun Electric’s charging businesses and Eldor’s electric hybrid systems business during 2023.
Financial highlights
| Metric | 2023 | 2022 |
|---|---|---|
| Net sales | $14.198 billion | $12.635 billion |
| Gross profit / margin | $2.568 billion / 18.1% | $2.369 billion / 18.7% |
| Operating income / margin | $1.160 billion / 8.2% | $1.009 billion / 8.0% |
| Continuing-operations net earnings attributable to BorgWarner | $632 million | $636 million |
| Diluted EPS from continuing operations | $2.70 | $2.69 |
| Total net earnings attributable to BorgWarner | $625 million | $944 million |
| Operating cash flow from continuing operations | $1.397 billion | $1.180 billion |
| Capital expenditures, including tooling | $832 million | $622 million |
Fourth-quarter 2023 net sales were $3.522 billion, operating income was $281 million, continuing-operations net earnings attributable to BorgWarner were $149 million, and diluted continuing-operations EPS was $0.64.
Revenue increased 12%, driven mainly by volume, mix and new business; foreign exchange reduced sales by approximately $66 million, while customer commodity-cost recoveries added approximately $158 million. Gross margin declined 0.6 percentage points as cost of sales rose faster than revenue, reflecting inflation and other costs. Net earnings attributable to BorgWarner fell to $625 million from $944 million, chiefly because 2022 included $308 million of discontinued-operations earnings; 2023 discontinued operations recorded a $7 million loss. The continuing-operations diluted EPS comparison was nearly flat.
eProduct sales were approximately $2.037 billion, up from $1.472 billion, and represented about 14% of revenue. Segment adjusted operating results were: Air Management, $1.171 billion (14.9% margin); Drivetrain & Battery Systems, $545 million (12.5%); and ePropulsion, a $90 million loss (negative 4.2%). Segment adjusted operating income is a non-GAAP measure.
Cash, debt and liquidity
- Cash and cash equivalents were $1.534 billion at year-end. Total debt was approximately $3.780 billion, implying net debt of approximately $2.246 billion based on those reported balances.
- Reported liquidity was $3.534 billion, comprising $1.534 billion of cash and a fully undrawn $2.0 billion revolving credit facility, which matures in September 2028. The company reported compliance with its debt covenant.
- Principal debt maturities include $73 million in 2024 and $846 million in 2025. In September 2023, the company paid $430 million to extinguish $438 million face value of 2025 notes.
- Operating cash flow increased to $1.397 billion. Investing cash outflow was $593 million, including $832 million of capital expenditures; financing cash outflow was $521 million. Cash balances include $891 million held by subsidiaries outside the United States.
- The company repurchased $177 million of shares in 2023 and paid $130 million in dividends to BorgWarner stockholders.
Outlook, commentary and risks
- For 2024, management expects global industry production to be flat or decrease modestly, but expects BorgWarner revenue to increase excluding foreign-exchange effects, driven by new business and product penetration. Management expects Eldor’s acquisition to partially offset the earnings benefit of revenue growth.
- Long-term Charging Forward targets for 2027 are over $10 billion in annual eProduct sales, approximately 7% eProduct adjusted operating margin, and double-digit adjusted operating margins for Foundational products. These are targets, not guarantees.
- Management announced a $130–$150 million restructuring plan for Foundational products; $79 million of costs were recorded in 2023. The company expects continued inflation in some raw materials, labor and energy, and says supplier costs may remain elevated.
- Other investor-relevant risks include vehicle-production cyclicality, OEM pricing pressure and customer concentration, supply disruptions, foreign-exchange movements, uncertainty in EV demand and profitability, competition and technology shifts, and the execution and integration of acquisitions.
- The company recorded $174 million of realized and unrealized losses on debt and equity securities in 2023, primarily related to Wolfspeed convertible debt securities, which were all sold during the year. The 2023 effective tax rate was 29%, compared with 21% in 2022, with valuation-allowance changes and other discrete tax items contributing to the result.
- Warranty liabilities were $196 million at year-end. Environmental accruals were $6 million; the company states it does not expect the disclosed environmental and other legal matters to have a material adverse effect, while acknowledging that an adverse outcome could still be material.
Most important facts for investors to verify
- Track whether eProduct sales growth translates into improved ePropulsion margins and whether the 2027 strategy targets remain achievable.
- Assess the extent to which customer cost recoveries, inflation, restructuring and the Eldor acquisition affect margins and 2024 earnings.
- Review debt maturities, cash generation and capital spending alongside the company’s share repurchases and dividend policy.
- Examine the tax effects of the PHINIA spin-off, deferred-tax-asset valuation allowances, and the continuing separation and transition-service arrangements.
- Monitor OEM and geographic concentration: Ford represented about 14% and Volkswagen about 11% of 2023 sales; the top ten customers represented 68%.