BWA 10-K & 10-Q changes, risk factors and insider trading

Investors should carefully consider the following risk factors and other information included in this Annual Report on Form 10-K. The risks and uncertainties described below are not the only ones we face.report. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impact our business operations. If any of the following risks occur, our business, including our financial performance, financial condition, operating results and cash flows, could be adversely affected. In such an event, the market price of our common stock could decline, and you could lose all or part of your investment.

We may not meetprove successful in our goalsstrategy due to many factors, including any of the risks identified in the paragraphs that follow, failure to develop new products that our customers will purchase, technology changes that could render our products obsolete, or the introduction of new technology to which we do not have access, among other things.

Our future success is dependent upon ourus making the right investments at the right timestimes, with the right customers who can rapidly adapt to the market, to support product development in areas of evolving vehicle technologies. We have made, and expect to continue to make, significant investments to grow our eProducts. If the overall adoption of electric vehicles continues to be slower as compared to our expectations, we may not only fail to realize expected rates of return on our existing investments, but we may also incur further losses on such investments. Further, if we invest in relationships with the wrong customers or in the wrong markets, then we may still fail to realize expected returns.

We expect to continue to pursue business ventures, acquisitions, and strategic alliances that leverage our technology capabilities and enhance our customer base, geographic representation, and scale to complement our current businesses. We regularly evaluate potential growth opportunities, some of which could be material.opportunities. While we believe that such transactions are an integral part of our long-term strategy, there are risks and uncertainties related to these activities. Assessing a potential growth opportunity involves extensive due diligence. However, the amount of information we can obtain about a potential growth opportunity can be limited, and we can give no assurance that past or future business ventures, acquisitions, and strategic alliances will positively affect our financial performance or will perform as planned. Assessing a price for potential transactions is inexact. We may not be able to successfully assimilate or integrate companies that we have acquired or will acquire in the future, including their personnel, financial systems, distribution, operations and general operating procedures. Failure to execute our growth strategy could adversely affect our business.

We review 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.acquisition This is becauseas 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, such as those recorded for the yearyears ended December 31, 2025 and 2024, could adversely affect our results of operations in the periods recognized.

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 our operations, the inability to maintain or increase our competitive presence, inconsistencies in standards, controls, procedures and policies, difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the acquisition, the diversion of management’s attention to integration matters and/or difficulties in the assimilation of employees and corporate cultures. Any or all of these factors could adversely affect our ability to maintain relationships with customers and employees or to achieve the anticipated benefits of the acquisition and could have an adverse effect on the combined company. In addition, many of these factors are outside of our control, and any one of these factors could result in increased costs, decreases in the amount of expected revenuesrevenues, unanticipated risks and liabilities associated with the acquired business, and additional diversion of management’s time and energy, which could materially adversely impact our business, financial condition and results of operations. In addition, if the expected benefits of an acquisition do not meet the expectations of investors or securities analysts, the market price of our common stock may decline.

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

Our financial performance depends on conditions in the global automotive industry. Automotive and truck production and sales are cyclical and sensitive to general economic conditionsconditions, geopolitical and trade-related issues and other factors, including interest rates, declines in the availability of consumer credit, increased borrowing costs and consumer spending and preferences. Economic declines that result in significant reduction in automotive or truck production would haveresult anin adversea effectdecline onin the production levels of our major customers and, by extension, in our sales to OEMs.OEMs which would adversely affect our business, results of operations, cash flows and financial condition.

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

The automotive industry is increasingly focused on improved vehicle efficiency and reduced emissions, including the development of hybrid and electric vehicles, largely as a result of changing consumer preferences and increasingly stringent global regulatory requirements related to climate change, 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. While we are focused on driving growth through our ability to capitalize on certain potential trends, such as the move toward hybrid and electric vehicles, some of the focuses and trends are not part of our product line or strategy, which could have an adverse impact on our results of operations.strategy. If we do not continue to innovate and develop, or acquire, new and compelling products that capitalize upon new technologiestechnologies, including artificial intelligence (“AI”) and machine learning, or improve in response to OEM and consumer preferences, this could have an adverse impact on our results of operations.

There is substantial and continuing pressure on OEMs to reduce costs, including costs of products we supply. Virtually all automakers have implemented aggressive price-reduction initiatives and objectives each year with their suppliers, and such actions are expected to continue in the future. OEM customers expect annual price reductions in our business. To maintain our profit margins, we seek price reductions from our suppliers, improved production processes to increase manufacturing efficiency, and streamlined product designs to reduce costs, and we attempt to develop new products, the benefits of which support stable or increased prices. Price reductions have impacted the Company’s sales and profit margins and are expected to continue to do so in the future. Our ability to pass through increased raw material or other inflationary costs to our OEM customers is limited, with cost recovery often less than 100% and often on a delayed basis. Inability to reduce or offset 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 us.our business and results of operations.

We use 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. The costs and availability of raw materials can fluctuate due to factors beyond our control. Increasing commodity costs negatively impact our operating margins and results. While we would seek to alleviate the impact of increasing costs by including material pass-through provisions in our customer contracts wherever possible and by selectively hedging certain commodity exposures, there can be no assurances that we willmay not be successful in these efforts. The discontinuation or lessening of our ability to pass through or hedge increasing commodity costs could adversely affect our business.

Many global economies, including the United States, have experienced and continue to experience elevated levels of inflation more generally, which drovehave driven an increase in input costs. Following non-contractual negotiations, we reached cost-recovery agreements with various customers in 2024, 2023 and 2022, but these agreements did not enable us to recover 100 percent of our increased costs, and as a result, our operating margins were negatively impacted. Elevated levels of inflation could adversely affect our business.

We have taken, are taking, and may in the future take restructuring actions to realign and resize our production capacity and cost structure to meet current and projected operational and market requirements. Implementation of any restructuring action may be costly and disruptive to our business, and we may not be able to obtainrealize the cost savings, operational improvements and estimated workforce reductions that we anticipate within the projected timing or at all. We are also subject to the risks of labor unrest, negative publicity and business disruption in connection with our restructuring actions. Additionally, as a result of restructuring initiatives, we may experience a loss of continuity, loss of accumulated knowledge and/or inefficiency, loss of key employees and/or other retention issues during transitional periods. Restructuring can require a significant amount of time and focus, which may divert attention from operating and growing our business. Moreover, we base projections of any cost savings or other benefits associated with our restructuring actions on current business operations and market dynamics, and various factors, including but not limited to our evolving business models, future investment decisions, market environment and technology landscape, could significantly impact the success of these actions. Refer to Note 4, “Restructuring,” to the Consolidated Financial Statements for more information.

Changes in administrative policy on the part of the U.S. administrativeor policy,other countries, including the imposition of or increases in tariffs, changes to existing trade agreements and any resulting changes in international trade relations, may have an adverse effect on us.

TheIn United2025, Statesthe hasU.S. maintainedannounced significant tariffs on certainimports importedfrom steel,a aluminumbroad range of countries, including the European Union, Canada, Mexico and items originating from China. These tariffs have increased the cost of raw materials and components we purchase, and to the extent the tariffs announced to date or announced in the future become or remain effective and are maintained, these tariffs would likely further increase the cost of raw materials and components we purchase. The imposition of tariffs by the United StatesU.S. has resulted in retaliatory tariffs from a number ofother countries, including China, which has increased and would continue to increase the cost of products we sell. Additionally, ongoing changes in U.S. and foreign government trade policies, including potential modifications to existing trade agreements and further restrictions on free trade, could introduce additional uncertainty.uncertainty Thewith U.S.respect administrationto hastrade policies and government regulations affecting international trade. Tariffs or retaliatory tariffs announced plans to implementdate or increase tariffs, particularly on products manufacturedannounced in China,the Canadafuture, andcurrent Mexico,trade thoughtensions, it remains unclear what specific actions will be taken. Anyany escalation of trade tensions, additional tariffs, retaliatory measures by foreign governments orgovernments, shifts in U.S. or international trade policies or related uncertainties affecting the conduct of business and consumer spending could continue to adversely impact our supply chain, increase costs of components and materials and reduce demand for our products.products, A trade wardirectly or indirectly due to negative effects on our customers, the U.S. economy, the economies of other significant changescountries in tradewhich regulationswe operate or the global economy, any or all of which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Further, the duration and scope of these potential effects are unknown. Although we have taken steps to attempt to mitigate these effects, including entering into contractual agreements with our customers to recover tariff impacts incurred to date, and are considering others to counter the impact of such tariffs on our business, financial condition and results of operations, there is no assurance that we will continue to be successful in recovering such costs from our customers or implementing the other mitigation efforts without disrupting our business, operations and financial performance.

In 2024,2025, the Companywe imported approximately $875$918 million in value to the U.S. Approximately 55%68% of that value originated in Mexico, approximately 10%9% originated in Canada and approximately 5%6% originated in China.South Korea.

We rely on the capacity, reliability and security of our IT systems and infrastructure to operate our business. IT systems are vulnerable to disruptions, including those resulting from natural disasters, cyber-attacks or failures in third-party provided services. Disruptions and attacks on our IT systems pose a risk to our business operations and our ability to protect our systems, networks and communications, and the confidentiality and availability of third-party and internal data, including our employees. Some cyber-attacks depend on human error or manipulation, including phishing attacks orattacks, social engineering schemes or ransomware to gain access to systems or carry out disbursement of funds or other frauds, which raise the risks from such events and the costs associated with protecting against such attacks. Although we have implemented security policies, processes, and layers of defense designed to help identify and protect against intentional and unintentional misappropriation or corruption of our systems and information and disruptions of our operations, we have been, and likely will continue to be, subjected to such attacks or disruptionsoperations (and, to date, we are not aware that we have experienced a cybersecurity incident that has materially affected our business strategy, results of operations, or financial condition)., we have been, and likely will continue to be, subjected to such attacks or disruptions which could be material. Future attacks or disruptions could potentially lead to the inappropriate disclosure of confidential information, including our intellectual property or employee data, improper use of our systems and networks, access to and manipulation and destruction of our or third-party data, production downtimes, lost revenues, inappropriate disbursement of funds and both internal and external supply shortages. In addition, we may be required to incur significant costs to protect against damage caused by such attacks or disruptions in the future. These consequences could cause significant damage to our reputation, affect our relationships with our customers and suppliers, lead to claims against us and ultimately adversely affect our business.

Further, we continually update and expand our information technology systems to enable us to run our business more efficiently, including the potential incorporation of artificial intelligence (“A.I.”)AI solutions into our information systems and processes. The increasing use and evolution of advanced technology solutions creates potential risks for loss or misuse of Company data that forms part of any data set that was collected, used, stored,stored or transferred to run our business. Any unintentional dissemination or intentional destruction of confidential information stored in our or our third-party providers' systems, portable media or storage devices may result in significantly increased business and security recovery costs, a damaged reputation, administrative penalties, or costs related to defending legal claims. The use of AI in the development of our products and services could also cause loss or theft of intellectual property as well as subject us to risks related to intellectual property infringement or misappropriation, data privacy and cybersecurity. In addition, if the content, analyses, or recommendations that A.I.AI programs assist in producing are or are alleged to be deficient, inaccurate, or biased, then our business, financial condition, and results of operations and our reputation may be adversely affected. We also face risks of competitive disadvantage if our competitors more effectively use AI to drive internal efficiencies or create new or enhanced products or services that we are unable to compete against on cost, quality or other attributes. Any of these risks could negatively impact our business or results of operation.

To the extent we are not able to successfully launch new business, vehicle production at our customers could be significantly delayed or shut down. Such situations could result in loss of customers, significant financial penalties to us or a diversion of personnel and financial resources to improving launches rather than investment in continuous process improvement or other growth initiatives and could result in our customers shifting work away from us to a competitor, all of which could result in loss of revenue or loss of market share and could have an adverse effect on our profitability and cash flows.

We have been and are exposed to liabilities related to environmental, product warranties, product recalls, litigation and other claims.

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

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

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

Changes in tax laws or tax rates, the resolution of tax assessments or audits by various tax authorities, and the inability to fully utilize our tax loss carryforwards and tax credits could adversely affect our operating results. In addition, we may periodically restructure our legal entity organization.organization, Ifand if taxing authorities were to disagree with our tax positions in connection with any such restructurings, our effective tax rate could be materially affected. On July 4, 2025, the U.S. government enacted tax legislation commonly referred to as the One Big Beautiful Bill Act (the “OBBBA”). The OBBBA made permanent or extended several provisions from the Tax Cuts and Jobs Act of 2017, including the restoration of expensing of domestic research and development expenditures. Future changes to these or other tax laws, as well as related regulations and interpretations, could materially affect our financial statements.

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

We have manufacturing and technical facilities in many regions, including Europe, Asia, and the Americas. For 2024,2025, approximately 84% of our consolidated net sales were outside the U.S. We also purchase raw materials and other supplies from many different countries around the world. Consequently, our results could be affected by changes in trade, monetary and fiscal policies, trade restrictions or prohibitions, import or other charges or taxes, fluctuations in foreign currency exchange rates, limitations on the repatriation of funds, data protection regulations, changing economic conditions, unreliable intellectual property protection and legal systems, including the ability to enforce commercial agreements, 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 sales revenues, expenses and capital expenditures. The local currency is typically the functional currency for our foreign subsidiaries. Significant foreign currency fluctuations and the associated translation of those foreign currencies to U.S. Dollars could adversely affect our business. Additionally, significant changes in currency exchange rates, particularly the Euro, Korean Won and Chinese Renminbi, could cause fluctuations in the reported results of our businesses’ operations that could negatively affect our results of operations.

Maintaining a strong position in the Chinese market is a key component of our global growth strategy. The automotive supply market in China is highly competitive, with competition from many of the largest global manufacturers and numerous smaller domestic manufacturers. As the Chinese market evolves, market participants have acted, and we anticipate thatwill marketcontinue participants willto act aggressively to increase or maintain their market share. Increased competition may result in price reductions, reduced margins and our inability to gain or hold market share. Domestic Chinese OEMs continue to expand their market share in and outside of China, and are increasingly insourcing certain components once sourced from Tier 1 suppliers. In addition, our business in China is sensitive to economic, political, social and market conditions that drive sales volumes in China. If we are unable to maintain our position in the Chinese market or if vehicle sales in China decrease, our business and financial results could be adversely affected.

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

All three of our primary North American customers, Ford, Stellantis, and General Motors, have major union contracts with the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (or “UAW”). Additionally, there is effort from the UAW to unionize other North American OEM plants, the outcome of which is difficult to predict. Because of domestic OEMs’ dependence on a single union, we are affected by labor difficulties and work stoppages at OEMs’ facilities, such as the UAW strikes that occurred in 2023. Such stoppages at OEMs’ facilities could halt our businesses with those facilities, and an increase in the number of OEMs facilities with union contracts with the UAW could increase the negative impact to our business. Similarly, a majority of our global customers’ operations outside of North America are also represented by various unions. Any extended work stoppage at one or more of our customers could delay the manufacture and sale of our products and have an adverse effect on our business.business and operating results.

However, there can be no assurance that capacity limitations, industry shortages, labor or social unrest, weather emergencies, commercial disputes, government actions, riots, wars, sabotage, cyber-attacks, non-conforming parts, acts of terrorism, “Acts of God,” or other problems that our suppliers experience will not result in occasional shortages or delays in their supply of components to us. If we experience a prolonged shortage of critical components from any of our suppliers and cannot procure the components from other sources, we may be unable to meet the production schedules for some of our 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 us at a time that we face substantial pressure from OEMs to reduce the prices of our products, which could adversely affect our customer relations and business.

Suppliers’ economic distress could result in thesupply disruptioninterruptions ofand, in turn, disrupt our operations and could adversely affect our business.

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

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

BorgWarner Inc. (collectively with its 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. The Company manufactures and sells these products worldwide, primarily to original equipment manufacturers (“OEMs”) of light vehicles (passenger cars, sport-utility vehicles (“SUVs”),vehicles, 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.

In 2021, the Company announced its accelerated electrification strategy. There were three primary elements of the strategy: (1) profitably scaling organic growth in electric vehicles (“EVs”); (2) executing mergers and acquisitions that expand our EV products; and (3) optimizing our combustion portfolio through planned dispositions of between $3 billion and $4 billion of annual revenue. In June 2023, the Company announced the next phase of its strategy, which focused on advancing its position as a leader in eProducts (all products utilized on or for EVs plus those same products and components that are included in hybrid powertrains whose underlying technologies are adaptable to those used in or for EVs), while maximizing the value of its combustion portfolio or Foundational products (all products utilized in internal combustion engines plus those same products and components that are also included in hybrid powertrains). The Company’s current strategy is to focus on profitable growth across its technology-focused product portfolio that supports electric, hybrid and combustion vehicles. This entails growing its product portfolio through organic investments and technology-focused acquisitions. The Company’s balanced portfolio is particularly critical as the automotive industry continues to see electric vehicle adoption volatility across different regions. During the years ended December 31, 2024,2025, 20232024 and 2022,2023, the Company’s eProductrevenue revenuefrom eProducts, which include all products utilized on or for electric vehicles (“EVs”) plus those same products and components that are included in hybrid powertrains whose underlying technologies are adaptable or applicable to those used in or for EVs, was approximately $2.3$2.6 billion, $2.0$2.3 billion and $1.5$2.0 billion, respectively, or 17%,18%, 14%17% and 12%14% of its total revenue, respectively, and the Company’s revenue from Foundational products, which include all products revenueutilized on internal combustion engines plus those same products and components that are also included in hybrid powertrains, was approximately $11.8$11.7 billion, $12.2$11.8 billion and $11.2$12.2 billion, respectively, or 83%,82%, 86%83% and 88%86% of its total revenue, respectively.

On September 19, 2024, the Company commenced a lawsuit against PHINIA, seeking to recover from PHINIA approximately $120 million of value added tax (“VAT”) refunds that PHINIA has received or expects to receive from governmental agencies as well as damages and interest, which PHINIA has refused to pay to the Company.interest. These refunds consistconsisted of VAT paid by the Company in periods prior to or directly related to the Spin-Offspin-off through which the Companythat established PHINIA as an independent company. PriorPHINIA responded to the initiationlawsuit ofand thealso lawsuit,asserted PHINIAcounterclaims had paid certain VAT refund amounts toagainst the Company. TheOn October 15, 2025, the Company assertsentered PHINIA’sinto obligationa settlement agreement (the “Settlement Agreement”) with PHINIA, pursuant to which PHINIA agreed to pay the Company these$78 VATmillion, refundsresolving the lawsuit and relatedcertain amountsother ismatters plainlyrelating setto forththe inspin-off. aIn bindingconnection with the Settlement Agreement, the Company and PHINIA also entered into an amended and restated tax matters agreement betweenthat, among other things, limits the Company’s responsibility to certain defined tax obligations. As a result, the Company recorded a net charge of $40 million during the year ended December 31, 2025, for the reduction of VAT-related receivables, the elimination of certain Company liabilities under the amended and PHINIA,restated tax matters agreement and related legal fees, which theis partiesincluded agreedin toOther prioroperating toexpense, net in the Spin-Off.Company’s Consolidated Statements of Operations. As of December 31, 2024,2025, after giving effect to the Settlement Agreement and the $31 million payment received during the fourth quarter of 2025, the Company had an assetassets related to these VAT refunds of approximately $120$47 million, which ismillion included in Receivables, net onin the Company’s Consolidated Balance Sheet.Sheet Becausein theItem Company is unable to predict the timing8 of collectionthis of these VAT refunds from the applicable governmental agencies, the Company has not included these amounts in its 2025 free cash flow guidance.report.

On September 26, 2024, a hurricane made landfall in North Carolina disrupting operations at the Company’s facility in Arden, North Carolina (the “Arden Plant”). The Arden Plant was largely untouched, but the Company experienced some loss or damage to the Company’s assets amounting to less than $10 million. The Arden plant resumed full operations during the fourth quarter of 2024. The Company’s insurance policies (less applicable deductibles) are expected to covercovered the repair or replacement of the Company’s assets that incurred loss or damage.damage Inand addition, the Company’s insurance policies are expected to provideprovided coverage for interruption to its business, including lost profits, and reimbursement for other expenses and costs that have beenwere incurred relatingrelated to the damages and losses sustained. The Arden plant resumed full operations duringFor the fourthyear quarterended December 31, 2025, the Company recorded committed insurance recoveries of 2024.approximately $9 million, which are included as a reduction of Cost of sales in the Company’s Consolidated Statements of Operations in Item 8 of this report and were fully collected.

Acquisitions and Dispositions

Economic Conditions. 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,credit and consumer spending and preferences. Government policies, such as the imposition of, termination of or other changes in tariffs (including retaliatory tariffs), or the commencement or termination of consumer tax incentives, such as EV tax credits,credits and programs to invest in infrastructure, including EV charging stations, may affect consumer preferences. Economic declines or impacts of tariffs that result in significanta material reduction in automotive or truck production would have an adverse effect on ourthe Company’s sales. The weighted average market production, as estimated by the Company for the year ended December 31, 2024,2025, was down approximately 3%flat from the year ended December 31, 2023.2024. Weighted average market production reflects light and commercial vehicle production as reported by S&P Global, weighted for the Company’s geographic exposure, as estimated by the Company.

Commodities and Other Inflationary Impacts. During 2024,2025, prices for commodities showed a lower level of volatility in comparison to what the Company had experienced from the beginning of 2021. At the same time, many economies, including the United States, are still experiencing elevated levels of inflation, which continues to put pressure on other input costs (e.g. labor, energy, other materials). The Company expects commodities and other costs to be relatively flat in 2025.2026. However, the Company has experienced impacts from commodity pricing, inflation and tariffs over the last several years. Volatility in these areas and other factors could cause actual costs to be materially higher than expected in 2026.

A detailed comparison of the Company’s 20222023 operating results to itsthe 2023Company’s 2024 operating results can be found in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in the Company’s 20232024 Annual Report on Form 10-K filed February 8,6, 2024.2025.

Net sales for the year ended December 31, 20242025 totaled $14,086$14,316 million, aan decreaseincrease of $112$230 million, or 1%,2%, from the year ended December 31, 2023.2024. The change in net sales for the year ended December 31, 20242025 was primarily driven by the following:

•Fluctuations in foreign currencies resulted in a year-over-year decreaseincrease in sales of approximately $122$154 million, primarily due to the weakeningstrengthening of the Chinese RenminbiEuro and KoreanThai Won,Baht, partially offset by the strengtheningweakening of the Euro,Korean Won and Brazilian Real, in each case relative to the U.S. Dollar.

•Fluctuations in foreign currencies resulted in a year-over-year decreaseincrease in cost of sales of approximately $93$133 million, primarily due to the strengthening of the Euro, partially offset by the weakening of the ChineseKorean RenminbiWon and KoreanBrazilian WonReal relative to the U.S. Dollar.

Gross profit and gross margin were $2,674 million and 18.7%, respectively, during the year ended December 31, 2025 compared to $2,648 million and 18.8%, respectively, during the year ended December 31, 2024 compared to $2,568 million and 18.1%, respectively, during the year ended December 31, 2023.2024. The increasechange in gross margin was primarily due to the factors discussed above.

•Research and development (“R&D”) costs increaseddecreased $19$26 million. R&D costs, net of customer reimbursements, were 5.0% of net sales in the year ended December 31, 2025, compared to 5.2% of net sales in the year ended December 31, 2024, compared to 5.1% of net sales in the year ended December 31, 2023.2024. The increasedecrease in R&D costs, net of customer reimbursements, was primarily due to increasingdecreasing net investment related to the Company’s eProducts.

In 2023, the Company announced a $130 million to $150 million restructuring plan to address structural costscost primarily in its Foundational products businesses. During the year ended December 31, 2024,2025, the Company recorded $61$8 million of restructuring costs related to this plan. The actions under this plan are complete. The resulting gross savings related to this plan are expected to be in the range of at least $80 million to $90 million annually by 2027 and are being utilized to sustain overall operating margin profile and cost competitiveness.

In June 2024, the Company announced a $75 million restructuring plan to address the cost structure in its PowerDrive Systems segment due to electricincreased vehiclemarket adoption volatility across different regions,volatility, which could include realignment of the segment’s manufacturing footprint. During the year ended December 31, 2024,2025, the Company recorded $13$31 million of restructuring costs related to this plan. The resulting annual cost savings related to this plan are expected to be approximately $100 million by 2026.

Other operating expense (income),expense, net was an expense of $32$109 million and incomeexpense of $16$32 million for the years ended December 31, 20242025 and 2023,2024, respectively. The change in Other operating expense (income),expense, net was primarily due to:

•During the year ended December 31, 2024,2025, the Company recorded a charge of $6$40 million related to a legal settlement, inclusive of associated legal fees. Refer to Note 21, “Contingencies,” to the estimatedConsolidated lossFinancial onStatements anin immaterialItem business8 thatof metthis heldreport for salemore accounting criteria. During the year ended December 31, 2023, the Company recorded a gain on sale of business of $5 million.information.

•During the year ended December 31, 2024 and 2023,2025, the Company recorded a $2charge of $16 million lossrelated andto $13the million gain, respectively, on saleimpairment of an investment without a Europeanreadily manufacturingdeterminable facilityfair and other fixed assets.value.

Other operating expense (income),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.

EquityImpairment incharges affiliates’were earnings, net of tax was $27$624 million and $30$646 million infor the years ended December 31, 20242025 and 2023,2024, respectively. ThisThe linechange itemin isImpairment drivencharges bywas theprimarily resultsdue of the Company’s unconsolidated joint ventures.to:

During the threesix months ended MarchJune 31,30, 2026, there have been no material changes from the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

The Company’s current strategy is to focus on profitable growth across its technology-focused product portfolio that supports electric, hybrid and combustion vehicles. This entails growing its product portfolio through organic investments and technology-focused acquisitions. The Company’s balanced portfolio is particularly critical as the automotive industry continues to see electric vehicle adoption volatility across different regions. During the three months ended MarchJune 31,30, 2026 and 2025, the Company’s revenue from eProducts, which include all products utilized on or for electric vehicles (“EVs”) plus those same products and components that are included in hybrid powertrains whose underlying technologies are adaptable or applicable to those used in or for EVs, was approximately $597$663 million and $637$658 million, respectively, or 17% and 18% of the Company’s total revenue,revenue. respectively.During the six months ended June 30, 2026 and 2025, the Company’s eProduct revenue was approximately $1,260 million and $1,295 million, respectively, or 18% and of its total revenue.

On September 19, 2024, the Company commenced a lawsuit against PHINIA, Inc. (“PHINIA”), seeking to recover from PHINIA approximately $120 million of value added tax (“VAT”) refunds that PHINIA received or expected to receive from governmental agencies as well as damages and interest. These refunds consisted of VAT paid by the Company in periods prior to or directly related to the spin-off (“Spin-Off”) that established PHINIA as an independent company. PHINIA responded to the lawsuit and also asserted counterclaims against the Company. On October 15, 2025, the Company entered into a settlement agreement (the “Settlement Agreement”) with PHINIA, pursuant to which PHINIA agreed to pay the Company $78 million, resolving the lawsuit and certain other matters relating to the Spin-Off. In connection with the Settlement Agreement, the Company and PHINIA also entered into an amended and restated tax matters agreement that, among other things, limits the Company’s responsibility to certain defined tax obligations. During the year ended December 31, 2025, the Company recorded a net charge of $40 million, for the reduction of VAT-related receivables, the elimination of certain Company liabilities under the amended and restated tax matters agreement and related legal fees.million. As of MarchJune 31,30, 2026, after giving effect to the Settlement Agreement and the $52 million received in total, the Company had assets related to these VAT refunds of approximately $26$23 million in Receivables, net in the Company’s Condensed Consolidated Balance Sheet, which is due no later than December 1, 2026.Refer2026. toPartRefer to Part 1, Item 1 of this report for more information.

In February 2025, the Company made the decision to exit its charging business within the reportable segment formerly called Battery & Charging Systems. Production operations ceased during the second quarter of 2025. This decision was made following the Company’s continuing evaluation of its product portfolio and future investments. This action was expected to create a more focused portfolio and eliminate approximately $30 million of annualized adjusted operating losses by the end of 2026. In the first quarter of 2026, as a result of the aforementioned disposition, this reportable segment was renamed Battery Energy Systems. The name change reflects the segment’s revised focus after the divestiture. The change did not impact the composition of the segment or require recasting of prior period segment results. Prior periods continue to be presented as previously reported. Refer to Note 3, “Acquisitions and Dispositions,” to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this report for more information.

In February 2025, the Company also made the decision to consolidate its North American battery systems business, which is expected to align the business’ cost structure to current market dynamics. This action iswas expected to result in annual cost savings of approximately $20 million by the end of 2026.

Acquisitions have been an integral component of the Company’s growth and value creation strategy. Refer to Note 3, “Acquisitions and Dispositions,” to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this report for more information, including a summary of recent acquisitions.

Economic Conditions. The Company’s financial performance depends on conditions in the global automotive industry. Automotive and truck production is cyclical and sensitive to general economic conditions and other factors, including interest rates, consumer credit and consumer spending and preferences. Government policies, such as the imposition of, termination or invalidation of or other changes in tariffs (including retaliatory tariffs), or the commencement or termination of consumer tax incentives, such as EV tax credits and programs to invest in infrastructure, including EV charging stations, may affect consumer preferences. Economic declines or impacts of tariffs that result in a material reduction in automotive or truck production would have an adverse effect on the Company’s sales. The weighted average market production, as estimated by the Company for the threesix months ended MarchJune 31,30, 2026, was down approximately 3%1% from the threesix months ended MarchJune 31,30, 2025. Weighted average market production reflects light and commercial vehicle production as reported by S&P Global, weighted for the Company’s geographic exposure, as estimated by the Company.

The Company expects global industry production to be flat to down modestly3% year-over-year in 2026. In particular, the Company expects a negative sales impact from declining sales in the Company’s Battery Energy Systems reportable segment. As a result, at the mid-point of its outlook, the Company expects total sales in 2026 to decline year-over-year, excluding the impact of foreign currencies.

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 that drive vehicle efficiency as well as power generation industrial solutions growth. The Company expects its power generation industrial solutions growthsales to be approximately $300 million in 2027.

Three Months Ended MarchJune 31,30, 2026 vs. Three Months Ended MarchJune 31,30, 2025

Net sales for the three months ended MarchJune 31,30, 2026 totaled $3,533$3,648 million, an increase of $18$10 million, orwhich 1%,was relatively flat compared to the three months ended MarchJune 31,30, 2025. The change in net sales for the three months ended MarchJune 31,30, 2026 was primarily driven by the following:

•Fluctuations in foreign currencies resulted in a year-over-year increase in sales of approximately $167$54 million, primarily due to thea strengthening of the Euro and Chinese Renminbi, partially offset by a weakening of the Korean Won, in each case relative to the U.S. Dollar.

•Unfavorable volume, mix and net new business decreased sales by approximately $181$55 million, primarily due to a decrease of approximately 3%1% in the weighted average market production as estimated by the Company and a decrease in the Battery Energy Systems reportable segment.

Cost of sales and cost of sales as a percentage of net sales were $2,856$2,927 million and 80.8%,80.2%, respectively, during the three months ended MarchJune 31,30, 2026, compared to $2,876$2,998 million and 81.8%,82.4%, respectively, during the three months ended MarchJune 31,30, 2025. The change in cost of sales for the three months ended MarchJune 31,30, 2026 was primarily driven by the following:

•Fluctuations in foreign currencies resulted in a year-over-year increase in cost of sales of approximately $138$182 million, primarily due to thea strengthening of the Euro and Chinese Renminbi, partially offset by a weakening of the Korean Won, in each case relative to the U.S. Dollar.

Gross profit and gross margin were $677$1,398 million and 19.2%,19.5%, respectively, during the threesix months ended MarchJune 31,30, 2026, compared to $639$1,279 million and 18.2%,17.9%, respectively, during the threesix months ended MarchJune 31,30, 2025. The increase in gross margin was primarily due to the factors discussed above.

SG&A for the threesix months ended MarchJune 31,30, 2026 was $328$659 million as compared to $315$632 million for the threesix months ended MarchJune 31,30, 2025. SG&A as a percentage of net sales was 9.3%9.2% and 9.0%8.8% for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. The change in SG&A was primarily due to fluctuations in foreign currencies,currencies resulting in an unfavorable impact of approximately $29 million, which was primarilypartially dueoffset toby thechanges strengtheningin R&D costs of the$10 Euro and Chinese Renminbi, in each case relative to the U.S. Dollar.million.

Restructuring expense was $18$39 million and $31$48 million for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively, primarily related to employee termination benefits.benefits for individually approved restructuring actions. Nearly all of the restructuring charges are expected to be cash expenditures. Refer to Note 5, “Restructuring,” to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this report for more information.

EquityOther inoperating affiliates’(income) earnings,expense, net of tax was $6 million of income and $10$31 million of expense for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. ThisThe linechange itemin isOther drivenoperating by(income) theexpense, resultsnet ofwas theprimarily Company’sdue unconsolidated joint ventures.to:

InterestEquity expense,in affiliates’ earnings, net of tax was $11$16 million and $12$18 million for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. InterestThis expense,line netitem wasis relativelydriven flat forby the threeresults months ended March 31, 2026 as compared toof the threeCompany’s monthsunconsolidated endedjoint March 31, 2025.ventures.

Provision for income taxes was $73$154 million and $113 million for the threesix months ended MarchJune 31,30, 2026,2026 and 2025, respectively, resulting in an effective rate of 22%. This is compared to $61 million, or an effective rate of 26%,22% for the threesix months ended MarchJune 31,30, 2026 and 2025. During the threesix months ended MarchJune 31,30, 2026, the Company’sCompany's effective tax rate didwas notconsistent differ materially fromwith the Company’s estimated annual effective tax rate. During the threesix months ended MarchJune 31,30, 2025, the Company recorded a discrete tax expense of $4 million related to net changes to valuation allowances, a discrete tax benefit of $3$6 million related to the exit of the charging business and a discrete tax expensebenefit of $2$4 million related to various changes in filing positions for prior years.

The Company’s earnings per diluted share were $1.16$1.34 and $0.72$1.03 for the three months ended MarchJune 31,30, 2026 and 2025, respectively and $2.50 and $1.75 for the six months ended June 30, 2026 and 2025, 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 periods then ended. The Company believes the following table is useful in highlighting non-comparable items that impacted its earnings per diluted share:

Three Months Ended MarchJune 31,30, 2026 vs. Three Months Ended MarchJune 31,30, 2025

The Turbos & Thermal Technologies segment’s net sales decreased $21$39 million, or 1%,3%, and Segment Adjusted Operating Income decreased $21$2 million from the three months ended MarchJune 31,30, 2025. Unfavorable volume, mix and net new business resulted in a decrease in net sales byof approximately $115$66 million due to lower volumessales in Europe. This was partially offset by the impact of foreign currencies, which resulted in a year-over-year increase in net sales of approximately $81$24 million due to a strengthening inof the Euro and Chinese Renminbi, partially offset by a weakening of the Korean Won, in each case relative to the U.S. DollarDollar, and $13$3 million of customer recoveries relating to tariffs. Segment Adjusted Operating margin was 14.9%15.6% for the three months ended MarchJune 31,30, 2026, compared to 16.2%15.3% during the three months ended MarchJune 31,30, 2025. The Segment Adjusted Operating margin decreasedincreased due to lowersupply saleschain savings and other cost actions, partially offset by supplylower chain savings.sales.

The Drivetrain & Morse Systems segment’s net sales increased $61$26 million, or 4%,2%, and Segment Adjusted Operating Income increased $17 million from the three months ended MarchJune 31,30, 2025. Foreign currencies resulted in a year-over-year increase in net sales of approximately $49$11 million due to thea strengthening inof the Euro and Chinese Renminbi, partially offset by a weakening of the Korean Won, in each case relative to the U.S. Dollar. Favorable volume, mix and net new business increased net sales by approximately $10 million due to strong volumes in North America partially offset by lower volumes in China and broader Asia. Additionally, customer recoveries relating to tariffs increased net sales by approximately $17$5 million. This was partially offset by unfavorable volume, mix and net new business of approximately $5 million due to lower volumes in China offset by strong volumes in North America. Segment Adjusted Operating margin was 18.3%19.0% for the three months ended MarchJune 31,30, 2026, compared to 17.9%18.2% during the three months ended MarchJune 31,30, 2025. The Segment Adjusted Operating margin increased primarily due to manufacturing efficiencies andefficiencies, supply chain savings.savings and lower net tariff expenses.

The Battery EnergyPowerDrive Systems segment’s net sales decreasedincreased $48$84 million, or 32%,14%, and Segment Adjusted Operating Loss decreased $20$4 million from the three months ended MarchJune 31,30, 2025. UnfavorableFavorable volume, mix and net new business decreasedincreased net sales by approximately $54$67 million primarily due to lowerhigher batterysales packin volumes.ThisEurope decreaseand wascustomer partiallyrecoveries. offset by the impact ofAdditionally, foreign currencies, whichcurrencies resulted in a year-over-year increase in net sales of approximately $6$16 million due to thea strengthening inof the Euro,Euro and Chinese Renminbi, partially offset by a weakening of the Korean Won, in each case relative to the U.S. Dollar. Segment Adjusted Operating margin was (2.04.4)% for the three months ended MarchJune 31,30, 2026, compared to (14.75.7)% during the three months ended MarchJune 31,30, 2025. The Segment Adjusted Operating margin increasedloss decreased primarily due to thecustomer exit of the charging businessrecoveries and restructuring savings.savings, partially offset by higher manufacturing costs.