UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

Form 10-K

(Mark One)

☑ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 For the fiscal year ended December 31, 2020

OR

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                              to                              

Commission File Number: 1-12162

 BorgWarner Inc.

(Exact name of registrant as specified in its charter)

Delaware	13-3404508
(State or other jurisdiction of Incorporation or organization)	(I.R.S. Employer Identification No.)

3850 Hamlin Road,

Auburn Hills, Michigan 48326

(Address of principal executive offices) (Zip Code)

 Registrant’s telephone number, including area code: (248) 754-9200

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	BWA	New York Stock Exchange
1.80% Senior Notes due 2022	BWA22	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

_________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑    No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐  No ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ☑    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ☑    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☑	Accelerated filer	☐	Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐    No  ☑

The aggregate market value of the voting common stock of the registrant held by stockholders (not including voting common stock held by directors and executive officers of the registrant) on June 30, 2020 (the last business day of the most recently completed second fiscal quarter) was approximately $7.2 billion.

As of February 16, 2021, the registrant had 239,021,056 shares of voting common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents are incorporated herein by reference into the Part of the Form 10-K indicated.

Document	Part of Form 10-K into which incorporated
Portions of the BorgWarner Inc. Proxy Statement for the 2021 Annual Meeting of Stockholders	Part III

BORGWARNER INC.

FORM 10-K

YEAR ENDED DECEMBER 31, 2020

INDEX

		Page No.
PART I.
Item 1.	Business	5
Item 1A.	Risk Factors	15
Item 1B.	Unresolved Staff Comments	26
Item 2.	Properties	27
Item 3.	Legal Proceedings	27
Item 4.	Mine Safety Disclosures	27
PART II.
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	27
Item 6.	Selected Financial Data	30
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	53
Item 8.	Financial Statements and Supplementary Data	54
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	120
Item 9A.	Controls and Procedures	120
Item 9B.	Other Information	121
PART III.
Item 10.	Directors, Executive Officers and Corporate Governance	123
Item 11.	Executive Compensation	123
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	123
Item 13.	Certain Relationships and Related Transactions and Director Independence	123
Item 14.	Principal Accountant Fees and Services	124
PART IV.
Item 15.	Exhibits and Financial Statement Schedules	124
Item 16.	Form 10-K Summary	124

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CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION

Statements contained in this Annual Report on Form 10-K (“Form 10-K”) (including Management’s Discussion and Analysis of Financial Condition and Results of Operations) may contain forward-looking statements as contemplated by the 1995 Private Securities Litigation Reform Act (the “Act”) that are based on management’s current outlook, expectations, estimates and projections. Words such as “anticipates,” “believes,” “continues,” “could,” “designed,” “effect,” “estimates,” “evaluates,” “expects,” “forecasts,” “goal,” “initiative,” “intends,” “may,” “outlook,” “plans,” “potential,” “predicts,” “project,” “pursue,” “seek,” “should,” “target,” “when,” “will,” “would,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Further, all statements, other than statements of historical fact contained or incorporated by reference in this Form 10-K, that we expect or anticipate will or may occur in the future regarding our financial position, business strategy and measures to implement that strategy, including changes to operations, competitive strengths, goals, expansion and growth of our business and operations, plans, references to future success and other such matters, are forward-looking statements. Accounting estimates, such as those described under the heading “Critical Accounting Policies and Estimates” in Item 7 of this Annual Report on Form 10-K, are inherently forward-looking. All forward looking statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. Forward-looking statements are not guarantees of performance and the Company’s actual results may differ materially from those expressed, projected or implied in or by the forward-looking statements.

You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report. Forward-looking statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed, projected or implied in or by the forward-looking statements. These risks and uncertainties, among others, include: uncertainties regarding the extent and duration of impacts of matters associated with COVID-19/coronavirus (“COVID-19”), including additional production disruptions; the failure to realize the expected benefits of the acquisition of Delphi Technologies PLC that the Company completed on October 1, 2020; the failure to promptly and effectively integrate acquired businesses; the potential for unknown or inestimable liabilities relating to the acquired businesses; the possibility that the proposed transaction between the Company and AKASOL AG will not be consummated; failure to obtain necessary regulatory approvals or to satisfy any of the other conditions to the proposed transaction; failure to realize the expected benefits of the proposed transaction; our dependence on automotive and truck production, both of which are highly cyclical and subject to disruptions; our reliance on major OEM customers; commodities availability and pricing; supply disruptions; fluctuations in interest rates and foreign currency exchange rates; availability of credit; our dependence on key management; our dependence on information systems; the uncertainty of the global economic environment; the outcome of existing or any future legal proceedings, including litigation with respect to various claims; future changes in laws and regulations, including, by way of example, tariffs, in the countries in which we operate; impacts from any potential future acquisition or divestiture transactions; and the other risks noted under Item 1A, “Risk Factors,” and in other reports that we file with the Securities and Exchange Commission. We do not undertake any obligation to update or announce publicly any updates to or revisions to any of the forward-looking statements in this Form 10-K to reflect any change in our expectations or any change in events, conditions, circumstances, or assumptions underlying the statements.

This section and the discussions contained in Item 1A, “Risk Factors,” and in Item 7, subheading “Critical Accounting Policies and Estimates” in this report, are intended to provide meaningful cautionary statements for purposes of the safe harbor provisions of the Act. This should not be construed as a complete list of all of the economic, competitive, governmental, technological and other factors that could adversely affect our expected consolidated financial position, results of operations or liquidity. Additional risks and uncertainties, including without limitation those not currently known to us or that we currently

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believe are immaterial, also may impair our business, operations, liquidity, financial condition and prospects.

Use of Non-GAAP Financial Measures

In addition to results presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), this report includes non-GAAP financial measures. The Company believes these non-GAAP financial measures provide additional information that is useful to investors in understanding the underlying performance and trends of the Company. Readers should be aware that non-GAAP financial measures have inherent limitations and should be cautious with respect to the use of such measures. To compensate for these limitations, we use non-GAAP measures as comparative tools, together with GAAP measures, to assist in the evaluation of our operating performance or financial condition. We calculate these measures using the appropriate GAAP components in their entirety and compute them in a manner intended to facilitate consistent period-to-period comparisons. The Company's method of calculating these non-GAAP measures may differ from methods used by other companies. These non-GAAP measures should not be considered in isolation or as a substitute for those financial measures prepared in accordance with GAAP. Where non-GAAP financial measures are used, the most directly comparable GAAP financial measure, as well as the reconciliation to the most directly comparable GAAP financial measure, can be found in this report.

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PART I

Item 1. Business

BorgWarner Inc. (together with its Consolidated Subsidiaries, the “Company” or “BorgWarner”) is a Delaware corporation incorporated in 1987. We are a global product leader in clean and efficient technology solutions for combustion, hybrid and electric vehicles. Our products help improve vehicle performance, propulsion efficiency, stability and air quality. We manufacture and sell these products worldwide, primarily to original equipment manufacturers (“OEMs”) of light vehicles (passenger cars, sport-utility vehicles (“SUVs”), vans and light trucks). The Company's products are also sold to OEMs of commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway vehicles (agricultural and construction machinery and marine applications). We also manufacture and sell our products to certain Tier One vehicle systems suppliers and into the aftermarket for light, commercial and off-highway vehicles. The Company operates manufacturing facilities serving customers in Europe, the Americas and Asia and is an original equipment supplier to nearly every major automotive OEM in the world.

Acquisition of Delphi Technologies PLC

Acquisitions are an integral component of the Company’s growth and value creation strategy. 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 and cash in lieu of any fractional share. In the aggregate, the Company delivered consideration of approximately $2.4 billion, including approximately 37 million shares of common stock of the Company, valued at $1.5 billion, repayment of approximately $900 million of Delphi Technologies’ debt and stock-based compensation of approximately $15 million. Upon closing, the Company also assumed approximately $800 million in senior notes as discussed in Item 7 of this report under the caption “Acquisition of Delphi Technologies PLC.” The acquisition is expected to strengthen the Company’s electronics and power electronics products, capabilities and scale, position the Company for greater growth as electrified propulsion systems gain momentum and enhance key combustion, commercial vehicle and aftermarket product offerings. Refer to Note 2, “Acquisitions,” to the Consolidated Financial Statements in Item 8 of this report for more information.

Financial Information About Reporting Segments

Refer to Note 24, “Reporting Segments And Related Information,” to the Consolidated Financial Statements in Item 8 of this report for financial information about the Company's reporting segments. 

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Narrative Description of Reporting Segments

Following the Delphi Technologies acquisition, to align with the manner in which the business is viewed and managed subsequent to the acquisition, the Company reorganized its management reporting structure. Previously, the Company reported its results under two reporting segments, Engine and Drivetrain, which are now combined for reporting purposes with portions of the acquired business and referred to as Air Management and e-Propulsion & Drivetrain, respectively. The former Delphi Technologies Powertrain Products segment was integrated into the Air Management segment, and the former Delphi Technologies Electronics & Electrification segment was integrated into the e-Propulsion & Drivetrain segment. The remaining Delphi Technologies segments comprise two additional reporting segments, which are referred to as Fuel Injection and Aftermarket. In summary, the Company's business is comprised of four reporting segments which are further described below. Segment information for periods prior to the Delphi Technologies acquisition do not include amounts related to the acquired Delphi Technologies operations. Net sales by reporting segment were as follows:

	Year Ended December 31,
(in millions)	2020		2019		2018
Air Management	$	5,678	$	6,214	$	6,447
e-Propulsion & Drivetrain	3,989		4,015		4,140
Fuel Injection	479		—		—
Aftermarket	194		—		—
Inter-segment eliminations	(175)		(61)		(57)
Net sales	$	10,165	$	10,168	$	10,530

The sales information presented above does not include the sales by the Company’s unconsolidated joint ventures (see sub-heading “Joint Ventures” below). Such unconsolidated sales totaled approximately $721 million, $827 million, and $947 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Air Management

The Company’s former Engine segment now incorporates the former Powertrain Products segment of Delphi Technologies and is referred to as the Air Management segment. The Air Management segment develops and manufactures products to improve fuel economy, reduce emissions and enhance performance. The Air Management segment’s technologies include: turbochargers, eBoosters, eTurbos, timing systems, emissions systems, thermal systems, gasoline ignition technology, smart remote actuators, powertrain sensors, canisters, cabin heaters, battery heaters and battery charging.

The Air Management segment’s emissions, thermal and turbocharger systems provide several benefits including increased power for a given engine size, improved fuel economy, reduced emissions and optimized temperatures in propulsion systems and vehicle cabins. Sales of turbochargers for light vehicles represented approximately 24%, 28% and 27% of the Company’s net sales for the years ended December 31, 2020, 2019 and 2018, respectively.

The Air Management segment's timing systems enable precise control of air and exhaust flow through the engine, improving fuel economy and emissions. The Air Management segment is a leading manufacturer of timing systems for OEMs around the world.

The Air Management segment’s powertrain products include an array of highly engineered products that complement and enhance the efficiency improvements delivered by many other air management and fuel injection technologies.

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e-Propulsion & Drivetrain

The Company’s former Drivetrain segment now incorporates the former Electronics & Electrification segment of Delphi Technologies and is referred to as the e-Propulsion & Drivetrain segment. The e-Propulsion & Drivetrain segment’s technologies include: rotating electrical components, power electronics, control modules, software, friction and mechanical products for automatic transmissions and torque management products.

The e-Propulsion & Drivetrain segment’s rotating electrical components portfolio meet the demands of increasing vehicle electrification, improved efficiency, reduced weight, and lowered electrical and mechanical noise. Rotating electrical components include starter motors, alternators and electric motors for hybrid and electric vehicles.

The e-Propulsion & Drivetrain segment’s electronics portfolio consists of power electronics and engine and transmission control modules. As electrification of vehicles increases, our power electronics solutions, including inverters, on-board charger, DC/DC converters, battery management systems, and software inverters, provide better efficiency, reduced weight and lower cost for our OEM customers. The control modules, containing as much as one million lines of software code, are key components that enable the integration and operation of powertrain products throughout the vehicle.

The e-Propulsion & Drivetrain segment’s friction and mechanical products for automatic transmissions include dual clutch modules, friction clutch modules, friction and separator plates, transmission bands, torque converter clutches, one-way clutches and torsional vibration dampers. Controls products for automatic transmissions feature electro-hydraulic solenoids for standard and high pressure hydraulic systems, transmission solenoid modules and dual clutch control modules.

The e-Propulsion & Drivetrain segment's torque management products include rear-wheel drive (“RWD”)-all-wheel drive (“AWD”) transfer case systems, FWD-AWD coupling systems and cross-axle coupling systems. The segment is developing electronically-controlled torque management devices and systems that will benefit vehicle energy efficiency and vehicle dynamics.

Fuel Injection

The Fuel Injection segment develops and manufactures gasoline and diesel fuel injection components and systems. Our gasoline fuel injection portfolio includes a full suite of fuel injection technologies – including pumps, injectors, fuel rail assemblies and complete systems – that deliver greater efficiency for traditional and hybrid vehicles with gasoline combustion engines. The Company’s Gasoline Direct Injection, or GDi, technology provides high-precision fuel delivery for optimized combustion, which lowers emissions and improves fuel economy. Our diesel fuel injection systems portfolio provides enhanced engine performance at an attractive value. The Company’s common rail fuel injection system is the core technology for both on and off-highway commercial and light vehicle applications.

Aftermarket

The Aftermarket segment sells products and services to independent aftermarket customers and original equipment service customers. Our aftermarket product portfolio includes a wide range of solutions covering the fuel injection, electronics and engine management, maintenance, and test equipment and vehicle diagnostics categories. Our aftermarket business provides a recurring and stable revenue base, as replacement of many of these products is non-discretionary in nature.

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Joint Ventures

As of December 31, 2020, the Company had 12 joint ventures in which it had a less-than-100% ownership interest. Results from the nine joint ventures in which the Company is the majority owner and has a controlling financial interest are consolidated as part of the Company's results. Results from the three joint ventures in which the Company exercises significant influence but does not have a controlling financial interest, were reported by the Company using the equity method of accounting pursuant to which the Company records its proportionate share of each joint venture’s income or loss each period.

Management of the unconsolidated joint ventures is shared with the Company's respective joint venture partners. Certain information concerning the Company's joint ventures is set forth below:

Joint venture	Products	Year organized	Percentage owned by the Company		Location of operation	Joint venture partner
Unconsolidated:
NSK-Warner K.K.	Transmission components	1964	50	%	Japan/China	NSK Ltd.
Turbo Energy Private Limited	Turbochargers	1987	32.6	%	India	Sundaram Finance Limited; Brakes India Limited
Delphi-TVS Diesel Systems Ltd	Fuel injection equipment	2001	52.5	%	India	T.V. Sundram Iyengar & Sons PVT Ltd
Consolidated:
Delphi Powertrain Systems Korea Ltd.	Valvetrain and fuel injection equipment	1977	70	%	Korea	BU RA DA Company Limited
BorgWarner Transmission Systems Korea Ltd. (a)	Transmission components	1987	60	%	Korea	NSK-Warner
Beijing Delphi Wan Yuan Engine Management Systems Co. Ltd.	Engine management systems	1999	51	%	China	Beijing Wan Yuan Industry Corporation
Borg-Warner Shenglong (Ningbo) Co. Ltd.	Fans and fan drives	1999	70	%	China	Ningbo Shenglong Automotive Powertrain Systems Co., Ltd.
BorgWarner TorqTransfer Systems Beijing Co. Ltd.	Transfer cases	2000	80	%	China	Beijing Hainachuan Automotive Parts Holding Co., Ltd.
SeohanWarner Turbo Systems Ltd.	Turbochargers	2003	71	%	Korea	Korea Flange Company
Closed Joint Stock Company “Delphi Samara”	Aftermarket products	2006	80	%	Russia	CJSC “Samara Cable Company”
BorgWarner United Transmission Systems Co. Ltd.	Transmission components	2009	66	%	China	China Automobile Development United Investment Co., Ltd.
BorgWarner Romeo Power LLC	Battery module and pack technology	2019	60	%	U.S.	Romeo Power, Inc.

________________

(a)BorgWarner Inc. owns 50% of NSK-Warner, which has a 40% interest in BorgWarner Transmission Systems Korea Ltd. This ownership gives the Company an additional indirect effective ownership percentage of 20% in BorgWarner Transmission Systems Korea Ltd., resulting in a total effective ownership interest of 80%.

Financial Information About Geographic Areas

The Company has a global presence. During the year ended December 31, 2020, approximately 20% of the Company’s net sales were generated in the United States and 80% were generated outside the United States. Refer to Note 24, “Reporting Segments And Related Information,” to the Consolidated Financial Statements in Item 8 of this report for additional financial information about geographic areas. 

Product Lines and Customers

During the year ended December 31, 2020, approximately 82% of the Company’s net sales were for light-vehicle applications; approximately 9% were for commercial-vehicle applications; approximately 3% were for off-highway vehicle applications; and approximately 6% were to distributors of aftermarket replacement parts.

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The Company’s worldwide net sales to the following customers (including their subsidiaries) were approximately as follows:

	Year Ended December 31,
Customer	2020		2019		2018
Ford	13	%	15	%	14	%
Volkswagen	11	%	11	%	12	%

No other single customer accounted for more than 10% of our consolidated net sales in any of the years presented. Sales to our top ten customers represented 64% of sales for the year ended December 31, 2020.

The Company's automotive products are generally sold directly to OEMs, substantially pursuant to negotiated annual contracts, long-term supply agreements or terms and conditions as may be modified by the parties. Deliveries are subject to periodic authorizations based upon OEM production schedules. The Company typically ships its products directly from its plants to the OEMs.

Sales and Marketing

Each of the Company’s businesses within its reporting segments has its own sales function. Account executives for each of our businesses are assigned to serve specific customers for one or more businesses’ products. Our account executives spend the majority of their time in direct contact with customers’ purchasing and engineering employees and are responsible for servicing existing business and for identifying and obtaining new business. Because of their close relationship with customers, account executives are able to identify and meet customers’ needs based upon their knowledge of our products’ design and manufacturing capabilities. Upon securing a new order, account executives participate in product launch team activities and serve as a key interface with customers. In addition, sales and marketing employees of our reporting segments often work together to explore cross-development opportunities where appropriate.

Seasonality

Our operations are directly related to the automotive and commercial-vehicle industry. Consequently, our segments may experience seasonal fluctuations to the extent vehicle production slows, such as in the summer months when many customer plants typically close for model year changeovers or vacations. Historically, model changeovers or vacations have generally resulted in lower sales volume in the Company’s third quarter.

Research and Development

The Company conducts advanced propulsion research. This advanced engineering function seeks to leverage know-how and expertise across product lines to create new propulsion systems and modules that can be commercialized. This function oversees the Company's investments in certain venture capital funds that provide seed money for start-up businesses developing new technologies pertinent to the automotive industry and the Company's propulsion strategies.

In addition, each of the Company's businesses within its Air Management, e-Propulsion & Drivetrain and Fuel Injection reporting segments has its own research and development (“R&D”) organization, including engineers and technicians, engaged in R&D activities at facilities worldwide. The Company also operates testing facilities such as prototype, measurement and calibration, life cycle testing and dynamometer laboratories.

By working closely with OEMs and anticipating their future product needs, the Company's R&D personnel conceive, design, develop and manufacture new proprietary components and systems. R&D

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personnel also work to improve current products and production processes. The Company believes its commitment to R&D will allow it to continue to obtain new orders from its OEM customers.

The Company's net R&D expenditures are primarily included in selling, general and administrative expenses of the Consolidated Statements of Operations. Customer reimbursements are netted against gross R&D expenditures as they are considered a recovery of cost. Customer reimbursements for prototypes are recorded net of prototype costs based on customer contracts, typically either when the prototype is shipped or when it is accepted by the customer. Customer reimbursements for engineering services are recorded when performance obligations are satisfied in accordance with the contract. Financial risks and rewards transfer upon shipment, acceptance of a prototype component by the customer or upon completion of the performance obligation as stated in the respective customer agreement.

	Year Ended December 31,
(in millions)	2020		2019		2018
Gross R&D expenditures	$	533	$	498	$	512
Customer reimbursements	(57)		(85)		(72)
Net R&D expenditures	$	476	$	413	$	440

Net R&D expenditures as a percentage of net sales were 4.7%, 4.1% and 4.2% for the years ended December 31, 2020, 2019 and 2018, respectively.

Intellectual Property

The Company has approximately 9,830 active domestic and foreign patents and patent applications pending or under preparation and receives royalties from licensing patent rights to others. The Company acquired approximately 3,800 of these patents and patent applications as a result of the Delphi Technologies acquisition. While it considers its patents on the whole to be important, the Company does not consider any single patent, any group of related patents or any single license essential to its operations in the aggregate or to the operations of any of the Company's business groups individually. The expiration of the patents individually and in the aggregate is not expected to have a material effect on the Company's financial position or future operating results. The Company owns numerous trademarks, some of which are valuable, but none of which are essential to its business in the aggregate.

The Company owns the “BorgWarner” trade name and numerous BORGWARNER trademarks, including without limitation “BORGWARNER” and “BORGWARNER and Bug Design”, which are material to the Company's business. 

Competition

The Company's reporting segments compete worldwide with a number of other manufacturers and distributors that produce and sell similar products. Many of these competitors are larger and have greater resources than the Company. Technological innovation, application engineering development, quality, price, delivery and program launch support are the primary methods of competition.

The Company’s major non-OEM competitors are Robert Bosch GmbH, Denso Corporation, Hitachi, Ltd., Magna Powertrain (an operating unit of Magna International Inc.), Mitsubishi Electric Corporation, Schaeffler Group and Vitesco Technologies. The Company also competes with certain start-ups in electrification.

In addition, a number of the Company's major OEM customers manufacture, for their own use and for others, products that compete with the Company's products. Other current OEM customers could elect to manufacture products to meet their own requirements or to compete with the Company. There is no

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assurance that the Company's business will not be adversely affected by increased competition in the markets in which it operates.

For many of its products, the Company's competitors include suppliers in parts of the world that enjoy economic advantages such as lower labor costs, lower health care costs, lower tax rates and, in some cases, export subsidies and/or raw materials subsidies. Also, see Item 1A, “Risk Factors.”

Human Capital Management

Our ability to sustain and grow our business requires us to hire, retain and develop a highly skilled and diverse management team and workforce worldwide. We believe the skills, experience, and industry knowledge of our employees significantly benefit our operations and performance. The Company is committed to treating our employees with dignity and respect and to creating an inclusive environment for open communication where employees can share their ideas, concerns and suggestions.

As of December 31, 2020, the Company had a salaried and hourly workforce of approximately 50,000 worldwide:

Americas	16,100
Asia	13,500
Europe	20,100
Total Employees	49,700
Salaried	15,900
Hourly	33,800
Total Employees	49,700

The approximately 50,000 employees described above include approximately 19,000 employees added as a result of our acquisition of Delphi Technologies.

We use an array of practices to attract, develop and retain highly qualified talent, including:

•Diversity, Equity & Inclusion (“DE&I”). We aspire to provide our employees with a workplace experience focused on physical and psychological safety, where there is a strong spirit of inclusion and a deep sense of belonging, because we live our beliefs. We cultivate a culture where employees are treated with respect and their differences are valued. We provide opportunities that inspire them to thrive in every area they pursue. We are continually reviewing our policies, programs and processes to ensure alignment with our DE&I strategy. The Company undertakes targeted recruitment that serves as a strategic opportunity to build a diverse leadership pipeline. The Company also provides employees the opportunity to participate in resource groups aimed at celebrating diversity, ensuring equity and promoting inclusion. As of December 31, 2020:

◦Four of 11 board members are female and/or minorities;

◦Four of 13 executive management team members are female and/or minorities; and

◦Women make up 15% of the Company’s leadership (those who participate in the management incentive plan), 22% of the Company’s salaried workforce, 33% of the Company’s new hires and 26% of the Company’s total workforce.

◦Minorities make up 14% of the Company’s U.S. leadership (those who participate in the management incentive plan), 17% of the Company’s U.S. salaried workforce, 25% of the Company’s U.S. new hires and 21% of the Company’s total U.S. workforce.

•Engagement & Sentiment. The Company actively deploys strategies to attract the brightest and best talent and to engage and retain our talent. We recognize and reward employee contributions with competitive pay and benefits. The Company closely monitors employee turnover as part of our efforts to improve retention and to spot any potential opportunities for improvement. In the

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year ended December 31, 2020, annual voluntary employee turnover was 9%. The Company provided more than 56,700 hours of training to salaried employees in the year ended December 31, 2020. The Company provides formal development opportunities at all levels and stages of the career journey of our employees. These opportunities are delivered in a variety of formats to make our portfolio of solutions agile, sustainable and scalable.

•Health & Safety. Our employees’ safety is vitally important. The Company is dedicated to continuously improving safety performance. Evidence of our dedication is in our results: our global workforce accident total recordable incident rate through December 31, 2020 was 0.44 (excluding locations acquired from Delphi Technologies), while in comparison the top quartile for motor vehicle parts manufacturing was lower than or equal to 1.1, and the mean was 2.4 according to the U.S. Bureau of Labor Statistics (the “BLS”). The Company’s global workforce accident lost time incident rate through December 31, 2020 was 0.28, while in comparison the top quartile for motor vehicle parts manufacturing was lower than or equal to 0.1 and the mean was 0.6 according to the BLS. Additionally, the Company has a formal audited health and safety management system in place at all of our manufacturing and technical centers.

In response to the global COVID-19 pandemic, the Company activated its Critical Event Management Team to closely monitor and provide global guidance on industry and regulatory health and safety recommendations. Additionally, the Company developed a Safe Restart Task Force focused on the implementation of global facility restart best practices and the procurement of personal protective equipment in collaboration with industry partners. Safe work procedures implemented globally during 2020 consisted of, but were not limited to, temporary travel bans, temperature screenings, enhanced sanitation and facility access procedures, suspected and/or positive case response, social distancing guidelines and remote work arrangements.

Approximately 12% of the Company’s U.S. workforce is unionized. These employees, located at one facility, in the state of New York, are covered by a collective bargaining agreement that expires in September 2024. Employees at certain international facilities are also unionized. The Company believes the present relations with its workforce to be satisfactory. The Company recognizes that, in many of the locations where it operates, employees have freedom of association rights with third party organizations such as labor unions. The Company respects and supports those rights, including the right to collective bargaining, in accordance with local laws.

Raw Materials

The Company uses a variety of raw materials in the production of its products including aluminum, copper, nickel, plastic resins, steel and certain alloy elements. Manufacturing operations for each of the Company's operating segments are dependent upon natural gas, fuel oil and electricity.

The Company uses a variety of tactics in an attempt to limit the impact of supply shortages and inflationary pressures. The Company's global procurement organization works to accelerate cost reductions, purchase from lower cost regions, optimize the supply base, mitigate risk and collaborate on its buying activities. In addition, the Company uses long-term contracts, cost sharing arrangements, design changes, customer buy programs and limited financial instruments to help control costs. The Company intends to use similar measures in 2021 and beyond.  Refer to Note 17, “Financial Instruments,” to the Consolidated Financial Statements in Item 8 of this report for information related to the Company's hedging activities. 

For 2021, the Company believes that its supplies of raw materials are adequate and available from multiple sources to support its manufacturing requirements.

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Regulations

The Company operates in a constantly evolving global regulatory environment and is subject to numerous and varying regulatory requirements for its product performance and material content. The Company's practice is to identify potential regulatory and quality risks early in the design and development process and proactively manage them throughout the product lifecycle through the use of routine assessments, protocols, standards, performance measures and audits. New regulations and changes to existing regulations are managed in collaboration with our OEM customers and implemented through the Company’s global systems and procedures designed to ensure compliance with existing laws and regulations. The Company demonstrates material content compliance through the International Material Data System (“IMDS”), which is the automotive industry material data system. In the IMDS, all materials used for automobile manufacturing are archived and maintained to meet the obligations placed on the automobile manufacturers, and thus on their suppliers, by national and international standards, laws and regulations.

The Company works collaboratively with a number of stakeholder groups including government agencies, such as the National Highway Traffic Safety Administration, its customers and its suppliers to proactively engage in federal, state and international public policy processes.

Refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for a discussion of the impact of environmental regulations on our business. Also, see Item 1A, “Risk Factors.”

Available Information

Through its Internet website (www.borgwarner.com), the Company makes available, free of charge, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those reports, and other filings with the Securities and Exchange Commission as soon as reasonably practicable after they are filed or furnished. The Company also makes the following documents available on its Internet website: the Audit Committee Charter; the Compensation Committee Charter; the Corporate Governance Committee Charter; the Company’s Corporate Governance Guidelines; the Company’s Code of Ethical Conduct; and the Company’s Code of Ethics for CEO and Senior Financial Officers. You may also obtain a copy of any of the foregoing documents, free of charge, if you submit a written request to Investor Relations, 3850 Hamlin Road, Auburn Hills, Michigan 48326. The public may read and copy materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC, 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

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Information About Executive Officers of the Company

Set forth below are the names, ages, positions and certain other information concerning the executive officers of the Company as of February 22, 2021.

Name (Age)	Present Position (Effective Date)	Positions Held During the Past Five Years (Effective Date)
Frederic B. Lissalde (53)	President and Chief Executive Officer (2018)	•Executive Vice President and Chief Operating Officer of BorgWarner Inc. (2018) •Vice President of the Company and President and General Manager of BorgWarner Turbo Systems LLC (2013 – 2017) •Autoliv, Inc., Member of Board of Directors (2020 - Present)
Kevin A. Nowlan (49)	Executive Vice President, Chief Financial Officer (2019)	•Meritor Inc., Senior Vice President, President, Trailer, Components and Chief Financial Officer (2018 – 2019) •Meritor Inc., Senior Vice President and Chief Financial Officer (2013 – 2018)
Tonit M. Calaway (53)	Executive Vice President, Chief Administrative Officer, General Counsel and Secretary (2020)	•Executive Vice President, Chief Legal Officer and Secretary of BorgWarner Inc. (2018 - 2020) •Chief Human Resources Officer of BorgWarner Inc. (2016 – 2018) •Harley-Davidson Inc., Vice President of Human Resources (2010 – 2016) •Astronics Corporation, Member of Board of Directors (2019 – Present) •W.P. Carey Inc., Member of Board of Directors (2020 – Present)
Felecia Pryor (46)	Executive Vice President, Chief Human Resources Officer (2019)	•Vice President of Human Resources of BorgWarner Morse Systems (2018 – 2019) •Ford Motor Company, Global Human Resources Director - Global Personnel, Organization & Planning (2018) •Ford Motor Company, Vice President of Human Resources - ASEAN Markets (2016 – 2018) •Ford Motor Company, HR Director for Research & Engineer Center located in Nanjing, China (2014 – 2016)
Craig D. Aaron (43)	Vice President and Treasurer (2019)	•Vice President of Finance of BorgWarner Morse Systems (2016 – 2019) •Director, Financial Reporting (2012 – 2016)
Alex Ashmore (51)	Vice President and President and General Manager, Aftermarket (2020)	•Delphi Technologies PLC, Senior Vice President and President Aftermarket (2017 – 2020) •ABB, Group Senior Vice President, Electrification, Asia Pacific (2015 – 2017) •TRW Automotive Holdings Corp., Vice President Global Aftermarket (2012 – 2015)
Stefan Demmerle (56)	Vice President and President and General Manager, PowerDrive Systems (2015)	•Vice President and President and General Manager of BorgWarner PowerDrive Systems (2015 – Present)
Brady D. Ericson (49)	Vice President and President and General Manager, Morse Systems (2019)	•Executive Vice President and Chief Strategy Officer of BorgWarner Inc. (2017 – 2019) •Vice President of the Company and President and General Manager of BorgWarner Emissions Systems LLC (2014 – 2017) •Romeo Power, Inc., Member of Board of Directors (2020)1
Daniel R. Etue (47)	Vice President and Controller (2020)	•Meritor, Inc., Vice President, Finance (2013 – 2020)

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Joseph F. Fadool (54)	Vice President and President and General Manager, Emissions, Thermal and Turbo Systems (2019)	•Vice President of the Company and President and General Manager of Turbo Systems LLC (2019) •Vice President of the Company and President and General Manager of BorgWarner Emissions Systems LLC and BorgWarner Thermal Systems Inc. (2017 – 2019) •Vice President of the Company and President and General Manager of BorgWarner Morse Systems (2015 – 2017)
Paul Farrell (54)	Vice President and Chief Strategy Officer (2020)	•Delphi Technologies PLC, Senior Vice President Strategy, Sales and Corporate Development (2020) •Delphi Technologies PLC, Senior Vice President Strategy and Corporate Development (2019 – 2020) •Delphi Technologies PLC, Senior Vice President Strategic Planning and Product Marketing (2017 – 2019) •Delphi Powertrain Systems, LLC, Vice President Strategy and Product Line Marketing (2016 – 2017) •Delphi Powertrain Systems, LLC, Director Strategy and Business Planning (2014 – 2016)
Davide Girelli (49)	Vice President and President and General Manager, Fuel Injection Systems (2020)	•Vice President and General Manager Europe and South America BorgWarner Emissions, Thermal and Turbo Systems (2019 – 2020) •Vice President and General Manager Europe and South America of BorgWarner Turbo Systems (2018 – 2019) •Vice President and General Manager Europe and Asia of BorgWarner Morse Systems (2015 – 2018) •General Manager Europe and India of Morse TEC LLC (2014 – 2015)
Volker Weng (50)	Vice President and President and General Manager, Drivetrain Systems (2019)	•President and General Manager for BorgWarner Emissions Systems LLC and BorgWarner Thermal Systems Inc. (2019) •Vice President and General Manager, Europe for BorgWarner Emissions Systems LLC and BorgWarner Thermal Systems Inc. (2017 – 2019) •Vice President and General Manager, Asia for Turbo Systems LLC (2015 – 2017)

________________

1 Romeo Power, Inc. became a public company in December 2020.

Item 1A.    Risk Factors    

The following risk factors and other information included in this Annual Report on Form 10-K should be considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impact our business operations. If any of the following risks occur, our business including its financial performance, financial condition, operating results and cash flows could be adversely affected.

Risks related to COVID-19

We face risks related to the COVID-19 pandemic that could adversely affect our business and financial performance.

The COVID-19 pandemic has disrupted, and is likely to continue to disrupt, the global automotive industry and customer sales, production volumes, and purchases of light vehicles by end consumers. In

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2020, global vehicle production decreased, and some vehicle manufacturers, at times, completely shut down manufacturing operations in some countries and regions, including the United States and Europe. As a result, we have experienced, and are likely to continue to experience, delays in the production and distribution of our products and the loss of sales. If the global economic effects caused by COVID-19 continue or increase, overall customer demand may continue to decrease, which could have a further adverse effect on our business, results of operations, and financial condition.

Global government directives and initiatives to reduce the transmission of COVID-19, such as the imposition of travel restrictions, closing of borders, stay-at-home directives and closing of entire plants, cities and countries, have materially impacted our operations. Furthermore, COVID-19 has impacted and may further impact the broader economies of affected countries, including negatively impacting economic growth, the proper functioning of financial and capital markets, foreign currency exchange rates, and interest rates. For example, the continued spread of COVID-19 has led to disruption and volatility in the global capital markets, which adversely impact access to capital and increase the cost of capital.

Due to the uncertainty of its duration and the timing of recovery, we are not able at this time to predict the extent to which COVID-19 may have an adverse effect on our business, financial condition and operating results. The extent of the impact of COVID-19 on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frames, will depend on future developments, including, but not limited to, the duration and spread of COVID-19, its severity, the actions to contain COVID-19 or treat its impact, including the availability and efficacy of the vaccines and any related restrictions on travel. Furthermore, the duration, timing and severity of the impact on customer production, including any recession resulting from COVID-19, are uncertain and cannot be predicted. An extended period of global supply chain and economic disruption as a result of COVID-19 would have a further material negative impact on our business, results of operations, access to sources of liquidity and financial condition, though the full extent and duration are uncertain.

Risks related to our acquisition of Delphi Technologies

The failure to realize the expected benefits of the acquisition of Delphi Technologies and other risks associated with the acquisition could adversely affect our business.

The success of our acquisition of Delphi Technologies will depend in part on our ability to realize the expected benefits from combining the businesses of the Company and Delphi Technologies. To realize these anticipated benefits, both companies must be successfully combined, which is subject to our ability to consolidate operations, corporate cultures and systems and our ability to eliminate redundancies and costs. If we are unsuccessful in combining our two companies, the anticipated benefits of the acquisition may not be realized fully or at all or may take longer to realize than expected. Further, there is potential for unknown or inestimable liabilities relating to the acquired Delphi Technologies’ businesses. In addition, the actual integration may result in additional and unforeseen expenses, which could reduce the anticipated benefits of the acquisition.

The combination of two independent businesses is a complex, costly and time-consuming process that will require significant management attention and resources. It is possible that the integration process could result in the loss of key employees, the disruption of our operations, the inability to maintain or increase our competitive presence, inconsistencies in standards, controls, procedures and policies, difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the acquisition, the diversion of management’s attention to integration matters and/or difficulties in the assimilation of employees and corporate cultures. Any or all of these factors could adversely affect our ability to maintain relationships with customers and employees or to achieve the anticipated benefits of the acquisition and could have an adverse effect on the combined company. In addition, many of these factors are outside of our control, and any one of these factors could result in increased costs, decreases in the amount of expected revenues and additional diversion of

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management’s time and energy, which could materially adversely impact our business, financial condition and results of operations.

There could be significant liability if the previous Delphi Technologies separation from its former parent fails to qualify as a tax-free transaction for U.S. federal income tax purposes.

On December 4, 2017, Delphi Technologies became an independent publicly-traded company, following its separation from Aptiv PLC, formerly known as Delphi Automotive PLC. The separation was completed in the form of a pro-rata distribution of 100% of Delphi Technologies ordinary shares to Aptiv’s shareholders. Aptiv received an opinion from its tax counsel substantially to the effect that, for U.S. federal income tax purposes, the distribution qualified as a distribution under Section 355(a) of the Internal Revenue Code, subject to certain qualifications and limitations. Based on this tax treatment, for U.S. federal income tax purposes, except with respect to cash received in lieu of a fractional Delphi Technologies ordinary share, Aptiv shareholders did not recognize a gain or loss or include any amount in their income upon the receipt of Delphi Technologies ordinary shares in the distribution. The opinion was based on and relied on, among other things, certain facts, assumptions, representations and undertakings from Aptiv and Delphi Technologies, including those regarding the past and future conduct of the companies’ respective businesses and other matters. If any of these facts, assumptions, representations or undertakings are incorrect or not satisfied, Aptiv may not be able to rely on the opinion, and Aptiv’s shareholders could be subject to significant U.S. federal income tax liabilities. Notwithstanding the opinion of tax counsel, the Internal Revenue Service could determine on audit that the distribution is taxable to Aptiv’s shareholders if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinion.

In addition, Aptiv expects that restructuring transactions that it undertook in connection with the distribution will be taxed in a certain manner. If, contrary to Aptiv’s expectations, such transactions are taxed in a different manner, Aptiv and/or Delphi Technologies may incur additional tax liabilities that may be substantial. If the Company is required to pay any such liabilities, the payments could materially adversely affect the Company’s financial position.

Under the tax matters agreement between Aptiv and Delphi Technologies, we are required to indemnify Aptiv against taxes that Aptiv incurs that arise as a result of our taking or failing to take, as the case may be, certain actions that result in the distribution failing to meet the requirements of a distribution under Section 355(a) of the Code or that result in certain restructuring transactions in connection with the distribution failing to meet the requirements for tax-free treatment for U.S. federal income tax purposes.

Risks related to our industry

Conditions in the automotive industry may adversely affect our business.

Our financial performance depends on conditions in the global automotive industry. Automotive and truck production and sales are cyclical and sensitive to general economic conditions and other factors including interest rates, consumer credit, and consumer spending and preferences. Economic declines that result in significant reduction in automotive or truck production would have an adverse effect on our sales to OEMs.

We face strong competition.

We compete worldwide with a number of other manufacturers and distributors that produce and sell products similar to ours. Price, quality, delivery, technological innovation, engineering development and program launch support are the primary elements of competition. Our competitors include vertically integrated units of our major OEM customers, as well as a large number of independent domestic and international suppliers. Additionally, our competitors include start-ups that may be well funded, with the

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result that they could have more operational and financial flexibility than we have. A number of our competitors are larger than we are, and some competitors have greater financial and other resources than we do. Although OEMs have indicated that they will continue to rely on outside suppliers, a number of our major OEM customers manufacture products for their own uses that directly compete with our products. These OEMs could elect to manufacture such products for their own uses in place of the products we currently supply. Our traditional OEM customers, faced with intense international competition, have continued to expand their worldwide sourcing of components. As a result, we have experienced competition from suppliers in other parts of the world that enjoy economic advantages, such as lower labor costs, lower health care costs, lower tax rates and, in some cases, export or raw materials subsidies. Increased competition could adversely affect our business. In addition, any of our competitors may foresee the course of market development more accurately than we do, develop products that are superior to our products, produce similar products at a cost that is lower than our cost, or adapt more quickly than we do to new technologies or evolving customer requirements. As a result, our products may not be able to compete successfully with our competitors' products, and we may not be able to meet the growing demands of customers. These trends may adversely affect our sales as well as the profit margins on our products.

If we do not respond appropriately, the evolution of the automotive industry could adversely affect our business.

The automotive industry is increasingly focused on the development of hybrid and electric vehicles and of advanced driver assistance technologies, with the goal of developing and introducing a commercially-viable, fully-automated driving experience. There has also been an increase in consumer preferences for mobility on demand services, such as car and ride sharing, as opposed to automobile ownership, which may result in a long-term reduction in the number of vehicles per capita. In addition, some industry participants are exploring transportation through alternatives to automobiles. These evolving areas have also attracted increased competition from entrants outside the traditional automotive industry. If we do not continue to innovate and develop, or acquire, new and compelling products that capitalize upon new technologies in response to OEM and consumer preferences, this could have an adverse impact on our results of operations.

The increased adoption of gasoline and hybrid propulsion systems in Western Europe may materially reduce the demand for our current products.

The industry mix shift away from diesel propulsion systems in Western Europe has resulted and is expected to result in lower demand for current diesel components.  This shift is expected to drive further increased demand for gasoline and hybrid propulsion systems. Although we have developed and are currently in production with products for gasoline and hybrid propulsion systems and industry penetration rates for these products are expected to increase over the next several years, due to the high current penetration rates of our key technologies on diesel propulsion systems, this industry mix shift could adversely impact our near-term results of operations, financial condition, and cash flows. 

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Risks related to our business

We are under substantial pressure from OEMs to reduce the prices of our products.

There is substantial and continuing pressure on OEMs to reduce costs, including costs of products we supply. OEM customers expect annual price reductions in our business. To maintain our profit margins, we seek price reductions from our suppliers, improved production processes to increase manufacturing efficiency, and streamlined product designs to reduce costs, and we attempt to develop new products, the benefits of which support stable or increased prices. Our ability to pass through increased raw material costs to our OEM customers is limited, with cost recovery often less than 100% and often on a delayed basis. Inability to reduce costs in an amount equal to annual price reductions, increases in raw material costs, and increases in employee wages and benefits could have an adverse effect on our business.

We continue to face volatile costs of commodities used in the production of our products.

The Company uses a variety of commodities (including aluminum, copper, nickel, plastic resins, steel, other raw materials and energy) and materials purchased in various forms such as castings, powder metal, forgings, stampings and bar stock. Increasing commodity costs will have an impact on our results. We have sought to alleviate the impact of increasing costs by including a material pass-through provision in our customer contracts wherever possible and by selectively hedging certain commodity exposures. Customers frequently challenge these contractual provisions and rarely pay the full cost of any increases in the cost of materials. The discontinuation or lessening of our ability to pass through or hedge increasing commodity costs could adversely affect our business.

From time to time, commodity prices may also fall rapidly. If this happens, suppliers may withdraw capacity from the market until prices improve which may cause periodic supply interruptions. The same may be true of our transportation carriers and energy providers. If these supply interruptions occur, it could adversely affect our business.

Changes in U.S. administrative policy, including changes to existing trade agreements and any resulting changes in international trade relations, may have an adverse effect on us.

The United States has maintained tariffs on certain imported steel, aluminum and items originating from China. These tariffs have increased the cost of raw materials and components we purchase. The imposition of tariffs by the United States has resulted in retaliatory tariffs from a number of countries, including China, which increase the cost of products we sell. If the U.S. or other countries impose additional tariffs, that will have a further adverse impact on our business.

We use important intellectual property in our business. If we are unable to protect our intellectual property or if a third party makes assertions against us or our customers relating to intellectual property rights, our business could be adversely affected.

We own important intellectual property, including patents, trademarks, copyrights, and trade secrets, and are involved in numerous licensing arrangements. Our intellectual property plays an important role in maintaining our competitive position in a number of the markets that we serve. Our competitors may develop technologies that are similar or superior to our proprietary technologies or design around the patents we own or license. Further, as we expand our operations in jurisdictions where the enforcement of intellectual property rights is less robust, the risk of others duplicating our proprietary technologies increases, despite efforts we undertake to protect them. Our inability to protect or enforce our intellectual property rights or claims that we are infringing intellectual property rights of others could adversely affect our business and our competitive position.

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We are subject to business continuity risks associated with increasing centralization of our information technology (IT) systems.

To improve efficiency and reduce costs, we have regionally centralized the information systems that support our business processes such as invoicing, payroll, and general management operations. If the centralized systems are disrupted or disabled, key business processes could be interrupted, which could adversely affect our business.

A failure of or disruption in our information technology infrastructure, including a disruption related to cybersecurity, could adversely impact our business and operations.

We rely on the capacity, reliability and security of our IT systems and infrastructure. IT systems are vulnerable to disruptions, including those resulting from natural disasters, cyber attacks or failures in third-party-provided services. Disruptions and attacks on our IT systems pose a risk to the security of our systems and our ability to protect our networks and the confidentiality, availability and integrity of information and data and that of third parties, including our employees. Some cyber attacks depend on human error or manipulation, including phishing attacks or schemes that use social engineering to gain access to systems or carry out disbursement of funds or other frauds, which raise the risks from such events and the costs associated with protecting against such attacks. Although we have implemented security policies, processes, and layers of defense designed to help identify and protect against intentional and unintentional misappropriation or corruption of our systems and information, and disruptions of our operations, we have been, and likely will continue to be, subjected to such attacks or disruptions. Future attacks or disruptions could potentially lead to the inappropriate disclosure of confidential information, including our intellectual property, improper use of our systems and networks, access to and manipulation and destruction of Company or third party data, production downtimes, lost revenues, inappropriate disbursement of funds and both internal and external supply shortages. In addition, we may be required to incur significant costs to protect against damage caused by such attacks or disruptions in the future. These consequences could cause significant damage to our reputation, affect our relationships with our customers and suppliers, lead to claims against the Company and ultimately adversely affect our business.

Our business success depends on attracting and retaining qualified personnel.

Our ability to sustain and grow our business requires us to hire, retain and develop a highly skilled and diverse management team and workforce worldwide. In particular, any unplanned turnover or inability to attract and retain key employees and employees with technical and software capabilities in numbers sufficient for our needs could adversely affect our business.

Our profitability and results of operations may be adversely affected by program launch difficulties.

The launch of new business is a complex process, the success of which depends on a wide range of factors, including the production readiness of our manufacturing facilities and manufacturing processes and those of our suppliers, as well as factors related to tooling, equipment, employees, initial product quality and other factors. Our failure to successfully launch new business, or our inability to accurately estimate the cost to design, develop and launch new business, could have an adverse effect on our profitability and results of operations.

To the extent we are not able to successfully launch new business, vehicle production at our customers could be significantly delayed or shut down. Such situations could result in significant financial penalties to us or a diversion of personnel and financial resources to improving launches rather than investment in continuous process improvement or other growth initiatives, and could result in our

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customers shifting work away from us to a competitor, all of which could result in loss of revenue, or loss of market share and could have an adverse effect on our profitability and cash flows.

Part of our workforce is unionized which could subject us to work stoppages.

As of December 31, 2020, approximately 12% of our U.S. workforce was unionized. We have a domestic collective bargaining agreement for one facility in New York, which expires in September 2024. The workforce at certain of our international facilities is also unionized. A prolonged dispute with our employees could have an adverse effect on our business.

Work stoppages, production shutdowns and similar events could significantly disrupt our business.

Because the automotive industry relies heavily on just-in-time delivery of components during the assembly and manufacture of vehicles, a work stoppage or production shutdown at one or more of our manufacturing and assembly facilities could have adverse effects on our business. Similarly, if one or more of our customers were to experience a work stoppage or production shutdown, that customer would likely halt or limit purchases of our products, which could result in the shutdown of the related manufacturing facilities. A significant disruption in the supply of a key component due to a work stoppage or production shutdown at one of our suppliers or any other supplier could have the same consequences and, accordingly, have an adverse effect on our financial results.

Changes in interest rates and asset returns could increase our pension funding obligations and reduce our profitability.

    We have unfunded obligations under certain of our defined benefit pension and other postretirement benefit plans. The valuation of our future payment obligations under the plans and the related plan assets is subject to significant adverse changes if the credit and capital markets cause interest rates and projected rates of return to decline. Such declines could also require us to make significant additional contributions to our pension plans in the future. Additionally, a material deterioration in the funded status of the plans could significantly increase our pension expenses and reduce profitability in the future.

We also sponsor post-employment medical benefit plans in the U.S. that are unfunded. If medical costs continue to increase or actuarial assumptions are modified, this could have an adverse effect on our business. 

We are subject to extensive environmental regulations.

Our operations are subject to laws governing, among other things, emissions to air, discharges to waters, and the generation, management, transportation and disposal of waste and other materials. The operation of automotive parts manufacturing plants entails risks in these areas, and we cannot assure that we will not incur material costs or liabilities as a result. Through various acquisitions over the years, we have acquired a number of manufacturing facilities, and we cannot assure that we will not incur material costs and liabilities relating to activities that predate our ownership. In addition, potentially significant expenditures could be required to comply with evolving interpretations of existing environmental, health and safety laws and regulations or any new such laws and regulations (including concerns about global climate change and its impact) that may be adopted in the future. Costs associated with failure to comply with such laws and regulations could have an adverse effect on our business.

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We have liabilities related to environmental, product warranties, litigation and other claims.

We and certain of our current and former direct and indirect corporate predecessors, subsidiaries and divisions have been identified by the United States Environmental Protection Agency and certain state environmental agencies and private parties as potentially responsible parties at various hazardous waste disposal sites under the Comprehensive Environmental Response, Compensation and Liability Act and equivalent state laws, and, as such, may be liable for the cost of clean-up and other remedial activities at such sites. While responsibility for clean-up and other remedial activities at such sites is typically shared among potentially responsible parties based on an allocation formula, we could have greater liability under applicable statutes. Refer to Note 21, “Contingencies,” to the Consolidated Financial Statements in item 8 of this report for further discussion.

We provide product warranties to our customers for some of our products. Under these product warranties, we may be required to bear costs and expenses for the repair or replacement of these products. As suppliers become more integrally involved in the vehicle design process and assume more of the vehicle assembly functions, auto manufacturers are increasingly looking to their suppliers for contribution when faced with recalls and product warranty claims. A recall claim brought against us, or a product warranty claim brought against us, could adversely impact our results of operations. In addition, a recall claim could require us to review our entire product portfolio to assess whether similar issues are present in other product lines, which could result in significant disruption to our business and could have an adverse impact on our results of operations. We cannot assure that costs and expenses associated with these product warranties will not be material or that those costs will not exceed any amounts accrued for such product warranties in our financial statements.

We are currently, and may in the future become, subject to legal proceedings and commercial or contractual disputes. These claims typically arise in the normal course of business and may include, but not be limited to, commercial or contractual disputes with our customers and suppliers, intellectual property matters, personal injury, product liability, environmental and employment claims. There is a possibility that such claims may have an adverse impact on our business that is greater than we anticipate. While the Company maintains insurance for certain risks, the amount of insurance may not be adequate to cover all insured claims and liabilities. The incurring of significant liabilities for which there is no, or insufficient, insurance coverage could adversely affect our business.

Compliance with and changes in laws could be costly and could affect operating results.

    We have operations in multiple countries that can be impacted by expected and unexpected changes in the legal and business environments in which we operate. Compliance-related issues in certain countries associated with laws such as the Foreign Corrupt Practices Act and other anti-corruption laws could adversely affect our business. We have internal policies and procedures relating to compliance with such laws; however, there is a risk that such policies and procedures will not always protect us from the improper acts of employees, agents, business partners, joint venture partners, or representatives, particularly in the case of recently-acquired operations that may not have significant training in applicable compliance policies and procedures. Violations of these laws, which are complex, may result in criminal penalties, sanctions and/or fines that could have an adverse effect on our business, financial condition, and results of operations and reputation.

    Changes that could impact the legal environment include new legislation, new regulations, new policies, investigations and legal proceedings, and new interpretations of existing legal rules and regulations, in particular, changes in import and export control laws or exchange control laws, additional restrictions on doing business in countries subject to sanctions, and changes in laws in countries where we operate or intend to operate.

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Changes in tax laws or tax rates taken by taxing authorities and tax audits could adversely affect our business.

    Changes in tax laws or tax rates, the resolution of tax assessments or audits by various tax authorities, and the inability to fully utilize our tax loss carryforwards and tax credits could adversely affect our operating results. In addition, we may periodically restructure our legal entity organization.

    If taxing authorities were to disagree with our tax positions in connection with any such restructurings, our effective tax rate could be materially affected. Our tax filings for various periods are subject to audit by the tax authorities in most jurisdictions where we conduct business. We have received tax assessments from various taxing authorities and are currently at varying stages of appeals and/or litigation regarding these matters. These audits may result in assessment of additional taxes that are resolved with the authorities or through the courts. We believe these assessments may occasionally be based on erroneous and even arbitrary interpretations of local tax law. Resolution of any tax matters involves uncertainties, and there are no assurances that the outcomes will be favorable.

Our growth strategy may prove unsuccessful.

We have a stated goal of increasing sales and operating income at a rate greater than global vehicle production growth, if any, by increasing content per vehicle with innovative new components and through select acquisitions.

We may not meet our goal due to many factors, including any of the risks identified in the paragraph that follows, failure to develop new products that our customers will purchase, technology changes that could render our products obsolete, and a reversal of the trend of supplying systems (which allows us to increase content per vehicle) instead of components, among other things.

    We expect to continue to pursue business ventures, acquisitions, and strategic alliances that leverage our technology capabilities, enhance our customer base, geographic representation, and scale to complement our current businesses, and we regularly evaluate potential growth opportunities, some of which could be material. While we believe that such transactions are an integral part of our long-term strategy, there are risks and uncertainties related to these activities. Assessing a potential growth opportunity involves extensive due diligence. However, the amount of information we can obtain about a potential growth opportunity can be limited, and we can give no assurance that past or future business ventures, acquisitions, and strategic alliances will positively affect our financial performance or will perform as planned. We may not be able to successfully assimilate or integrate companies that we have acquired or acquire in the future, including their personnel, financial systems, distribution, operations and general operating procedures. The integration of companies that we have acquired or will acquire in the future may be more difficult, time consuming or costly than expected. Revenues following the acquisition of a company may be lower than expected, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, or suppliers) may be greater than expected, and we may not be able to retain key employees at the acquired company. We may also encounter challenges in achieving appropriate internal control over financial reporting in connection with the integration of an acquired company. If we fail to assimilate or integrate acquired companies successfully, our business, reputation and operating results could be adversely affected. Likewise, our failure to integrate and manage acquired companies or realize certain synergies successfully may lead to future impairment of any associated goodwill and intangible asset balances. Failure to execute our growth strategy could adversely affect our business.

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We are subject to risks related to our international operations.

We have manufacturing and technical facilities in many regions including Europe, Asia, and the Americas. For 2020, approximately 80% of our consolidated net sales were outside the U.S. Consequently, our results could be affected by changes in trade, monetary and fiscal policies, trade restrictions or prohibitions, import or other charges or taxes, fluctuations in foreign currency exchange rates, limitations on the repatriation of funds, changing economic conditions, unreliable intellectual property protection and legal systems, insufficient infrastructures, social unrest, political instability and disputes, international terrorism and other factors that may be discrete to a particular country or geography. Compliance with multiple and potentially conflicting laws and regulations of various countries is challenging, burdensome and expensive.

    The financial statements of foreign subsidiaries are translated to U.S. dollars using the period-end exchange rate for assets and liabilities and an average exchange rate for each period for revenues, expenses and capital expenditures. The local currency is typically the functional currency for the Company's foreign subsidiaries. Significant foreign currency fluctuations and the associated translation of those foreign currencies could adversely affect our business. Additionally, significant changes in currency exchange rates, particularly the Euro, Korean Won and Chinese Renminbi, could cause fluctuations in the reported results of our businesses’ operations that could negatively affect our results of operations. 

Because we are a U.S. holding company, one significant source of our funds is distributions from our non-U.S. subsidiaries. Certain countries in which we operate have adopted or could institute currency exchange controls that limit or prohibit our local subsidiaries' ability to convert local currency into U.S. dollars or to make payments outside the country. This could subject us to the risks of local currency devaluation and business disruption.

Our business in China is subject to aggressive competition and is sensitive to economic, political, and market conditions.

    Maintaining a strong position in the Chinese market is a key component of our global growth strategy. The automotive supply market in China is highly competitive, with competition from many of the largest global manufacturers and numerous smaller domestic manufacturers. As the Chinese market evolves, we anticipate that market participants will act aggressively to increase or maintain their market share. Increased competition may result in price reductions, reduced margins and our inability to gain or hold market share. In addition, our business in China is sensitive to economic, political, social and market conditions that drive sales volumes in China. Economic growth has slowed in China. If we are unable to maintain our position in the Chinese market or if vehicle sales in China decrease, our business and financial results could be adversely affected.

A downgrade in the ratings of our debt could restrict our ability to access the debt capital markets.

Changes in the ratings that rating agencies assign to our debt may ultimately impact our access to the debt capital markets and the costs we incur to borrow funds. If ratings for our debt fall below investment grade, our access to the debt capital markets could become restricted and our cost of borrowing or the interest rate for any subsequently issued debt would likely increase.

Our revolving credit agreement includes an increase in interest rates if the ratings for our debt are downgraded. The interest costs on our revolving credit agreement are based on a rating grid agreed to in our credit agreement. Further, an increase in the level of our indebtedness and related interest costs may increase our vulnerability to adverse general economic and industry conditions and may affect our ability to obtain additional financing.

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We could incur additional restructuring charges as we continue to execute actions in an effort to improve future profitability and competitiveness and to optimize our product portfolio and may not achieve the anticipated savings and benefits from these actions.

We have initiated and may continue to initiate restructuring actions designed to improve the competitiveness of our business and sustain our margin profile, optimize our product portfolio or create an optimal legal entity structure. We may not realize anticipated savings or benefits from past or future actions in full or in part or within the time periods we expect. We are also subject to the risks of labor unrest, negative publicity and business disruption in connection with our actions. Failure to realize anticipated savings or benefits from our actions could have an adverse effect on our business.

Risks related to our customers

We rely on sales to major customers.

We rely on sales to OEMs around the world of varying credit quality and manufacturing demands. Supply to several of these customers requires significant investment by the Company. We base our growth projections, in part, on commitments made by our customers. These commitments generally renew yearly during a program life cycle. Among other things, the level of production orders we receive is dependent on the ability of our OEM customers to design and sell products that consumers desire to purchase. If actual production orders from our customers do not approximate such commitments due to a variety of factors including non-renewal of purchase orders, a customer's financial hardship or other unforeseen reasons, it could adversely affect our business.

Some of our sales are concentrated. Our worldwide sales in 2020 to Ford and Volkswagen constituted approximately 13% and 11% of our 2020 consolidated net sales, respectively.   

We are sensitive to the effects of our major customers’ labor relations.

All three of our primary North American customers, Ford, Stellantis, and General Motors, have major union contracts with the United Automobile, Aerospace and Agricultural Implement Workers of America. Because of domestic OEMs' dependence on a single union, we are affected by labor difficulties and work stoppages at OEMs' facilities. Similarly, a majority of our global customers' operations outside of North America are also represented by various unions. Any extended work stoppage at one or more of our customers could have an adverse effect on our business.

Risks related to our suppliers

We could be adversely affected by supply shortages of components from our suppliers.

In an effort to manage and reduce the cost of purchased goods and services, we have been rationalizing our supply base. As a result, we are dependent on fewer sources of supply for certain components used in the manufacture of our products. We select suppliers based on total value (including total landed price, quality, delivery, and technology), taking into consideration their production capacities and financial condition. We expect that they will deliver to our stated written expectations.

However, there can be no assurance that capacity limitations, industry shortages, labor or social unrest, weather emergencies, commercial disputes, government actions, riots, wars, sabotage, cyber attacks, non-conforming parts, acts of terrorism, “Acts of God,” or other problems that our suppliers experience will not result in occasional shortages or delays in their supply of components to us. If we were to experience a significant or prolonged shortage of critical components from any of our suppliers and could not procure the components from other sources, we would be unable to meet the production schedules for some of our key products and could miss customer delivery expectations. In addition, with

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fewer sources of supply for certain components, each supplier may perceive that it has greater leverage and, therefore, some ability to seek higher prices from us at a time that we face substantial pressure from OEMs to reduce the prices of our products. This could adversely affect our customer relations and business.

Suppliers’ economic distress could result in the disruption of our operations and could adversely affect our business.

Rapidly changing industry conditions such as volatile production volumes; our need to seek price reductions from our suppliers as a result of the substantial pressure we face from OEMs to reduce the prices of our products; credit tightness; changes in foreign currencies; raw material, commodity, tariffs, transportation, and energy price escalation; drastic changes in consumer preferences; and other factors could adversely affect our supply chain, and sometimes with little advance notice. These conditions could also result in increased commercial disputes and supply interruption risks. In certain instances, it would be difficult and expensive for us to change suppliers that are critical to our business. On occasion, we must provide financial support to distressed suppliers or take other measures to protect our supply lines. We cannot predict with certainty the potential adverse effects these costs might have on our business.

We are subject to possible insolvency of financial counterparties.

We engage in numerous financial transactions and contracts including insurance policies, letters of credit, credit line agreements, financial derivatives, and investment management agreements involving various counterparties. We are subject to the risk that one or more of these counterparties may become insolvent and therefore be unable to meet its obligations under such contracts.

Other risks

A variety of other factors could adversely affect our business.

Any of the following could materially and adversely affect our business: the loss of or changes in supply contracts or sourcing strategies of our major customers or suppliers; start-up expenses associated with new vehicle programs or delays or cancellation of such programs; low levels of utilization of our manufacturing facilities, which can be dependent on a single product line or customer; inability to recover engineering and tooling costs; market and financial consequences of recalls that may be required on products we supplied; delays or difficulties in new product development; the possible introduction of similar or superior technologies by others; global excess capacity and vehicle platform proliferation; and the impact of fire, flood, or other natural disasters including pandemics and quarantines.

Item 1B.    Unresolved Staff Comments

The Company has received no written comments regarding its periodic or current reports from the staff of the Securities and Exchange Commission that were issued 180 days or more preceding the end of its 2020 fiscal year that remain unresolved.

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Item 2.    Properties

As of December 31, 2020, the Company had 96 manufacturing, assembly and technical locations worldwide. The Company's worldwide headquarters are located in a leased facility in Auburn Hills, Michigan. In general, the Company believes its facilities to be suitable and adequate to meet its current and reasonably anticipated needs.

The following is additional information concerning principal manufacturing, assembly and technical facilities operated by the Company, its subsidiaries, and affiliates.

Segments	Americas	Europe	Asia	Total
Air Management	13	14	17	44
e-Propulsion & Drivetrain	15	8	12	35
Fuel Injection	3	6	6	15
Aftermarket	1	1	—	2

The table above excludes joint ventures in which the Company owned less than 50% as of December 31, 2020 and administrative offices. Of the facilities noted above, 40 have leased land rights or a leased facility.

Item 3.    Legal Proceedings    

The Company is subject to a number of claims and judicial and administrative proceedings (some of which involve substantial amounts) arising out of the Company’s business or relating to matters for which the Company may have a contractual indemnity obligation. See Note 21, “Contingencies,” to the Consolidated Financial Statements in Item 8 of this report for a discussion of environmental, product liability, derivative and other litigation, which is incorporated herein by reference.

Item 4.    Mine Safety Disclosures

Not applicable.

PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company's common stock is listed for trading on the New York Stock Exchange under the symbol BWA. As of February 16, 2021, there were 1,545 holders of record of common stock.

While the Company currently expects that quarterly cash dividends will continue to be paid in the future at levels comparable to recent historical levels, the dividend policy is subject to review and change at the discretion of the Board of Directors.    

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The line graph below compares the cumulative total shareholder return on our Common Stock with the cumulative total return of companies on the Standard & Poor's (S&P’s) 500 Stock Index, and companies within Standard Industrial Code (“SIC”) 3714 - Motor Vehicle Parts.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among BorgWarner Inc., the S&P 500 Index, and SIC 374 Motor Vehicle Parts

___________

*$100 invested on 12/31/2015 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.

Copyright© 2020 S&P, a division of S&P Global. All rights reserved.

BWA and S&P 500 data are from Capital IQ; SIC Code Index data is from Research Data Group

	December 31,
	2015		2016		2017		2018		2019		2020
BorgWarner Inc.(1)	$	100.00	$	92.67	$	121.59	$	83.93	$	106.73	$	96.91
S&P 500(2)	$	100.00	$	111.96	$	136.40	$	130.42	$	171.49	$	203.04
SIC Code Index(3)	$	100.00	$	114.03	$	152.00	$	125.71	$	169.94	$	203.93

________________

(1)BorgWarner Inc.

(2)S&P 500 — Standard & Poor’s 500 Total Return Index

(3)Standard Industrial Code (“SIC”) 3714-Motor Vehicle Parts

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Purchase of Equity Securities

In January 2020, the Company's Board of Directors authorized the purchase of up to $1 billion of the Company's common stock, which replaced the previous share repurchase program. As of December 31, 2020, the Company has repurchased $216 million of common stock under this repurchase program. Shares purchased under this authorization may be repurchased in the open market at prevailing prices and at times and in amounts to be determined by management as market conditions and the Company's capital position warrant. The Company may use Rule 10b5-1 and 10b-18 plans to facilitate share repurchases. Repurchased shares will be deemed common stock held in treasury and may subsequently be reissued.

Employee transactions include restricted stock withheld to offset statutory minimum tax withholding that occurs upon vesting of restricted stock. The BorgWarner Inc. 2014 Stock Incentive Plan, as amended and the BorgWarner Inc. 2018 Stock Incentive Plan provide that the withholding obligations be settled by the Company retaining stock that is part of the award. Withheld shares will be deemed common stock held in treasury and may subsequently be reissued for general corporate purposes.

The following table provides information about the Company's purchases of its equity securities that are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") during the quarter ended December 31, 2020:

Issuer Purchases of Equity Securities
Period	Total number of shares purchased	Average price per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under plans or programs (in millions)
October 1, 2020 - October 31, 2020
Common Stock Repurchase Program	—	$	—	—	$	1,000
Employee transactions	174	$	37.15	—
November 1, 2020 - November 30, 2020
Common Stock Repurchase Program	4,589,114	$	37.40	4,589,114	$	828
Employee transactions	6,288	$	38.54	—
December 1, 2020 - December 31, 2020
Common Stock Repurchase Program	1,166,516	$	38.17	1,166,516	$	784
Employee transactions	—	$	—	—

Equity Compensation Plan Information

As of December 31, 2020, the number of shares of options, restricted common stock, warrants and rights outstanding under our equity compensation plans, the weighted average exercise price of outstanding options, restricted common stock, warrants and rights and the number of securities remaining available for issuance were as follows:

	Number of securities to be issued upon exercise of outstanding options, restricted common stock, warrants and rights	Weighted average exercise price of outstanding options, restricted common stock, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Plan category	(a)	(b)		(c)
Equity compensation plans approved by security holders	2,144,910	$	39.60	5,235,569
Equity compensation plans not approved by security holders	—	$	—	—
Total	2,144,910	$	39.60	5,235,569

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Item 6.    Selected Financial Data

	Year Ended December 31,
(in millions)	2020		2019		2018		2017		2016
Operating results
Net sales	$	10,165	$	10,168	$	10,530	$	9,799	$	9,071
Operating income (a)	$	618	$	1,303	$	1,190	$	1,072	$	973
Net earnings attributable to BorgWarner Inc.(a)	$	500	$	746	$	931	$	440	$	595
Earnings per share attributable to BorgWarner Inc. — basic	$	2.35	$	3.63	$	4.47	$	2.09	$	2.78
Earnings per share attributable to BorgWarner Inc. — diluted	$	2.34	$	3.61	$	4.44	$	2.08	$	2.76
Net R&D expenditures	$	476	$	413	$	440	$	408	$	343
Capital expenditures, including tooling outlays	$	441	$	481	$	546	$	560	$	501
Depreciation and amortization	$	568	$	439	$	431	$	408	$	391
Number of employees	49,700		29,000		30,000		29,000		27,000
Financial position
Cash and cash equivalents	$	1,650	$	832	$	739	$	545	$	444
Total assets	$	16,029	$	9,702	$	10,095	$	9,788	$	8,835
Total debt	$	3,787	$	1,960	$	2,114	$	2,188	$	2,220
Common share information
Cash dividend declared and paid per share	$	0.68	$	0.68	$	0.68	$	0.59	$	0.53
Weighted average shares outstanding
Basic	213.0		205.7		208.2		210.4		214.4
Diluted	214.0		206.8		209.5		211.5		215.3

________________

(a)Refer to Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” for discussion of non-comparable items impacting the years ended December 31, 2020 and 2019.

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

BorgWarner Inc. and Consolidated Subsidiaries (the “Company”) is a global product leader in clean and efficient technology solutions for combustion, hybrid and electric vehicles. Our products help improve vehicle performance, propulsion efficiency, stability and air quality. These products are manufactured and sold worldwide, primarily to original equipment manufacturers (“OEMs”) of light vehicles (passenger cars, sport-utility vehicles (“SUVs”), vans and light trucks). The Company’s products are also sold to other OEMs of commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway vehicles (agricultural and construction machinery and marine applications). We also manufacture and sell our products to certain Tier One vehicle systems suppliers and into the aftermarket for light, commercial and off-highway vehicles. The Company operates manufacturing facilities serving customers in Europe, the Americas and Asia and is an original equipment supplier to nearly every major automotive OEM in the world.

Acquisition of 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 and cash in lieu of any fractional share. In the aggregate, the Company delivered consideration of approximately $2.4 billion, including approximately 37 million shares of common stock of the Company, valued at $1.5 billion, repayment of approximately $900 million of Delphi Technologies’ debt and stock-based compensation of approximately $15 million. Upon closing, the Company also assumed approximately $800 million in senior notes as discussed below. The acquisition is expected to strengthen the Company’s electronics and power electronics products, capabilities and scale, position the Company for greater growth as electrified propulsion systems gain momentum and enhance key combustion, commercial vehicle and aftermarket product offerings.

On October 5, 2020, the Company completed its offer to exchange approximately $800 million in aggregate principal amount of Delphi Technologies’ outstanding 5.000% Senior Notes due 2025 (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.

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Following the Delphi Technologies acquisition, to align with the manner in which the business is viewed and managed subsequent to the acquisition, the Company reorganized its management reporting structure. Previously, the Company reported its results under two reporting segments, Engine and Drivetrain, which are now referred to as Air Management and e-Propulsion & Drivetrain, respectively. The former Delphi Technologies Powertrain Products segment was integrated into the Air Management segment and the former Delphi Technologies Electronics & Electrification segment was integrated into the e-Propulsion & Drivetrain segment. The remaining Delphi Technologies segments comprise two additional reporting segments, which are referred to as Fuel Injection and Aftermarket.

Results of operations for Delphi Technologies are included in the Company’s financial information following the date of acquisition on October 1, 2020.

COVID-19 Pandemic Update

To date, COVID-19 has surfaced in nearly all regions around the world and has resulted, at times, in travel restrictions, closing of borders and business slowdowns or shutdowns in affected areas. Many OEMs temporarily suspended certain manufacturing operations, particularly in North America and Europe, due to market conditions and matters associated with COVID-19. Furthermore, COVID-19 has impacted and may further impact the broader economies of affected countries, including negatively impacting economic growth, the proper functioning of financial and capital markets, foreign currency exchange rates and interest rates. The continued spread of COVID-19 has led to disruption and volatility in the global capital markets, which adversely impact the access to capital and increase the cost of capital.

In response to the outbreak and business disruption, we, first and foremost, prioritized the health and safety of our employees. As a global manufacturer, we have responded to shelter-in-place and similar government orders in various locations around the world, including throughout the United States and Europe. Additionally, our employees must respond to self-isolation and quarantine orders based on circumstances in their local communities, which continues to impact our facilities. The reopening procedures related to COVID-19 led to a number of employee safety measures upon reopening to contain the spread, including domestic and international travel restrictions, work-from-home practices, extensive cleaning protocols, social distancing guidelines, requirement for employees to wear masks and various temporary closures of or reduced operations at our manufacturing and assembly facilities.

In April 2020, we implemented a range of actions aimed at temporarily reducing costs and preserving liquidity. These actions included, but were not limited to:

•a temporary 20% reduction in base salaries of our senior executive leadership team and annual retainers of our non-employee directors;

•up to 10% temporary base pay reductions for other salaried employees; and

•reductions in discretionary spending, such as outside professional services and travel.

Effective September 1, 2020, all of the base pay and annual retainer reductions had been eliminated.

We continue to monitor the evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our operating plan. To date, COVID-19 has had a material adverse impact on our revenue and overall profitability, primarily in the quarter ended June 30, 2020. Significant reductions in automotive or truck production have had, and may continue to have, an adverse effect on the Company’s sales to OEMs. While production levels increased in the third and fourth quarters and revenue and profitability improved, COVID-19 continues to impact our business globally, and it is possible

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COVID-19 could result in adverse impacts in the future. We cannot reasonably estimate the full impacts COVID-19 could have on our financial condition, results of operations or cash flows in the future.

As of December 31, 2020, we had liquidity of $3,650 million, comprised of cash and cash equivalent balances of $1,650 million and an undrawn revolving credit facility of $2,000 million. We were in full compliance with our covenants under the revolving credit facility and had full access to our undrawn revolving credit facility. Debt maturities through the end of 2021 total $45 million. Given our strong liquidity position, we believe that the Company will have sufficient liquidity and will maintain compliance with all covenants throughout the next 12 months.

RESULTS OF OPERATIONS

A detailed comparison of the Company’s 2018 operating results to its 2019 operating results can be found in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in the Company’s 2019 Annual Report on Form 10-K filed February 13, 2020.

The following table presents a summary of our operating results:

	Year Ended December 31,
(in millions, except per share data)	2020				2019
Net sales			% of net sales				% of net sales
Air Management	$	5,678	55.9	%	$	6,214	61.1	%
e-Propulsion & Drivetrain	3,989		39.2		4,015		39.5
Fuel Injection	479		4.7		—		—
Aftermarket	194		1.9		—		—
Inter-segment eliminations	(175)		(1.7)		(61)		(0.6)
Total net sales	10,165		100.0		10,168		100.0
Cost of sales	8,255		81.2		8,067		79.3
Gross profit	1,910		18.8		2,101		20.7
Selling, general and administrative expenses - R&D	476		4.7		413		4.1
Selling, general and administrative expenses - Other	475		4.7		460		4.5
Other operating expense - Restructuring expense	203		2.0		72		0.7
Other operating expense (income), net - Other	138		1.4		(147)		(1.4)
Operating income	618		6.1		1,303		12.8
Equity in affiliates’ earnings, net of tax	(18)		(0.2)		(32)		(0.3)
Unrealized gain on equity securities	(382)		(3.8)		—		—
Interest income	(12)		(0.1)		(12)		(0.1)
Interest expense	73		0.7		55		0.5
Other postretirement (income) expense	(7)		(0.1)		27		0.3
Earnings before income taxes and noncontrolling interest	964		9.5		1,265		12.4
Provision for income taxes	397		3.9		468		4.6
Net earnings	567		5.6		797		7.8
Net earnings attributable to the noncontrolling interest, net of tax	67		0.7		51		0.5
Net earnings attributable to BorgWarner Inc.	$	500	4.9	%	$	746	7.3	%
Earnings per share — diluted	$	2.34			$	3.61

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Net sales for the year ended December 31, 2020 totaled $10,165 million, approximately the same as net sales for the year ended December 31, 2019. During the three months ended December 31, 2020, the Delphi Technologies acquisition increased revenues by $1,120 million. Excluding this revenue, total net sales declined by 11% as compared to the year ended December 31, 2019. Excluding the impact of weaker foreign currencies, primarily the Euro, and the net impact of the Delphi Technologies acquisition, net sales decreased approximately 11%, primarily due to COVID-19 related production slowdowns and shutdowns during the first six months of 2020, partially offset by stronger sales in China.

Cost of sales as a percentage of net sales was 81.2% and 79.3% in the years ended December 31, 2020 and 2019, respectively. Cost of sales associated with Delphi Technologies for the three months ended December 31, 2020 was approximately $900 million. Excluding the impact of the acquisition of Delphi Technologies, cost of sales decreased primarily due to lower sales. The Company's material cost of sales was approximately 57% and 55% of net sales in the years ended December 31, 2020 and 2019, respectively. Gross profit as a percentage of net sales was 18.8% and 20.7% in the years ended December 31, 2020 and 2019, respectively. The reduction of gross margin in 2020 compared to 2019 was primarily due to the impact of the COVID-19 pandemic. In response to the COVID-19 pandemic, the Company took numerous steps to eliminate costs; however, certain fixed costs could not be reduced on a temporary basis, which led to a higher cost of sales as a percentage of sales as compared to the year ended December 31, 2019. In addition, the $27 million related to the fair value adjustment of inventories acquired had an unfavorable impact on gross margin and, to a lesser extent, certain lower margin business related to the acquisition of Delphi Technologies.

Selling, general and administrative expenses (“SG&A”) was $951 million and $873 million, or 9.4% and 8.6% of net sales for the years ended December 31, 2020 and 2019, respectively. SG&A increased as a result of the three months of activity related to Delphi Technologies following the acquisition on October 1, 2020. The increase related to Delphi Technologies was partially offset by savings and actions taken during the year in response to the COVID-19 pandemic.

Research and development (“R&D”) costs, net of customer reimbursements, were $476 million, or 4.7% of net sales, in the year ended December 31, 2020, compared to $413 million, or 4.1% of net sales, in the year ended December 31, 2019. The increase of R&D costs, net of customer reimbursements, in the year ended December 31, 2020 compared with the year ended December 31, 2019 was primarily due to the acquisition of Delphi Technologies, which increased R&D costs by $66 million during the three months ended December 31, 2020. We will continue to invest in a number of cross-business R&D programs, as well as a number of other key programs, all of which are necessary for short- and long-term growth. Our current long-term expectation for R&D spending is in the range of 5.0% to 5.5% of net sales.

Restructuring expense was $203 million and $72 million for the years ended December 31, 2020 and 2019, respectively, primarily related to employee benefit costs. The increase in 2020 was primarily due to increased costs related to the announced closure of two facilities in Europe affecting approximately 550 employees and contractually required severance and stock-based compensation associated with the Delphi Technologies acquisition.

In February 2020, the Company announced a cost restructuring plan to address existing structural costs. During the year ended December 31, 2020, the Company recorded $148 million of restructuring expense related to this plan. These actions are expected to result in a total of $300 million of restructuring costs through 2022. The resulting annual gross savings is expected to be $90 million to $100 million and will be utilized to sustain overall operating margin profile and cost competitiveness. Nearly all of the restructuring charges are expected to be cash expenditures.

In April 2019, the Company announced a cost restructuring plan including several actions to reduce existing structural costs. These actions were primarily completed during fourth quarter 2019 and resulted

34

in approximately $50 million of restructuring expense. The resulting annual gross cost reduction is expected to be in the range of $40 million to $50 million by 2021.

The Company recorded approximately $54 million in restructuring during the three months ended December 31, 2020, related to legacy Delphi Technologies. In conjunction with the acquisition, there were contractually required severance and post-combination stock-based compensation cash payments to legacy Delphi Technologies executive officers and other employee termination benefits. Additionally, in 2019, legacy Delphi Technologies announced a restructuring plan to reshape and realign its global technical center footprint and reduce salaried and contract staff, with expected charges of up to $175 million. Certain of these actions are subject to consultation with employee works councils and other employee representatives. The majority of these actions are expected to be completed by the end of 2021. Nearly all of the restructuring charges are expected to be cash expenditures.

Other operating expense (income), net - other represents items other than restructuring expense and was expense of $138 million and income of $147 million for the years ended December 31, 2020 and 2019, respectively.

In this line item for the years ended December 31, 2020 and 2019 is merger, acquisition and divestiture expense of $96 million and $11 million, respectively. The increase in 2020 was primarily related to professional fees associated with the acquisition of Delphi Technologies completed on October 1, 2020.

As a result of an evaluation of the underlying technologies and management of the business subsequent to the acquisition of Delphi Technologies, the Company reduced the useful life of certain intangible assets during the fourth quarter of 2020 as they no longer provided future economic benefit. This resulted in accelerated amortization expense of $38 million recorded within this line item.

In addition, the year ended December 31, 2019 included a pre-tax gain of $177 million related to the derecognition of BorgWarner Morse TEC LLC (“Morse TEC”), which was a consolidated wholly-owned subsidiary of the Company that held asbestos and certain other liabilities and was the policyholder of the related insurance assets. Also related to this matter, the Company recorded tax expense as a result of the reversal of the previously recorded deferred tax assets related to the asbestos liabilities of $173 million, resulting in an after-tax gain of $4 million. Refer to Note 21, “Contingencies,” to the Consolidated Financial Statements in Item 8 of this report for more information.

This line item is primarily comprised of operating expense (income) items discussed within the subtitle “Non-comparable items impacting the Company’s earnings per diluted share and net earnings” below.

Equity in affiliates’ earnings, net of tax was $18 million and $32 million in the years ended December 31, 2020 and 2019, respectively. This line item is driven by the results of our unconsolidated joint ventures, NSK-Warner K.K., Turbo Energy Private Limited (“TEL”) and Delphi-TVS Diesel Systems Ltd. The decrease in equity in affiliates' earnings in the year ended December 31, 2020 was due to lower industry volumes and cost pressures in a reduced market.

Unrealized gain on equity securities was $382 million in the year ended December 31, 2020. This line item reflects the net unrealized gain recognized during 2020 related to the Company’s equity securities in Romeo Systems, Inc. (now known as Romeo Power, Inc.) which became a public company in December 2020. For further details, see Note 2, “Acquisitions,” to the Consolidated Financial Statements in Item 8 of this report.

Interest expense was $73 million and $55 million in the years ended December 31, 2020 and 2019, respectively. The increase in interest expense for the year ended December 31, 2020 compared with the year ended December 31, 2019 was primarily due to the Company’s issuance of $1.1 billion senior notes in June 2020 and the $800 million DT Notes acquired as part of the Delphi Technologies acquisition.

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Provision for income taxes the provision for income taxes resulted in an effective tax rate of 41.2% for the year ended December 31, 2020, compared with the rate of 37.1% for the year ended December 31, 2019. For further details, see Note 7, “Income Taxes,” to the Consolidated Financial Statements in Item 8 of this report.

The effective tax rate was approximately 41% for the year ended December 31, 2020. Unfavorably impacting the effective tax rate in 2020 was income tax expense related to final U.S. Department of Treasury regulations issued in the third quarter of 2020, that impacted the net tax on remittance of foreign earnings and certain tax law changes in India effective in the first quarter of 2020. In addition, we recognized incremental valuation allowances of $53 million in 2020. Also unfavorably impacting the effective tax rate were certain restructuring expenses and merger and acquisition related transaction costs that were non-deductible for tax purposes. Excluding the impact of non-comparable items, the Company’s annual effective tax rate associated with ongoing operations was 32% for the year ended December 31, 2020.

The effective tax rate was approximately 37% for the year ended December 31, 2019. The effective tax rate for 2019 included an increase in income tax expense of $173 million related to the derecognition of the Morse TEC asbestos-related deferred tax assets and $22 million due to the U.S. Department of the Treasury’s issuance of the final regulations in the first quarter of 2019 related to the calculation of the one-time transition tax. The 2019 effective tax rate also included reductions of income tax expense of $19 million related to restructuring expense, $11 million for a global realignment plan, $8 million related to other one-time adjustments and $6 million related to pension settlement loss. Excluding the impact of non-comparable items, the Company’s annual effective tax rate was 26% for the year ended December 31, 2019.

Net earnings attributable to the noncontrolling interest, net of tax of $67 million for the year ended December 31, 2020 increased by $16 million compared to the year ended December 31, 2019. The increase was due to growth in sales in China, resulting in increased profit in joint ventures and the addition of noncontrolling interests from the Delphi Technologies acquisition.

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Non-comparable items impacting the Company's earnings per diluted share and net earnings

The Company’s earnings per diluted share were $2.34 and $3.61 for the years ended December 31, 2020 and 2019, respectively. The non-comparable items presented below are calculated after tax using the corresponding effective tax rate and the weighted average number of diluted shares for each of the years then ended. The Company believes the following table is useful in highlighting non-comparable items that impacted its earnings per diluted share:

	Year Ended December 31,
Non-comparable items:	2020		2019
Restructuring expense	$	(0.86)	$	(0.26)
Merger, acquisition and divestiture expense1	(0.38)		(0.05)
Intangible asset accelerated amortization2	(0.14)		—
Amortization of inventory fair value adjustment3	(0.10)		—
Asset impairment and loss on divestiture4	(0.08)		(0.03)
Net gain on insurance recovery for property damage5	0.04		—
Unfavorable arbitration loss6	—		(0.07)
Officer stock awards modification	—		(0.01)
Gain on derecognition of subsidiary7	—		0.02
Unrealized gain on equity securities8	1.36		—
Delayed-draw term loan cancellation9	(0.01)		—
Pension settlement loss10	(0.02)		(0.10)
Tax adjustments11	(0.23)		(0.02)
Total impact of non-comparable items per share — diluted:	$	(0.42)	$	(0.52)

________________

1	During the year ended December 31, 2020, the Company recorded merger, acquisition and divestiture expense of $96 million primarily for professional fees associated with the Company’s acquisition of Delphi Technologies completed on October 1, 2020. For December 31, 2019, the Company recorded $11 million of expenses, primarily professional fees, related to the Company's strategic acquisition and divestiture activities, including the transfer of Morse TEC, the anticipated acquisition of Delphi Technologies, and a 20% equity interest in Romeo Systems, Inc. (now known as Romeo Power, Inc.) and the divestiture activities for the non-core pipes and thermostat product lines.
2	During the year ended December 31, 2020, the Company recorded accelerated amortization of $38 million for certain intangible assets. Refer to Note 12, “Goodwill And Other Intangibles,” to the Consolidated Financial Statements in Item 8 of this report for more information.
3	Represents the non-cash charges related to the amortization of the fair value adjustment of inventories acquired in connection with the acquisition of Delphi Technologies during the year ended December 31, 2020. Refer to Note 2, “Acquisitions,” to the Consolidated Financial Statements in Item 8 of this report for more information.
4	During the year ended December 31, 2020, the Company recorded asset impairments of $17 million, which was related to asset impairment charges of $9 million in the Air Management segment and $8 million in the e-Propulsion & Drivetrain segment, due to the write down of property, plant and equipment associated with the announced closures of two European facilities. During the year ended December 31, 2019, the Company recorded an additional loss on sale of $7 million to account for the cash proceeds and finalization of the purchase price adjustments related to the sale of the non-core pipes and thermostat product lines. Refer to Note 6, “Other Operating Expense (Income), Net,” to the Consolidated Financial Statements in Item 8 of this report for more information.
5	During the year ended December 31, 2020, the Company recorded a net gain of $9 million from insurance recovery proceeds which primarily represents the amount received for replacement cost in excess of carrying value for losses sustained for a tornado that damaged the Company’s plant in Seneca, South Carolina. Refer to Note 6, “Other Operating Expense (Income), Net,” to the Consolidated Financial Statements in Item 8 of this report for more information.
6	During the year ended December 31, 2019, the Company recorded $14 million of expenses related to the receipt of a final unfavorable arbitration decision associated with the resolution of a matter related to a previous acquisition.
7	During the year ended December 31, 2019, the Company recorded a pre-tax gain on the derecognition of BorgWarner Morse TEC LLC (“Morse TEC”) of $177 million and removed the asbestos obligations and related insurance assets from the Consolidated Balance Sheet. In addition, the Company recorded tax expense as a result of the reversal of the previously recorded deferred tax assets related to the asbestos liabilities of $173 million, resulting in an after-tax gain of $4 million. Refer to Note 21, “Contingencies,” to the Consolidated Financial Statements in Item 8 of this report for more information.
8	Represents the net unrealized gain of $382 million recognized during the year ended December 31, 2020 related to the Company’s equity securities in Romeo Power, Inc. which became a public company in December 2020. Refer to Note 2, “Acquisitions,” to the Consolidated Financial Statements in Item 8 of this report for more information.
9	Represents loan fees related to term loan cancellation during the year ended December 31, 2020. On April 29, 2020 the Company entered into a $750 million delayed-draw term loan which was subsequently cancelled on June 19, 2020 in accordance with its terms, following the Company’s issuance of $1.1 billion in 2.650% senior notes due July 2027.
10	During the year ended December 31, 2020, the Company recorded a non-cash pension settlement loss of $4 million related to a European plant closure. During the year ended December 31, 2019, the Company recorded a non-cash pension settlement loss of $27 million related to the accelerated recognition of unamortized losses. Refer to Note 18, “Retirement Benefit Plans,” to the Consolidated Financial Statements in Item 8 of this report for more information.
11	The Company's provision for income taxes for the year ended December 31, 2020, includes reductions to tax expense of $5 million related to tax reserves and true-up adjustments offset by an increase in tax expense of $54 million for the finalization of the U.S. Department of the Treasury regulations issued in the third quarter of 2020, that impacted the net tax on remittance of foreign earnings.

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Results By Reporting Segment

The Company's business is comprised of four reporting segments: Air Management, e-Propulsion & Drivetrain, Fuel Injection and Aftermarket.

The Company allocates resources to each segment based upon the projected after-tax return on invested capital (“ROIC”) of its business initiatives. ROIC is comprised of Segment Adjusted EBIT after deducting notional taxes compared to the projected average capital investment required. Segment Adjusted EBIT is comprised of earnings before interest, income taxes and noncontrolling interest (“EBIT”) adjusted for restructuring, goodwill impairment charges, affiliates' earnings and other items not reflective of ongoing operating income or loss. Segment Adjusted EBIT excludes certain corporate costs which primarily represents headquarters' expenses not directly attributable to the individual segments. Corporate expenses not allocated to Segment Adjusted EBIT were $192 million and $206 million for the years ended December 31, 2020 and 2019, respectively. An increase in corporate expenses related to the acquisition of Delphi Technologies in 2020 was more than offset by savings and actions taken during the year in response to the COVID-19 pandemic, including decreased compensation expense, resulting in a decrease compared to 2019.

Segment Adjusted EBIT is the measure of segment income or loss used by the Company. The Company believes Segment Adjusted EBIT is most reflective of the operational profitability or loss of our reporting segments. The following table shows Segment Adjusted EBIT for the Company's reporting segments.

Segment Adjusted Earnings Before Interest, Income Taxes and Noncontrolling Interest (“Segment Adjusted EBIT”)

	Year Ended December 31,
(in millions)	2020		% margin		2019		% margin
Air Management	$	762	13.4	%	$	995	16.0	%
e-Propulsion & Drivetrain