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, 2021

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
1.00% Senior Notes due 2031	BWA31	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, 2021 (the last business day of the most recently completed second fiscal quarter) was approximately $11.6 billion.

As of February 11, 2022, the registrant had 239,971,469 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 2022 Annual Meeting of Stockholders	Part III

BORGWARNER INC.

FORM 10-K

YEAR ENDED DECEMBER 31, 2021

INDEX

		Page No.
PART I.
Item 1.	Business	5
Item 1A.	Risk Factors	17
Item 1B.	Unresolved Staff Comments	29
Item 2.	Properties	30
Item 3.	Legal Proceedings	30
Item 4.	Mine Safety Disclosures	30
PART II.
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	31
Item 6.	[Reserved]	33
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	56
Item 8.	Financial Statements and Supplementary Data	57
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	127
Item 9A.	Controls and Procedures	127
Item 9B.	Other Information	128
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	128
PART III.
Item 10.	Directors, Executive Officers and Corporate Governance	129
Item 11.	Executive Compensation	129
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	129
Item 13.	Certain Relationships and Related Transactions and Director Independence	129
Item 14.	Principal Accountant Fees and Services	130
PART IV.
Item 15.	Exhibits and Financial Statement Schedules	130
Item 16.	Form 10-K Summary	130

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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 supply disruptions impacting us or our customers, such as the current shortage of semiconductor chips that has impacted original equipment manufacturer (“OEM”) customers and their suppliers, including us; commodities availability and pricing; competitive challenges from existing and new competitors including OEM customers; the challenges associated with rapidly-changing technologies, particularly as relates to electric vehicles, and our ability to innovate in response; uncertainties regarding the extent and duration of impacts of matters associated with the COVID-19/coronavirus pandemic (“COVID-19”), including additional production disruptions; the difficulty in forecasting demand for electric vehicles and our electric vehicles revenue growth; the ability to identify targets and consummate acquisitions on acceptable terms; failure to realize the expected benefits of acquisitions on a timely basis including our recent acquisition of AKASOL AG (“AKASOL”) and our 2020 acquisition of Delphi Technologies PLC (“Delphi Technologies”); the ability to identify appropriate combustion portfolio businesses for disposition and consummate planned dispositions on acceptable terms; the failure to promptly and effectively integrate acquired businesses; the potential for unknown or inestimable liabilities relating to the acquired businesses; our dependence on automotive and truck production, both of which are highly cyclical and subject to disruptions; our reliance on major OEM customers; fluctuations in interest rates and foreign currency exchange rates; 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, taxes and tariffs, in the countries in which we operate; impacts from any potential future acquisition or disposition 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

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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 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.The Company is a global product leader in clean and efficient technology solutions for combustion, hybrid and electric vehicles. Its products help improve vehicle performance, propulsion efficiency, stability and air quality. The Company manufactures and sells 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). The Company also manufactures and sells its 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.

Charging Forward - Electrification Portfolio Strategy

In 2021, the Company announced its strategy to aggressively grow its electrification portfolio over time through organic investments and technology-focused acquisitions, most recently through the 2021 acquisition of AKASOL AG (“AKASOL”) as well as the 2020 purchase of Delphi Technologies PLC (“Delphi Technologies”). The Company believes it is well positioned for the industry’s anticipated migration to electric vehicles. Additionally, the Company announced a plan to dispose of certain internal combustion assets, targeting dispositions of assets generating approximately $1 billion in annual revenue in the succeeding 12 to 18 months and approximately $3 to $4 billion in annual revenue by 2025. The Company is targeting its revenue from products for pure electric vehicles to be over 25% of its total revenue by 2025 and approximately 45% of its total revenue by 2030.

Recent Acquisitions

Acquisitions are an integral component of the Company’s growth and value creation strategy. Below are summaries of recent acquisitions. Refer to Note 2, “Acquisitions and Dispositions,” to the Consolidated Financial Statements in Item 8 of this report for more information.

AKASOL AG

On June 4, 2021, the Company completed its voluntary public takeover offer for shares of AKASOL AG (“AKASOL”), resulting in ownership of 89% of AKASOL’s outstanding shares. The Company paid approximately €648 million ($788 million) to settle the offer from current cash balances, which included proceeds received from its public offering of 1.00% Senior Notes due 2031 completed on May 19, 2021. Following the settlement of the offer, AKASOL became a consolidated majority-owned subsidiary of the Company. The Company also consolidated approximately €64 million ($77 million) of gross debt of AKASOL. Subsequent to the completion of the voluntary public takeover offer, the Company purchased additional shares of AKASOL for €28 million ($33 million) increasing its ownership to 93% as of December 31, 2021. The acquisition further strengthens BorgWarner’s commercial vehicle and industrial electrification capabilities, which positions the Company to capitalize on what it believes to be a fast-growing battery module and pack market.

On August 2, 2021, the Company initiated a merger squeeze out process under German law for the purpose of acquiring 100% of AKASOL (“Squeeze Out”). On February 10, 2022, the Company completed the registration of the Squeeze Out resulting in 100% ownership.

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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 in Item 7 of this report under the caption “Acquisition of Delphi Technologies PLC.” The acquisition has strengthened the Company’s electronics and power electronics products, strengthened its capabilities and scale, enhanced key combustion, commercial vehicle and aftermarket product offerings, and positioned the Company for greater growth as electrified propulsion systems gain momentum.

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. 

Narrative Description of Reporting Segments

The Company reports its results under four reporting segments: Air Management, e-Propulsion & Drivetrain, Fuel Injection and Aftermarket. Net sales by reporting segment were as follows:

	Year Ended December 31,
(in millions)	2021		2020		2019
Air Management	$	7,298	$	5,678	$	6,214
e-Propulsion & Drivetrain	5,378		3,989		4,015
Fuel Injection	1,826		479		—
Aftermarket	853		194		—
Inter-segment eliminations	(517)		(175)		(61)
Net sales	$	14,838	$	10,165	$	10,168

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 $1,053 million, $721 million, and $827 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Air Management

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 modules and systems, battery packs, battery heaters and battery charging. The Company’s Air Management segment includes AKASOL.

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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 19%, 24% and 28% of the Company’s net sales for the years ended December 31, 2021, 2020 and 2019, 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.

The Air Management segment’s battery products include high-performance lithium-ion battery modules and systems for electrified applications that provide long battery life with a high power output for safe, reliable and durable operation.

e-Propulsion & Drivetrain

The Company’s 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 meets 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, its power electronics solutions, including inverters, onboard chargers, DC/DC converters, battery management systems, and software inverters, provide better efficiency, reduced weight and lower cost for its 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, front-wheel drive (“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. Its 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

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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. Its 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. Its product portfolio includes a wide range of solutions covering the fuel injection, electronics and engine management, maintenance, and test equipment and vehicle diagnostics categories. The aftermarket segment’s business provides a recurring and stable revenue base, as replacement of many of these products is non-discretionary in nature.

Joint Ventures

As of December 31, 2021, the Company had 13 joint ventures in which it had a less-than-100% ownership interest. Results from the ten 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.

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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.1	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 LLC2	Battery module and pack technology	2019	60	%	U.S.	Romeo Power, Inc.
AKASOL AG3	Battery module and pack technology	2021	93	%	Germany	Traded on Frankfurt Stock Exchange

__________________________

1 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%.

2 On February 4, 2022, the Company finalized the sale of its 60% interest in BorgWarner Romeo Power LLC. Refer to Note 2, “Acquisitions and Dispositions,” to the Consolidated Financial Statements in item 8 of this report for further discussion.

3 On February 10, 2022, the Company completed the registration of the Squeeze Out. Refer to Note 2, “Acquisitions and Dispositions,” to the Consolidated Financial Statements in item 8 of this report for further discussion.

Financial Information About Geographic Areas

The Company has a global presence. During the year ended December 31, 2021, approximately 17% of the Company’s net sales were generated in the United States, and 83% 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, 2021, approximately 76% of the Company’s net sales were for light-vehicle applications; approximately 11% were for commercial-vehicle applications; approximately 4% were for off-highway vehicle applications; and approximately 9% 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	2021		2020		2019
Ford	10	%	13	%	15	%
Volkswagen	9	%	11	%	11	%

No other single customer accounted for more than 10% of the Company’s consolidated net sales in any of the years presented. Sales to the Company’s top ten customers represented 57% of sales for the year ended December 31, 2021.

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 the Company’s businesses are assigned to serve specific customers for one or more businesses’ products. 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 the Company’s product 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 the Company’s reporting segments often work together to explore cross-development opportunities where appropriate.

Seasonality

The Company’s operations are directly related to the automotive and commercial-vehicle industry. Consequently, the Company’s 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 personnel

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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)	2021		2020		2019
Gross R&D expenditures	$	930	$	533	$	498
Customer reimbursements	(223)		(57)		(85)
Net R&D expenditures	$	707	$	476	$	413

Net R&D expenditures as a percentage of net sales were 4.8%, 4.7% and 4.1% for the years ended December 31, 2021, 2020 and 2019, respectively.

Intellectual Property

The Company has approximately 8,200 active domestic and foreign patents and patent applications pending or under preparation and receives royalties from licensing patent rights to others. 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.), Valeo, 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 assurance that the Company’s business will not be adversely affected by increased competition in the markets in which it operates.

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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

To deliver the Company’s vision of a clean, energy-efficient world, the Company embodies its beliefs in every aspect of its operations. These are values that the Company lives by, instills in its employees and upholds in partnership with all its stakeholders. The Company is committed to promoting and nurturing a diverse and inclusive environment, honoring integrity, striving for excellence, committing to responsibility for its communities and the environment, and building on the power of collaboration. The Company’s ability to sustain and grow its business requires it to hire, retain and develop a highly skilled and diverse management team and workforce worldwide. The Company believes the skills, experience, and industry knowledge of its employees significantly benefit its operations and performance.

The Company’s Compensation Committee oversees human capital management, including diversity, equity, and inclusion, and assesses whether environmental, social and governance (“ESG”) goals and milestones, if appropriate, are effectively reflected in executive compensation. The full Board of Directors oversees talent reviews and succession planning for the Company.

As of December 31, 2021, the Company had a worldwide salaried and hourly workforce as follows:

Americas	16,600
Asia	12,600
Europe	20,100
Total Employees	49,300
Salaried	15,900
Hourly	33,400
Total Employees	49,300

The Company uses an array of practices to attract, develop and retain highly qualified talent, including the following:

•Diversity, Equity & Inclusion (“DE&I”). The Company cultivates a culture where employees are treated with respect and their differences are valued. It provides opportunities that inspire them to thrive in every area they pursue. The Company is continually reviewing its policies, programs and processes to ensure alignment with its DE&I strategy. The Company undertakes targeted recruitment that serves as a strategic opportunity to build a diverse leadership pipeline. In 2021, the Company continued the rollout of Unconscious Bias Awareness training to its workforce, and also promoted the continued development of Employee Belonging Groups, which are aimed at celebrating diversity, ensuring equity and promoting inclusion. As of December 31, 2021:

◦Four of 10 board members are women and/or minorities.

◦Three of 12 executive management team members are women and/or minorities.

◦Women make up 15% of the Company’s leadership (those who participate in the management incentive plan), 24% of the Company’s salaried workforce, 40% of the Company’s new hires and 30% of the Company’s total workforce.

◦Minorities make up 17% of the Company’s U.S. leadership (those who participate in the management incentive plan), 19% of the Company’s U.S. salaried workforce, 27% of the Company’s U.S. new hires and 25% of the Company’s total U.S. workforce.

◦The Company’s latest pay equity analysis identified that, on average, women received compensation 98.7% of that received by men across the Company’s global workforce. In

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the U.S., minorities received compensation of at least 99.8% or greater of that received by non-minorities.1 The Company is committed to the principle of equal pay for equal work and seeks to ensure employees are paid equitably for substantially similar work. An annual salary review process is in place to evaluate and address discrepancies in pay, if identified.

•Engagement & Sentiment. The Company actively deploys strategies to attract the brightest and best talent and to engage and retain its talent. It recognizes and rewards employee contributions with competitive pay and benefits. The Company closely monitors employee turnover as part of its efforts to improve retention and to spot any potential opportunities for improvement. In the year ended December 31, 2021, annual voluntary employee turnover was 15%.

•Education & Development. The Company is committed to preparing its workforce for the transition from combustion to electrification. In 2022, the Company will deliver training programs created by elite universities to increase knowledge, skills and improve time-to-productivity for engineers in new roles, in an electrification environment. The Company provides formal development opportunities at all levels and stages of the career journey of its employees. These opportunities are delivered in a variety of formats to make its portfolio of solutions agile, sustainable and scalable. The Company provided more than 84,100 hours of training to 95% of the Company’s salaried employees in the year ended December 31, 2021. The number of training hours was an increase of 48% from 2020 hours of training for salaried employees. The high percentage of salaried employees who have completed training this year reflects employee commitment to develop within current and future roles, taking advantage of adaptive learning solutions. On average, each salaried employee completed 5.3 hours of training in 2021.

•Health & Safety. The Company’s employees’ safety is vitally important. It is dedicated to continuously improving safety performance. Evidence of the Company’s dedication is in its results: The Company’s global workforce accident total recordable incident rate through December 31, 2021 was 0.4, while, in comparison, the top quartile for motor vehicle parts manufacturing was lower than or equal to 1.2, and the mean was 2.5 according to the U.S. Bureau of Labor Statistics (the “BLS”). The Company’s global workforce accident lost time incident rate through December 31, 2021 was 0.24, 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 its manufacturing and technical centers.

In continued response to the global COVID-19 pandemic, the Company’s Critical Event Management Team closely monitored and provided global guidance on industry and regulatory health and safety recommendations. 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 13% 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.

1 The Company’s latest pay equity study was conducted in 2020 based on compensation as of December 31, 2019. The analysis included employees from salaried early-in-career through vice president roles. The Company anticipates releasing results of its latest study in its next Sustainability Report.

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Raw Materials

The Company uses a variety of raw materials in the production of its products including aluminum, copper, nickel, plastic resins, steel, certain alloy elements and semiconductor chips. 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 2022 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 2022, the Company believes there will continue to be supply constraints related to semiconductor chips. Supplies of other raw materials are adequate and available from multiple sources to support its manufacturing requirements.

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 the Company’s OEM customers and implemented through its 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 the Company’s business. Also, see Item 1A, “Risk Factors.”

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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 15, 2022.

Name (Age)	Present Position (Effective Date)	Positions Held During the Past Five Years (Effective Date)
Frederic B. Lissalde (54)	President and Chief Executive Officer (2018)	•Executive Vice President and Chief Operating Officer of the Company (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 (50)	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) •Federal Reserve Bank of Chicago – Detroit Branch, Member of Board of Directors (2022)
Tonit M. Calaway (54)	Executive Vice President, Chief Administrative Officer, General Counsel and Secretary (2020)	•Executive Vice President, Chief Legal Officer and Secretary of the Company (2018 - 2020) •Chief Human Resources Officer of the Company (2016 – 2018) •Astronics Corporation, Member of Board of Directors (2019 – Present) •W.P. Carey Inc., Member of Board of Directors (2020 – Present)
Felecia J. Pryor (47)	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)
Craig D. Aaron (44)	Vice President and Treasurer (2019)	•Vice President of Finance of BorgWarner Morse Systems (2016 – 2019)
Stefan Demmerle (57)	Vice President and President and General Manager, PowerDrive Systems (2015)	•Vice President of the Company and President and General Manager of BorgWarner PowerDrive Systems (2015 – Present)
Brady D. Ericson (50)	Vice President and President and General Manager, Morse Systems (2019)	•Executive Vice President and Chief Strategy Officer of the Company (2017 – 2019) •Vice President of the Company and President and General Manager of BorgWarner Emissions Systems LLC (2014 – 2017)
Daniel R. Etue (48)	Vice President and Controller (2020)	•Meritor, Inc., Vice President, Finance (2013 – 2020)
Joseph F. Fadool (55)	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 A. Farrell (55)	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)

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Davide Girelli (50)	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)
Volker Weng (51)	Vice President and President and General Manager, Drivetrain Systems f/k/a Transmission Systems (2019)	•Vice President of the Company and President and General Manager of 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)

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 the Company faces. Additional risks and uncertainties not presently known to the Company or that it currently deems immaterial also may impact its business operations. If any of the following risks occur, the Company’s business including its financial performance, financial condition, operating results and cash flows could be adversely affected.

Risks related to COVID-19

The Company faces risks related to the COVID-19 pandemic that could adversely affect its business and financial performance.

The COVID-19 pandemic has disrupted, and may continue to disrupt, global automotive industry production volumes, and consumer purchases of light vehicles. In 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, the Company has experienced, and may continue to experience, delays in the production and distribution of its products and the loss of sales. If the global economic effects caused by COVID-19 continue or increase, overall customer demand may decrease, which could further adversely affect the Company’s business, results of operations, and financial condition.

Throughout 2020, and to a lesser extent in 2021, 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 orders, plant shutdowns, and lockdowns of cities and countries, materially impacted the Company’s operations. Furthermore, COVID-19 has impacted and may further impact the broader economies of affected countries, including negatively impacting economic growth, traditional functioning of financial and capital markets, foreign currency exchange rates, and interest rates.

During 2021, trailing impacts of the shutdowns and production declines related, in part, to COVID-19 created supply constraints of certain components, particularly semiconductor chips. These supply constraints have had and are expected to continue to have significant impacts on global industry production levels. Due to the uncertainty of its duration and the timing of recovery, at this time, the Company is unable to predict the extent to which COVID-19, including its existing and future variants that may emerge, may have an adverse effect on the Company’s business, financial condition, operating results or cash flows. The extent of the impact of COVID-19 on the Company’s operational and financial performance, including its ability to execute its business strategies and initiatives in the expected time frames, will depend on future developments, including, but not limited to, the duration and spread of

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COVID-19, including variants, its severity, COVID-19 containment and treatment efforts, including the availability, efficacy, and acceptance 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 unpredictable. An extended period of global supply chain and economic disruption as a result of COVID-19 would have a further material negative impact on the Company’s business, results of operations, access to sources of liquidity and financial condition, although the full extent and duration are uncertain.

Risks related to the Company’s strategy

The Company’s Charging Forward strategy may prove unsuccessful.

In 2021, the Company announced its strategy to aggressively grow its electrification portfolio over time through organic investments and technology-focused acquisitions, most recently through the 2021 acquisition of AKASOL as well as the 2020 purchase of Delphi Technologies. The Company believes it is well positioned for the industry’s anticipated migration to electric vehicles. Outlined in this strategy is a target to dispose of $3 to $4 billion in annual revenue from the Company’s combustion portfolio by 2025 with approximately $1 billion of that target to be delivered by the end of 2022. The Company is targeting revenue from products for pure electric vehicles to be over 25% of its total revenue by 2025 and approximately 45% of its total revenue by 2030.

The Company may not meet its goals due to many factors, including any of the risks identified in the paragraph that follows, failure to develop new products that its customers will purchase, and technology changes that could render its products obsolete, or the introduction of new technology to which it does not have access, among other things. Additionally, there is no certainty that the Company will be able to dispose of certain internal combustion assets on favorable terms, if at all, and the disposition process is expected to consume significant management resources.

The Company expects to continue to pursue business ventures, acquisitions, and strategic alliances that leverage its technology capabilities and enhance its customer base, geographic representation, and scale to complement its current businesses. The Company regularly evaluates potential growth opportunities, some of which could be material. While it believes that such transactions are an integral part of its 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 the Company can obtain about a potential growth opportunity can be limited, and it can give no assurance that past or future business ventures, acquisitions, and strategic alliances will positively affect its financial performance or will perform as planned. Assessing a price for potential transactions is inexact, particularly in a market that generally favors sellers and attaches a high multiple or premium on technology. The Company may not be able to successfully assimilate or integrate companies that it has acquired or will acquire in the future, including their personnel, financial systems, distribution, operations and general operating procedures. Failure to execute the Company’s growth strategy could adversely affect its business.

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The failure to realize the expected benefits of acquisitions and other risks associated with acquisitions could adversely affect the Company’s business.

The success of the Company’s acquisitions is dependent, in part, on its ability to realize the expected benefits from combining the businesses of the Company and businesses that it acquires. To realize these anticipated benefits, both companies must be successfully combined, which is subject to the Company’s ability to consolidate operations, corporate cultures and systems and to eliminate redundancies and costs. If the Company is unsuccessful in combining companies, the anticipated benefits of the acquisitions 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 businesses. In addition, the actual integration may result in additional and unforeseen expenses, which could reduce the anticipated benefits of the acquisitions.

The combination of independent businesses is a complex, costly and time-consuming process that requires significant management attention and resources. It is possible that the integration process could result in the loss of key employees, the disruption of the Company’s operations, the inability to maintain or increase its 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 the Company’s 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 the Company’s control, and any one of these factors could result in increased costs, decreases in the amount of expected revenues and additional diversion of management’s time and energy, which could materially adversely impact its business, financial condition and results of operations.

The Company may not be able to execute dispositions of assets or businesses successfully.

When the Company decides to dispose of assets or a business, it may have difficulty finding buyers or alternative exit strategies on acceptable terms in a timely manner, which could delay the ability of the Company to achieve its strategic objectives. It may also dispose of a business at a price or on terms that are less desirable than it had anticipated. Buyers of the assets or business may from time to time agree to indemnify the Company for operations of such businesses after the closing. The Company cannot be assured that any of these indemnification provisions will fully protect it, and as a result may face unexpected liabilities that adversely affect its business, financial condition and results of operations. In addition, the Company may experience fewer synergies than expected, and the impact of the disposition on its financial results may be larger than projected.

After reaching an agreement for the disposition of a business, the Company is subject to satisfaction of pre-closing conditions as well as necessary regulatory and governmental approvals on acceptable terms, which, if not satisfied or obtained, may prevent it from completing the transaction. Such regulatory and governmental approvals may be required in jurisdictions around the world, and any delays in the timing of such approvals could materially delay or prevent the transaction.

Goodwill and indefinite-lived intangible assets, which are subject to periodic impairment evaluations, represent a significant portion of the Company’s total assets. An impairment charge on these assets could have a material adverse impact on its financial condition and results of operations.

The Company has recorded goodwill and indefinite-lived intangible assets related to acquisitions. It periodically assesses these assets to determine if they are impaired. Significant negative industry or macro-economic trends, disruptions to its business, inability to effectively integrate acquired businesses,

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unexpected significant changes or planned changes in use of the assets, dispositions, and market capitalization declines may impair these assets, and any of these factors may be increasingly present during the ongoing COVID-19 pandemic.

The Company reviews goodwill and indefinite-lived intangible assets for impairment either annually or whenever changes in circumstances indicate that the carrying value may not be recoverable. The risk of impairment to goodwill and indefinite-lived intangible assets is higher during the early years following an acquisition. This is because the fair values of these assets align very closely with what was paid to acquire the reporting units to which these assets are assigned. As a result, the difference between the carrying value of the reporting unit and its fair value (typically referred to as “headroom”) is smaller at the time of acquisition. Until this headroom grows over time, due to business growth or lower carrying value of the reporting unit, a relatively small decrease in reporting unit fair value can trigger impairment charges. When impairment charges are triggered, they tend to be material due to the size of the assets involved. Future acquisitions could present similar risks. Any charges relating to such impairments could adversely affect the Company’s results of operations in the periods recognized.

Risks related to the Company’s industry

Conditions in the automotive industry may adversely affect the Company’s business.

The Company’s 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 the Company’s sales to OEMs.

The Company faces strong competition.

The Company competes worldwide with a number of other manufacturers and distributors that produce and sell similar products. Price, quality, delivery, technological innovation, engineering development and program launch support are the primary elements of competition. The Company’s competitors include vertically integrated units of its major OEM customers, as well as a large number of independent domestic and international suppliers. Additionally, its competitors include start-ups that may be well funded, with the result that they could have more operational and financial flexibility than it has. A number of the Company’s competitors are larger than it is, and some competitors have greater financial and other resources than it does. Although OEMs have indicated that they will continue to rely on outside suppliers, a number of major OEM customers manufacture products for their own uses that directly compete with the Company’s products. These OEMs could elect to manufacture such products for their own uses in place of the products the Company currently supplies. The Company’s traditional OEM customers, faced with intense international competition, have continued to expand their worldwide sourcing of components. As a result, the Company has 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 the Company’s business. In addition, any of its competitors may foresee the course of market development more accurately than it does, develop products that are superior to its products, produce similar products at a cost that is lower than its cost, or adapt more quickly than it does to new technologies or evolving customer requirements. As a result, the Company’s products may not be able to compete successfully with its competitors' products, and it may not be able to meet the growing demands of customers. These trends may adversely affect the Company’s sales as well as the profit margins on its products.

If the Company does not respond appropriately, the evolution of the automotive industry could adversely affect its business.

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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 the Company does 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 its results of operations.

Risks related to the Company’s business

The Company is under substantial pressure from OEMs to reduce the prices of its products.

There is substantial and continuing pressure on OEMs to reduce costs, including costs of products the Company supplies. OEM customers expect annual price reductions in its business. To maintain its profit margins, the Company seeks price reductions from its suppliers, improved production processes to increase manufacturing efficiency, and streamlined product designs to reduce costs, and it attempts to develop new products, the benefits of which support stable or increased prices. The Company’s ability to pass through increased raw material costs to its 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 its business.

The Company continues to face volatile costs of commodities used in the production of its 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 its results. The Company has sought to alleviate the impact of increasing costs by including a material pass-through provision in its 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 the Company’s ability to pass through or hedge increasing commodity costs could adversely affect its 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 transportation carriers and energy providers. If these supply interruptions occur, it could adversely affect the Company’s 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 the Company.

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 the Company purchases. 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 the Company sells. If the U.S. or other countries impose additional tariffs, that will have a further adverse impact on its business.

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The Company uses important intellectual property in its business. If it is unable to protect its intellectual property or if a third party makes assertions against it or its customers relating to intellectual property rights, the Company’s business could be adversely affected.

The Company owns important intellectual property, including patents, trademarks, copyrights, and trade secrets, and is involved in numerous licensing arrangements. Its intellectual property plays an important role in maintaining its competitive position in a number of the markets that it serves. The Company’s competitors may develop technologies that are similar or superior to its proprietary technologies or design around the patents it owns or licenses. Further, as it expands its operations in jurisdictions where the enforcement of intellectual property rights is less robust, the risk of others duplicating the Company’s proprietary technologies increases, despite efforts it undertakes to protect them. The Company’s inability to protect or enforce its intellectual property rights or claims that it is infringing intellectual property rights of others could adversely affect its business and its competitive position.

The Company is subject to business continuity risks associated with increasing centralization of its information technology (IT) systems.

To improve efficiency and reduce costs, the Company has regionally centralized the information systems that support its 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 its business.

A failure of or disruption in the Company’s information technology infrastructure, including a disruption related to cybersecurity, could adversely impact its business and operations.

The Company relies on the capacity, reliability and security of its 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 the Company’s IT systems pose a risk to the security of its systems and its ability to protect its networks and the confidentiality, availability and integrity of information and data and that of third parties, including its 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 it has implemented security policies, processes, and layers of defense designed to help identify and protect against intentional and unintentional misappropriation or corruption of its systems and information, and disruptions of its operations, the Company has 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 the Company’s intellectual property, improper use of its 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, the Company 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 the Company’s reputation, affect its relationships with its customers and suppliers, lead to claims against the Company and ultimately adversely affect its business.

The Company’s business success depends on attracting and retaining qualified personnel.

The Company’s ability to sustain and grow its business requires it 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 engineering, technical and software capabilities in numbers sufficient for its needs could adversely affect its business.

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The Company’s 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 the Company’s manufacturing facilities and manufacturing processes and those of its suppliers, as well as factors related to tooling, equipment, employees, initial product quality and other factors. The Company’s failure to successfully launch new business, or its inability to accurately estimate the cost to design, develop and launch new business, could have an adverse effect on its profitability and results of operations.

To the extent the Company is not able to successfully launch new business, vehicle production at its customers could be significantly delayed or shut down. Such situations could result in significant financial penalties to the Company 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 its customers shifting work away from it to a competitor, all of which could result in loss of revenue or loss of market share and could have an adverse effect on its profitability and cash flows.

Part of the Company’s workforce is unionized which could subject it to work stoppages.

As of December 31, 2021, approximately 13% of the Company’s U.S. workforce was unionized. The Company has a domestic collective bargaining agreement for one facility in New York, which expires in September 2024. The workforce at certain of its international facilities is also unionized. A prolonged dispute with its employees could have an adverse effect on the Company’s business.

Work stoppages, production shutdowns and similar events could significantly disrupt the Company’s 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 the Company’s manufacturing and assembly facilities could have adverse effects on its business. Similarly, if one or more of its customers were to experience a work stoppage or production shutdown, that customer would likely halt or limit purchases of the Company’s products, which could result in the shutdown of the related manufacturing facilities. A significant disruption in the supply of a key component due to supply constraints, such as the constraints experienced in 2021 related to semiconductor chips, or due to a work stoppage or production shutdown at one of the Company’s suppliers or any other supplier could have the same consequences and, accordingly, have an adverse effect on its financial results.

Changes in interest rates and asset returns could increase the Company’s pension funding obligations and reduce its profitability.

The Company has unfunded obligations under certain of its defined benefit pension and other postretirement benefit plans. The valuation of its 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 the Company to make significant additional contributions to its pension plans in the future. Additionally, a material deterioration in the funded status of the plans could significantly increase the Company’s pension expenses and reduce profitability in the future.

The Company also sponsors 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 its business. 

The Company is subject to extensive environmental regulations.

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The Company’s 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 the Company cannot assure that it will not incur material costs or liabilities as a result. Through various acquisitions over the years, the Company has acquired a number of manufacturing facilities, and it cannot assure that it will not incur material costs and liabilities relating to activities that predate its 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 the Company’s business.

The Company has liabilities related to environmental, product warranties, litigation and other claims.

The Company and certain of its 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, the Company 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.

The Company provides product warranties to its customers for some of its products. Under these product warranties, the Company 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 the Company, or a product warranty claim brought against it, could adversely impact its results of operations. In addition, a recall claim could require it to review its entire product portfolio to assess whether similar issues are present in other product lines, which could result in significant disruption to its business and could have an adverse impact on its results of operations. The Company 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 its financial statements.

The Company is 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 the Company’s 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 the Company’s business that is greater than it anticipates. 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 the Company’s business.

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

The Company has operations in multiple countries that can be impacted by expected and unexpected changes in the legal and business environments in which it operates. Compliance-related issues in certain countries associated with laws such as the Foreign Corrupt Practices Act and other anti-corruption laws could adversely affect its business. The Company has internal policies and procedures relating to compliance with such laws; however, there is a risk that such policies and procedures will not always protect it 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 the Company’s 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 the Company operates or intends to operate.

Changes in tax laws or tax rates taken by taxing authorities and tax audits could adversely affect the Company’s 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 its tax loss carryforwards and tax credits could adversely affect the Company’s operating results. In addition, the Company may periodically restructure its legal entity organization.

If taxing authorities were to disagree with the Company’s tax positions in connection with any such restructurings, its effective tax rate could be materially affected. The Company’s tax filings for various periods are subject to audit by the tax authorities in most jurisdictions where it conducts business. The Company has received tax assessments from various taxing authorities and is 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. The Company believes 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.

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,

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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.

As a result of the acquisition of Delphi Technologies, the Company is required to indemnify Aptiv against taxes that Aptiv incurs that arise as a result of the Company 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.

The Company is subject to risks related to its international operations.

The Company has manufacturing and technical facilities in many regions including Europe, Asia, and the Americas. For 2021, approximately 83% of its consolidated net sales were outside the U.S. Consequently, the Company’s 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 the Company’s business. Additionally, significant changes in currency exchange rates, particularly the Euro, Korean Won and Chinese Renminbi, could cause fluctuations in the reported results of the Company’s businesses’ operations that could negatively affect its results of operations. 

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

The Company’s 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 the Company’s 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, the Company anticipates that market participants will act aggressively to increase or maintain their market share. Increased competition may result in price reductions, reduced margins and its inability to gain or hold market share. In addition, the Company’s business in China is sensitive to economic,

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political, social and market conditions that drive sales volumes in China. Economic growth has slowed in China. If it is unable to maintain its position in the Chinese market or if vehicle sales in China decrease, the Company’s business and financial results could be adversely affected.

A downgrade in the ratings of the Company’s debt could restrict its ability to access the debt capital markets.

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

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

The Company could incur additional restructuring charges as it continues to execute actions in an effort to improve future profitability and competitiveness and to optimize its product portfolio and may not achieve the anticipated savings and benefits from these actions.

The Company has initiated and may continue to initiate restructuring actions designed to improve the competitiveness of its business and sustain its margin profile, optimize its product portfolio or create an optimal legal entity structure. The Company may not realize anticipated savings or benefits from past or future actions in full or in part or within the time periods it expects. It is also subject to the risks of labor unrest, negative publicity and business disruption in connection with its actions. Failure to realize anticipated savings or benefits from its actions could have an adverse effect on the Company’s business.

Risks related to the Company’s customers

The Company relies on sales to major customers.

The Company relies 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. The Company bases its growth projections, in part, on commitments made by its customers. These commitments generally renew yearly during a program life cycle. Among other things, the level of production orders the Company receives is dependent on the ability of its OEM customers to design and sell products that consumers desire to purchase. If actual production orders from its 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 the Company’s business.

Some of the Company’s sales are concentrated. The Company’s worldwide sales in 2021 to Ford and Volkswagen constituted approximately 10% and 9% of its 2021 consolidated net sales, respectively.   

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The Company is sensitive to the effects of its major customers’ labor relations.

All three of the Company’s 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, the Company is affected by labor difficulties and work stoppages at OEMs’ facilities. Similarly, a majority of the Company’s global customers' operations outside of North America are also represented by various unions. Any extended work stoppage at one or more of its customers could have an adverse effect on the Company’s business.

Risks related to the Company’s suppliers

The Company could be adversely affected by supply shortages of components from its suppliers.

In an effort to manage and reduce the cost of purchased goods and services, the Company has been rationalizing its supply base. As a result, it remains dependent on fewer sources of supply for certain components used in the manufacture of its products. The Company selects suppliers based on total value (including total landed price, quality, delivery, and technology), taking into consideration their production capacities and financial condition. The Company expects that they will deliver to the Company’s 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 the Company’s suppliers experience will not result in occasional shortages or delays in their supply of components to it. During 2021, trailing impacts of the shutdowns and production declines related, in part, to COVID-19, created supply constraints of certain components, particularly semiconductor chips. These supply constraints have had, and are expected to continue to have, significant impacts on global industry production levels. If the Company is to experience a prolonged shortage of critical components from any of its suppliers and cannot procure the components from other sources, it may be unable to meet the production schedules for some of its key products and could miss customer delivery expectations. In addition, with 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 the Company at a time that it faces substantial pressure from OEMs to reduce the prices of its products. This could adversely affect the Company’s customer relations and business.

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

Rapidly changing industry conditions such as volatile production volumes; the Company’s need to seek price reductions from its suppliers as a result of the substantial pressure it faces from OEMs to reduce the prices of its 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 the Company’s 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 the Company to change suppliers that are critical to its business. On occasion, the Company must provide financial support to distressed suppliers or take other measures to protect its supply lines. The Company cannot predict with certainty the potential adverse effects these costs might have on its business.

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The Company is subject to possible insolvency of financial counterparties.

The Company engages in numerous financial transactions and contracts including insurance policies, letters of credit, credit line agreements, financial derivatives, and investment management agreements involving various counterparties. The Company is 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 the Company’s business.

Any of the following could materially and adversely affect the Company’s business: the loss of or changes in supply contracts or sourcing strategies of the Company’s major customers or suppliers; start-up expenses associated with new vehicle programs or delays or cancellation of such programs; low levels of utilization of the Company’s 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 the Company 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 2021 fiscal year that remain unresolved.

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Item 2.    Properties

As of December 31, 2021, the Company had 93 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	15	17	45
e-Propulsion & Drivetrain	14	7	11	32
Fuel Injection	2	6	6	14
Aftermarket	1	1	—	2

The table above excludes unconsolidated joint ventures as of December 31, 2021 and administrative offices. Of the facilities noted above, 38 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.

Purported Derivative Lawsuit

On December 15, 2020, a putative derivative lawsuit captioned Nyiradi, et al. v. Michas, et al., Case 1:20-cv-01700, was filed in the United States District Court for the District of Delaware against certain current and former directors and former officers of BorgWarner. The lawsuit, which was purportedly brought on the Company’s behalf, named BorgWarner as a nominal defendant. Plaintiffs alleged, among other things, violations of the federal securities laws and breaches of fiduciary duty relating to the Company’s past accounting for incurred but not yet asserted asbestos liabilities and its public disclosures. As a nominal defendant, the Company had no direct exposure in connection with the lawsuit. On April 14, 2021, BorgWarner and the plaintiffs agreed in principle to dismiss the case without prejudice, without any payment by BorgWarner, and the dismissal occurred on April 22, 2021. By letter dated June 9, 2021, a different stockholder delivered a litigation demand to the Board of Directors under Delaware law that included similar allegations relating to certain current and former directors and officers. The letter demanded that the Board conduct an investigation and commence a civil action against appropriate directors and officers. The parties have agreed to a memorandum of understanding (“MOU”) detailing mutually agreed upon corporate governance reforms. The MOU has been approved by the Board and now awaits court approval.

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

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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 11, 2022, there were 1,530 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.

The line graph below compares the cumulative total shareholder return on the Company’s 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 12/31/2016 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.

Copyright© 2022 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,
	2016		2017		2018		2019		2020		2021
BorgWarner Inc.1	$	100.00	$	131.20	$	90.57	$	115.17	$	104.58	$	123.82
S&P 5002	$	100.00	$	121.83	$	116.49	$	153.17	$	181.35	$	233.41
SIC Code Index3	$	100.00	$	126.31	$	92.52	$	116.68	$	138.83	$	146.18

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________________

1 BorgWarner Inc.

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

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

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, 2021, 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. 2018 Stock Incentive Plan provides 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, 2021:

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, 2021 - October 31, 2021
Common Stock Repurchase Program	—	$	—	—	$	784
Employee transactions	6,024	$	44.94	—
November 1, 2021 - November 30, 2021
Common Stock Repurchase Program	—	$	—	—	$	784
Employee transactions	894	$	48.40	—
December 1, 2021 - December 31, 2021
Common Stock Repurchase Program	—	$	—	—	$	784
Employee transactions	562	$	42.84	—

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Equity Compensation Plan Information

As of December 31, 2021, the number of shares of options, restricted common stock, warrants and rights outstanding under the Company’s 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	2,377,228	$	40.26	3,595,400
Equity compensation plans not approved by security holders	—	$	—	—
Total	2,377,228	$	40.26	3,595,400

Item 6.    [Reserved]

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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” or “BorgWarner”) is a global product leader in clean and efficient technology solutions for combustion, hybrid and electric vehicles. BorgWarner’s 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). The Company also manufactures and sells its 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.

Charging Forward - Electrification Portfolio Strategy

In 2021, the Company announced its strategy to aggressively grow its electrification portfolio over time through organic investments and technology-focused acquisitions, most recently through the 2021 acquisition of AKASOL AG (“AKASOL”) as well as the 2020 purchase of Delphi Technologies PLC (“Delphi Technologies”). The Company believes it is well positioned for the industry’s anticipated migration to electric vehicles. Additionally, the Company announced a plan to dispose of certain internal combustion assets, targeting dispositions of assets generating approximately $1 billion in annual revenue in the succeeding 12 to 18 months and approximately $3 to $4 billion in annual revenue by 2025. The Company is targeting its revenue from products for pure electric vehicles to be over 25% of its total revenue by 2025 and approximately 45% of its total revenue by 2030.

Acquisition of AKASOL AG

On June 4, 2021, a wholly-owned subsidiary of the Company, ABBA BidCo AG (“ABBA BidCo”), completed its voluntary public takeover offer for shares of AKASOL, resulting in ownership of 89% of AKASOL’s outstanding shares. The Company paid approximately €648 million ($788 million) to settle the offer from current cash balances, which included proceeds received from its public offering of 1.00% Senior Notes due 2031 completed on May 19, 2021. Following the settlement of the offer, AKASOL became a consolidated majority-owned subsidiary of the Company. The Company also consolidated approximately €64 million ($77 million) of gross debt of AKASOL. Subsequent to the completion of the voluntary public takeover offer, the Company purchased additional shares of AKASOL for €28 million ($33 million) increasing its ownership to 93% as of December 31, 2021. The acquisition further strengthens BorgWarner’s commercial vehicle and industrial electrification capabilities, which positions the Company to capitalize on what it believes to be a fast-growing battery module and pack market.

On August 2, 2021, the Company initiated a merger squeeze out process under German law for the purpose of acquiring 100% of AKASOL. On December 17, 2021, the shareholders of AKASOL voted to mandatorily transfer to ABBA BidCo. AG, a wholly owned indirect subsidiary of the Company, each issued and outstanding share of AKASOL held by shareholders that did not tender their shares in the Company’s previously completed exchange offer for AKASOL shares (the “Squeeze Out”). In exchange for the AKASOL shares transferred in the Squeeze Out, the Company will pay appropriate cash compensation, in the amount of €119.16 per share. On February 10, 2022, the Company completed the registration of the Squeeze Out resulting in 100% ownership. The Company expects to settle the Squeeze Out with AKASOL minority shareholders in the first quarter of 2022. Refer to Note 2, “Acquisitions and Dispositions,” to the Consolidated Financial Statements in Item 8 of this report for more information.

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Acquisition of Delphi Technologies PLC

On October 1, 2020, the Company completed its acquisition of 100% of the outstanding ordinary shares of Delphi Technologies from its shareholders 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 acquisition has strengthened the Company’s electronics and power electronics products, strengthened its capabilities and scale, enhanced key combustion, commercial vehicle and aftermarket product offerings, and positioned the Company for greater growth as electrified propulsion systems gain momentum.

Refer to Note 2, “Acquisitions and Dispositions,” to the Consolidated Financial Statements in Item 8 of this report for more information. Results of operations for AKASOL and Delphi Technologies are included in the Company’s financial information following their respective dates of acquisition.

COVID-19 Pandemic and Other Supply Disruptions

Throughout 2020, COVID-19 materially impacted the Company’s business and results of operations. Following the declaration of COVID-19 as a global pandemic on March 11, 2020, government authorities around the world began to impose shelter-in-place orders and other restrictions. As a result, many OEMs began suspending manufacturing operations, particularly in North America and Europe. This led to various temporary closures of, or reduced operations at, the Company’s manufacturing facilities, late in the first quarter of 2020 and throughout the second quarter of 2020. During the second half of 2020, as global management of COVID-19 evolved and government restrictions were removed or lessened, production levels improved, and substantially all of the Company’s production facilities resumed closer to normal operations by the end of the third quarter of 2020.

During 2021, trailing impacts of the shutdowns and production declines related, in part, to COVID-19 created supply constraints of certain components, particularly semiconductor chips. These supply constraints have had, and are expected to continue to have, significant impacts on global industry production levels. In addition, it is possible a resurgence of COVID-19 could result in adverse impacts in the future. Management cannot reasonably estimate the full impact the ongoing supply constraints or the COVID-19 pandemic could have on the Company’s financial condition, results of operations or cash flows in the future.

Bond Offering

On May 19, 2021, in anticipation of the acquisition of AKASOL and to refinance the Company’s €500 million 1.8% senior notes due in November 2022, the Company issued €1.0 billion in 1.0% senior notes due May 2031. Interest is payable annually in arrears on May 19 of each year. These senior notes are not guaranteed by any of the Company’s subsidiaries. On June 18, 2021, the Company repaid its €500 million 1.8% senior notes due November 2022 and incurred a loss on debt extinguishment of $20 million, which is reflected in Interest expense, net in the Consolidated Statement of Operations.

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RESULTS OF OPERATIONS

A detailed comparison of the Company’s 2019 operating results to its 2020 operating results can be found in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in the Company’s 2020 Annual Report on Form 10-K filed February 22, 2021.

The following table presents a summary of the Company’s operating results:

	Year Ended December 31,
(in millions, except per share data)	2021				2020
Net sales			% of net sales				% of net sales
Air Management	$	7,298	49.2	%	$	5,678	55.9	%
e-Propulsion & Drivetrain	5,378		36.2		3,989		39.2
Fuel Injection	1,826		12.3		479		4.7
Aftermarket	853		5.8		194		1.9
Inter-segment eliminations	(517)		(3.5)		(175)		(1.7)
Total net sales	14,838		100.0		10,165		100.0
Cost of sales	11,983		80.8		8,255		81.2
Gross profit	2,855		19.2		1,910		18.8
Selling, general and administrative expenses - R&D, net	707		4.8		476		4.7
Selling, general and administrative expenses - Other	753		5.1		475		4.7
Restructuring expense	163		1.1		203		2.0
Other operating expense, net	81		0.5		138		1.4
Operating income	1,151		7.8		618		6.1
Equity in affiliates’ earnings, net of tax	(48)		(0.3)		(18)		(0.2)
Unrealized loss (gain) on equity securities	362		2.4		(382)		(3.8)
Interest expense, net	93		0.6		61		0.6
Other postretirement income	(45)		(0.3)		(7)		(0.1)
Earnings before income taxes and noncontrolling interest	789		5.3		964		9.5
Provision for income taxes	150		1.0		397		3.9
Net earnings	639		4.3		567		5.6
Net earnings attributable to the noncontrolling interest, net of tax	102		0.7		67		0.7
Net earnings attributable to BorgWarner Inc.	$	537	3.6	%	$	500	4.9	%
Earnings per share — diluted	$	2.24			$	2.34

Net sales for the year ended December 31, 2021 totaled $14,838 million, an increase of 46% from the year ended December 31, 2020. During the year ended December 31, 2021, the net impact of acquisitions, primarily related to legacy Delphi Technologies, increased revenues by $3,328 million from the year ended December 31, 2020. Stronger foreign currencies, primarily the Euro, Chinese Renminbi and Korean Won, increased net sales by approximately $270 million. The net increase excluding these items was primarily due to increased demand for the Company’s products. In addition, net sales were favorably impacted by the recovery of global markets from the negative effects of COVID-19 on 2020 production. However, this recovery was largely offset by supply constraints related to certain components, particularly semiconductor chips, that negatively impacted global automotive production in 2021.

Cost of sales as a percentage of net sales was 80.8% and 81.2% in the years ended December 31, 2021 and 2020, respectively. During the year ended December 31, 2021, acquisitions, primarily related to legacy Delphi Technologies, increased cost of sales. The Company’s material cost of sales was approximately 54% and 57% of net sales in the years ended December 31, 2021 and 2020, respectively. The decrease in material cost as a percentage of sales reflects the lower material costs associated with the legacy Delphi Technologies business. Gross profit and gross margin were $2,855 million and 19.2%, respectively during the year ended December 31, 2021 compared to $1,910 million and 18.8%,

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respectively, during the year ended December 31, 2020. The increase in gross margin in 2021 compared to 2020 was primarily due to the impact of increased sales, partially offset by a higher warranty provision due to an unfavorable customer warranty settlement in December 2021 and increases in commodity and other costs.

Selling, general and administrative expenses (“SG&A”) were $1,460 million and $951 million, or 9.8% and 9.4% of net sales, for the years ended December 31, 2021 and 2020, respectively. The increase in SG&A was primarily related to the acquisition of Delphi Technologies, increased investments in research and development and the reinstated costs related to specific cost reduction actions taken in response to COVID-19 during 2020.

Research and development (“R&D”) costs, net of customer reimbursements, were $707 million, or 4.8% of net sales, in the year ended December 31, 2021, compared to $476 million, or 4.7% of net sales, in the year ended December 31, 2020. The increase of R&D costs, net of customer reimbursements, in the year ended December 31, 2021, compared with the year ended December 31, 2020, was primarily due to the acquisition of Delphi Technologies, which increased R&D costs by approximately $200 million during the year ended December 31, 2021, as well as higher investment to support the continued development of the Company’s electrification portfolio. The Company will continue to invest in R&D programs, which are necessary to support short- and long-term growth. The Company’s current long-term expectation for R&D spending is in the range of 5.0% to 5.5% of net sales.

Restructuring expense was $163 million and $203 million for the years ended December 31, 2021 and 2020, respectively, primarily related to employee benefit costs. Refer to Note 4 “Restructuring” to

the Consolidated Financial Statements in Item 8 of this report for more information.

In February 2020, the Company announced a restructuring plan to address existing structural costs. During the years ended December 31, 2021 and 2020, the Company recorded $103 million and $148 million of restructuring expense related to this plan, respectively. Cumulatively, the Company has incurred $251 million of restructuring charges 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 are 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 2019, legacy Delphi Technologies announced a restructuring plan to reshape and realign its global technical center footprint and reduce salaried and contract staff. The Company continued actions under this program post-acquisition and has recorded cumulative charges of $62 million since October 1, 2020. This includes approximately $60 million in restructuring charges during the year ended December 31, 2021, primarily for the statutory minimum benefits and incremental one-time termination benefits negotiated with local labor authorities. The majority of these actions under this program have been completed.

Additionally, the Company recorded approximately $54 million in restructuring during the three months ended December 31, 2020, for acquisition-related restructuring charges. In conjunction with the Delphi Technologies 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.

Other operating expense, net was $81 million and $138 million for the years ended December 31, 2021 and 2020, respectively.

For the years ended December 31, 2021 and 2020, merger, acquisition and divestiture related expenses were $50 million and $96 million, respectively. The decrease in 2021 was primarily related to higher professional fees in 2020 associated with the acquisition of Delphi Technologies.

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During the year ended December 31, 2021, the Company recorded pre-tax losses of $22 million on the sale of its Water Valley, Mississippi facility and $7 million in connection with the sale of an e-Propulsion & Drivetrain technical center in Europe.

During the year ended December 31, 2021, the Company recorded an impairment charge of $14 million to reduce its carrying value of an indefinite-lived trade name to the fair value. During the year ended December 31, 2020, the Company recorded asset impairment costs of $9 million in the Air Management segment and $8 million in the e-Propulsion & Drivetrain segment related to the write downs of property, plant and equipment associated with the announced closures of two European facilities. Additionally, as a result of an evaluation of certain underlying technologies 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.

Other operating expense, net is primarily comprised of items included 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 $48 million and $18 million in the years ended December 31, 2021 and 2020, respectively. This line item is driven by the results of the Company’s unconsolidated joint ventures. The increase in equity in affiliates’ earnings in the year ended December 31, 2021 was due to the recovery from negative effects of COVID-19 on 2020 production.

Unrealized loss (gain) on equity securities included a loss of $362 million and a gain of $382 million for the years ended December 31, 2021 and 2020, respectively. This line item reflects the net unrealized gains or losses recognized primarily related to the Company’s investment in Romeo Power, Inc. For further details, see Note 2, “Acquisitions and Dispositions,” to the Consolidated Financial Statements in Item 8 of this report.

Interest expense, net was $93 million and $61 million in the years ended December 31, 2021 and 2020, respectively. The increase in interest expense for the year ended December 31, 2021, compared with the year ended December 31, 2020, was primarily due to the Company’s $20 million loss on debt extinguishment related to the early repayment of its €500 million 1.800% senior notes settled on June 18, 2021, the Company’s issuance of €1 billion 1.000% senior notes in May 2021 to support the AKASOL acquisition, and the Company’s $1.1 billion senior notes issuance in June 2020.

Other postretirement income was $45 million and $7 million in the years ended December 31, 2021 and 2020, respectively. The increase in other postretirement income for the year ended December 31, 2021, compared with the year ended December 31, 2020, was primarily due to the assumption of Delphi Technologies pension plans.

Provision for income taxes was $150 million for the year ended December 31, 2021 resulting in an effective tax rate of 19%. This compared to $397 million or 41% for the year ended December 31, 2020.

In 2021, the Company recognized a $55 million tax benefit related to a reduction in certain unrecognized tax benefits and accrued interest for a matter in which the statute of limitations had lapsed. The Company also recognized a discrete tax benefit of $20 million related to an increase in its deferred tax assets as a result of an increase in the United Kingdom (“UK”) statutory tax rate from 19% to 25%. Further, a net discrete tax benefit of $36 million was recognized, primarily related to changes to certain withholding rates applied to unremitted earnings.

In 2020, the Company recognized $49 million of income tax expense, which primarily related to final U.S. Department of Treasury regulations issued in the third quarter of 2020, which impacted the net tax on

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remittance of foreign earnings, and certain tax law changes in India effective in the first quarter of 2020. In addition, the Company recognized incremental valuation allowances of $53 million in 2020.

For further details, see Note 7, “Income Taxes,” to the Consolidated Financial Statements in Item 8 of this report.

Net earnings attributable to the noncontrolling interest, net of tax of $102 million for the year ended December 31, 2021 increased by $35 million compared to the year ended December 31, 2020. The increase was due to the recovery from negative effects of COVID-19 on 2020 production and the addition of noncontrolling interests from acquisitions.

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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 $2.24 and $2.34 for the years ended December 31, 2021 and 2020, respectively. The non-comparable items presented below are calculated after tax using the corresponding effective tax rate discrete to each item 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:	2021		2020
Restructuring expense	$	(0.58)	$	(0.86)
Customer warranty settlement1	(0.26)		—
Merger, acquisition and divestiture expense	(0.19)		(0.38)
Loss on sales of businesses	(0.13)		—
Asset impairments and lease modifications	(0.05)		(0.08)
Net gain on insurance recovery for property damage2	0.01		0.04
Unrealized (loss) gain on equity securities	(1.15)		1.36
Loss on debt extinguishment	(0.06)		—
Intangible asset accelerated amortization	—		(0.14)
Amortization of inventory fair value adjustment3	—		(0.10)
Delayed-draw term loan cancellation4	—		(0.01)
Pension settlement loss5	—		(0.02)
Tax adjustments6	0.50		(0.23)
Total impact of non-comparable items per share — diluted:	$	(1.91)	$	(0.42)

_____________________

1	During the year ended December 31, 2021, the Company reached an agreement with a customer to fully resolve a warranty claim and the Company recognized cumulative charges in the amount of $124 million in connection with the warranty claim. Refer to Note 21, “Contingencies,” to the Consolidated Financial Statements in Item 8 of this report for more information.
2	During the years ended December 31, 2021 and 2020, the Company recorded a net gain of $3 million and $9 million from insurance recovery proceeds, respectively, which primarily represents the amounts received for replacement cost in excess of carrying value for losses sustained from a tornado that damaged the Company’s plant in Seneca, South Carolina.
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 and Dispositions,” to the Consolidated Financial Statements in Item 8 of this report for more information.
4	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 that 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.
5	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.
6	In 2021, the Company recognized discrete reductions to tax expense of $124 million. These reductions primarily included a $55 million tax benefit related to the lapse of the statute of limitations for a tax matter, a $20 million benefit related to an increase in deferred tax assets associated with an increase in the UK tax rate, and a $49 million of tax benefit primarily related to changes to certain withholding rates applied to unremitted earnings and other tax adjustments. In 2020, the Company recognized 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, which impacted the net tax on remittance of foreign earnings, but was partially offset by reductions to tax expense of $5 million related to tax reserves and other tax adjustments.

Results by Reporting Segment

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

Segment Adjusted EBIT is the measure of segment income or loss used by the Company. Segment Adjusted EBIT is comprised of earnings before interest, income taxes and noncontrolling interest (“EBIT”) adjusted for restructuring, merger, acquisition and divestiture expense, impairment charges, affiliates’ earnings and other items not reflective of ongoing operating income or loss. The Company believes

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Segment Adjusted EBIT is most reflective of the operational profitability or loss of its reporting segments. Segment Adjusted EBIT excludes certain corporate costs, which primarily represent headquarters’ expenses not directly attributable to the individual segments. Corporate expenses not allocated to Segment Adjusted EBIT were $302 million and $192 million for the years ended December 31, 2021 and 2020, respectively. The increase in corporate expenses in 2021 related to the acquisition of Delphi Technologies in 2020 and reinstated costs related to specific cost reduction actions taken in response to COVID-19 during 2020.

The following table presents net sales and Segment Adjusted EBIT for the Company’s reporting segments:

	Year ended December 31, 2021						Year ended December 31, 2020
(in millions)	Net sales		Segment Adjusted EBIT		% margin		Net sales		Segment Adjusted EBIT		% margin
Air Management	$	7,298	$	1,070	14.7	%	$	5,678	$	762	13.4	%
e-Propulsion & Drivetrain	5,378		486		9.0	%	3,989		359		9.0	%
Fuel Injection	1,826		170		9.3	%	479		39		8.1	%
Aftermarket	853		107		12.5	%	194		22		11.3	%
Inter-segment eliminations	(517)		—				(175)		—
Totals	$	14,838	$	1,833			$	10,165	$	1,182

The Air Management segment’s net sales for the year ended December 31, 2021 increased $1,620 million, or 29%, and Segment Adjusted EBIT increased $308 million, or 40%, from the year ended December 31, 2020. The net impact of acquisitions, related to Delphi Technologies and AKASOL, increased Air Management revenues by $880 million in 2021. Stronger foreign currencies relative to the U.S. Dollar, primarily the Euro, Chinese Renminbi, and Korean Won, increased net sales by approximately $154 million from the year ended December 31, 2020. The net increase excluding these items was primarily due to increased demand for the Company’s products. In addition, net sales were favorably impacted by the recovery of global markets from the negative effects of COVID-19 on 2020 production. However, this recovery was largely offset by supply constraints related to certain components, particularly semiconductor chips, that negatively impacted global automotive production in 2021. Segment Adjusted EBIT margin was 14.7% for the year ended December 31, 2021, compared to 13.4% in the year ended December 31, 2020. The Segment Adjusted EBIT margin increase was primarily due to the impact of higher sales and savings arising from the Company’s restructuring initiatives, partially offset by higher commodity costs in 2021.

The e-Propulsion & Drivetrain segment’s net sales for the year ended December 31, 2021 increased $1,389 million, or 35%, and Segment Adjusted EBIT increased $127 million, or 35%, from the year ended December 31, 2020. The Delphi Technologies acquisition increased e-Propulsion & Drivetrain revenues by $779 million in 2021. Stronger foreign currencies relative to the U.S. Dollar, primarily the Euro, Chinese Renminbi, and Korean Won, increased net sales by approximately $126 million from the year ended December 31, 2020. The net increase excluding these items was primarily due to increased demand for the Company’s products. In addition, net sales were favorably impacted by the recovery of global markets from the negative effects of COVID-19 on 2020 production. However, this recovery was largely offset by supply constraints related to certain components, particularly semiconductor chips, that negatively impacted global automotive production in 2021. Segment Adjusted EBIT margin was 9.0% in the year ended December 31, 2021 and 2020 as the impact of higher sales was offset by higher commodity costs and increased net R&D investments.

The Fuel Injection segment’s net sales and Segment Adjusted EBIT for the year ended December 31, 2021 were $1,826 million and $170 million, respectively. For the three months ended December 31, 2020, net sales and Segment Adjusted EBIT were $479 million and $39 million, respectively. This was a new reporting segment following the acquisition of Delphi Technologies on October 1, 2020. Segment Adjusted EBIT margin was 9.3% in the year ended December 31, 2021, compared to 8.1% in the three

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months ended December 31, 2020. The Segment Adjusted EBIT margin increase was primarily due to cost improvement measures and higher engineering cost recoveries in 2021.

The Aftermarket segment’s net sales and Segment Adjusted EBIT for the year ended December 31, 2021 were $853 million and $107 million, respectively. For the three months ended December 31, 2020, net sales and Segment Adjusted EBIT were $194 million and $22 million, respectively. This was a new reporting segment following the acquisition of Delphi Technologies on October 1, 2020. Segment Adjusted EBIT margin was 12.5% in the year ended December 31, 2021, compared to 11.3% in the three months ended December 31, 2020. The Segment Adjusted EBIT margin increase was primarily related to increased pricing in 2021.

Outlook

The Company expects global industry production to increase year over year in 2022, as supply of certain components, particularly semiconductor chips, is expected to improve modestly during the year. The Company also expects net new business-related sales growth, due to increased penetration of BorgWarner products around the world, to drive sales increase in excess of the growth in industry production outlook. As a result, the Company expects increased revenue in 2022, excluding the impact of foreign currencies.

The Company expects its results to be impacted by a planned increase in Research & Development (“R&D”) expenditures during 2022. This planned R&D increase is to support growth in the Company’s electric vehicle-related products and is primarily related to supporting the launch of recently awarded programs. The Company also expects higher commodity cost, particularly related to steel and petroleum-based resin products, and other supplier cost increases to negatively impact its results of operations. These items are expected to be partially mitigated by cost reductions due to the Company’s restructuring activities and synergies related to the acquisition of Delphi Technologies.

The Company maintains a positive long-term outlook for its global business and is committed to new product development and strategic investments to enhance its product leadership strategy. There are several trends that are driving the Company’s long-term growth that management expects to continue, including adoption of product offerings for electrified vehicles and increasingly stringent global emissions standards that support demand for the Company’s products driving vehicle efficiency.

LIQUIDITY AND CAPITAL RESOURCES

The Company maintains various liquidity sources including cash and cash equivalents and the unused portion of its multi-currency revolving credit agreement. As of December 31, 2021, the Company had liquidity of $3,841 million, comprised of cash and cash equivalent balances of $1,841 million and an undrawn revolving credit facility of $2,000 million. The Company was in full compliance with its covenants under the revolving credit facility and had full access to its undrawn revolving credit facility. Debt maturities through the end of 2022 total $66 million. Given the Company’s strong liquidity position, management believes that it will have sufficient liquidity and will maintain compliance with all covenants through at least the next 12 months.

As of December 31, 2021, cash balances of $1,361 million were held by the Company’s subsidiaries outside of the United States. Cash and cash equivalents held by these subsidiaries is used to fund foreign operational activities and future investments, including acquisitions. The majority of cash and cash equivalents held outside the United States is available for repatriation. The Company uses its U.S. liquidity primarily for various corporate purposes, including but not limited to debt service, share repurchases, dividend distributions, acquisitions and other corporate expenses.

The Company has a $2.0 billion multi-currency revolving credit facility, which includes a feature that allows the facility to be increased by $1.0 billion with bank group approval. This facility matures in March 2025. The credit facility agreement contains customary events of default and one key financial covenant,

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which is a debt-to-EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) ratio. The Company was in compliance with the financial covenant at December 31, 2021. At December 31, 2021 and 2020, the Company had no outstanding borrowings under this facility.

The Company’s commercial paper program allows the Company to issue $2.0 billion of short-term, unsecured commercial paper notes under the limits of its multi-currency revolving credit facility. Under this program, the Company may issue notes from time to time and use the proceeds for general corporate purposes. The Company had no outstanding borrowings under this program as of December 31, 2021 and 2020.

The total current combined borrowing capacity under the multi-currency revolving credit facility and commercial paper program cannot exceed $2.0 billion.

In addition to the credit facility, the Company’s universal shelf registration provides the ability to issue various debt and equity instruments subject to market conditions.

On February 12, 2021, April 28, 2021, July 28, 2021 and November 9, 2021, the Company’s Board of Directors declared quarterly cash dividends of $0.17 per share of common stock. These dividends were paid on March 16, 2021, June 15, 2021, September 15, 2021 and December 15, 2021, respectively.

During 2020, due to the business disruptions from COVID-19 and uncertainties surrounding the Delphi Technologies acquisition, Standard & Poor’s downgraded the Company's rating from BBB+ with a stable outlook to BBB with a negative outlook. Additionally, Moody's and Fitch adjusted their outlooks from stable to negative but maintained the Company’s credit ratings at Baa1 and BBB+, respectively. In April 2021, Moody’s reaffirmed the Company’s Baa1 credit rating and adjusted its outlook from negative to stable. In May 2021, Fitch Ratings reaffirmed the Company’s BBB+ rating and adjusted its outlook from negative to stable. In December 2021, Standard & Poor’s reaffirmed the Company’s rating of BBB with a negative outlook. None of the Company’s debt agreements require accelerated repayment in the event of a downgrade in credit ratings.

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Cash Flows

Operating Activities

	Year Ended December 31,
(in millions)	2021		2020
OPERATING
Net earnings	$	639	$	567
Adjustments to reconcile net earnings to net cash flows from operations:
Depreciation and tooling amortization	684		479
Intangible asset amortization	88