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YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.10pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
+0.02pp
Flat
Net-tone change vs last year's 10-K.
MD&A
-0.22pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
decline+5
against+4
loss+4
negatively+3
adversely+2
Positive rising
successful+2
satisfy+1
effective+1
efficiencies+1
enhanced+1
Risk Factors (Item 1A)
8,741 words
Item 1A. Risk Factors
Investors should carefully consider the following risk factors and other information included in this 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.
Risks related to our strategy
Our portfolio strategy may prove unsuccessful.
Our strategy is to focus on profitable growth across our technology-focused product portfolio that supports electric, hybrid and combustion vehicles by growing our eProducts as well as continuing our focus on Foundational products. Our balanced portfolio is particularly critical as the automotive industry continues to see electric vehicle adoption volatility across different regions.
We may not prove successful in our strategy due to many factors, including any of the risks identified in the paragraphs that follow, to develop new products that our customers will purchase, technology changes that could render our products , or the introduction of new technology to which we do not have access, among other things.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
impairment+5
restructuring+5
loss+4
restated+4
termination+3
Positive rising
benefit+3
strengthening+1
best+1
favorable+1
improvements+1
MD&A (Item 7)
12,882 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
INTRODUCTION
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
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manufacturers (“OEMs”) of light vehicles (passenger cars, sport-utility vehicles, 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.
BorgWarner Strategy
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 as the automotive industry continues to see electric vehicle adoption across different regions. During the years ended December 31, 2025, 2024 and 2023, 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 $2.6 billion, $2.3 billion and $2.0 billion, respectively, or 18%, 17% and 14% of its total revenue, respectively, and the Company’s revenue from Foundational products, which include all products utilized on internal combustion engines plus those same products and components that are also included in hybrid powertrains, was approximately $11.7 billion, $11.8 billion and $12.2 billion, respectively, or 82%, 83% and 86% of its total revenue, respectively.
Our future success is dependent upon us making the right investments at the right times, 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, 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. 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.
As noted, we conduct certain of our operations through joint ventures, where we may share ownership and management responsibilities with one or more partners that may not share our goals and objectives. Operating a joint venture may require additional organizational formalities as well as the sharing of information and decision making with our partners. Additional risks associated with joint ventures include one or more partners failing to satisfy contractual obligations, the ability to enforce such obligations, conflicts arising between us and any of our partners, a change in the ownership of any of our partners and less of an ability to control compliance with applicable rules and regulations, including the Foreign Corrupt Practices Act and related rules and regulations.
Goodwill and indefinite-lived intangible assets, which are subject to periodic impairment evaluations, represent a significant portion of our total assets. An impairment charge on these assets could have a material adverse impact on our financial condition and results of operations.
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We have recorded goodwill and indefinite-lived intangible assets related to acquisitions. We periodically assess these assets to determine if they are impaired. Significant negative industry or macroeconomic trends, disruptions to our business, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use of the assets, dispositions and market capitalization declines may impair these assets.
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 as 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 years ended December 31, 2025 and 2024, could adversely affect our results of operations in the periods recognized.
The failure to realize the expected benefits of acquisitions and other risks associated with acquisitions could adversely affect our business.
The success of our acquisitions is dependent, in part, on our ability to realize the expected benefits from combining our businesses and businesses that we acquire. To realize these anticipated benefits, both companies must be successfully combined, which is subject to our ability to consolidate operations, corporate cultures and systems and to eliminate redundancies and costs. If we are 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 our operations, the inability to maintain or increase our competitive presence, inconsistencies in standards, controls, procedures and policies, difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the acquisition, the diversion of management’s attention to integration matters and/or difficulties in the assimilation of employees and corporate cultures. Any or all of these factors could adversely affect our ability to maintain relationships with customers and employees or to achieve the anticipated benefits of the acquisition and could have an adverse effect on the combined company. In addition, many of these factors are outside of our control, and any one of these factors could result in increased costs, decreases in the amount of expected revenues, 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.
We may not be able to execute dispositions of assets or businesses successfully.
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
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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, and, as a result, 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.
After reaching an agreement for the disposition of a business, we are 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 us 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.
Risks related to our industry
Conditions in the automotive industry may adversely affect our business.
Our financial performance depends on conditions in the global automotive industry. Automotive and truck production and sales are cyclical and sensitive to general economic conditions, 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 result in a decline in the production levels of our major customers and, by extension, in our sales to OEMs which would adversely affect our business, results of operations, cash flows and financial condition.
We face strong competition.
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.
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If we do not respond appropriately, the evolution of the automotive industry could adversely affect our business.
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. If we do not continue to innovate and develop, or acquire, new and compelling products that capitalize upon new technologies, 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.
We may be subject to potential governmental investigations and related proceedings relating to vehicle emissions standards.
In recent years, within the automotive industry, there have been governmental investigations and related proceedings relating to alleged or actual violations of vehicle emissions standards. Any potential allegedviolations by BorgWarner of existing or future emissions standards could result in government investigations and other legal proceedings, the recall of one or more of our products, negotiated remedial actions, fines, disgorgement of profits, restricted product offerings, reputational harm or a combination of any of those items. Any of these actions could have a material adverse effect on our business and financial results.
Risks related to our business
We are under substantial pressure from OEMs to reduce the prices of our products.
There is substantial and continuing pressure on OEMs to reduce costs, including costs of products we supply. 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 our business and results of operations.
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We continue to face volatile costs of commodities used in the production of our products and elevated levels of inflation.
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 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, we may 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.
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 our business.
Many global economies, including the United States, have experienced and continue to experience elevated levels of inflation more generally, which have 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 may not achieve some or all of the expected benefits of our restructuring plans and our restructuring actions may 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 realize 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. or 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.
In 2025, the U.S. announced significant tariffs on imports from a broad range of countries, including the European Union, Canada, Mexico and 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 U.S. has resulted in retaliatory tariffs from other countries, including China, which has increased and would continue to increase the cost
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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 with respect to trade policies and government regulations affecting international trade. Tariffs or retaliatory tariffs announced to date or announced in the future, current trade tensions, any escalation of trade tensions, additional tariffs, retaliatory measures by foreign governments, 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, directly or indirectly due to negative effects on our customers, the U.S. economy, the economies of other countries in which we 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 addition to potential increases in customs duties and tariffs in the U.S. and other countries, the United States-Mexico-Canada Agreement ("USMCA") is subject to renewal in 2026. There can be no assurance that the USMCA will be renewed or, if renewed, any newly negotiated terms in the USMCA will not adversely affect our business. Also, China presents unique risks to U.S. automotive manufacturers due to the strain in U.S.-China relations and the level of integration with key components in our global supply chain. It remains unclear what additional actions the current U.S. administration may take with respect to trade issues involving China and other countries.
In 2025, we imported approximately $918 million in value to the U.S. Approximately 68% of that value originated in Mexico, approximately 9% originated in Canada and approximately 6% originated in South Korea.
We use important intellectual property in our business. If we are unable to protect our intellectual property or if a third party makes assertionsagainst us or our customers relating to intellectual property rights, our business could be adversely affected.
We own important intellectual property, including patents, trademarks, copyrights, and trade secrets and are involved in numerous licensing arrangements. Our intellectual property plays an important role in maintaining our competitive position in a number of the markets that we serve. Our competitors may develop technologies that are similar or superior to our proprietary technologies or design around the patents we own or license. Further, as we expand our operations in jurisdictions where the enforcement of intellectual property rights is less robust, the risk of others duplicating our proprietary technologies increases, despite efforts we undertake to protect them. Our inability to protect or enforce our intellectual property rights or claims that we are infringing intellectual property rights of others could adversely affect our business and our competitive position.
We are subject to business continuity risks associated with increasing centralization of our information technology (“IT”) systems.
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To improveefficiency and reduce costs, we have regionally centralized the information systems that support our business processes such as invoicing, payroll, and general management operations. If the centralized systems are disrupted or disabled, key business processes could be interrupted, which could adversely affect our business.
A failure of or disruption in our information technology infrastructure, including a disruption related to cybersecurity, could adversely impact our business and operations.
We rely on the capacity, reliability and security of our IT systems and infrastructure 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, 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 againstintentional and unintentionalmisappropriation or corruption of our systems and information and disruptions of our operations (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 againstdamage 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 claimsagainst us and ultimately adversely affect our business.
Additionally, some of our products contain complex digital technologies designed to support today’s increasingly connected vehicles. Although we continue to employ capabilities, processes and other security measures designed to reduce risks of cyber-attacks against our products, such measures may not provide absolute security and may not sufficiently mitigate all potential risks under all scenarios. Failure of such products to effectively protect against attacks targeted at our products can negatively impact our brand and our business or results of operation.
Further, we continually update and expand our information technology systems to enable us to run our business more efficiently, including the potential incorporation of 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 or transferred to run our business. Any unintentional dissemination or intentionaldestruction 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 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
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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.
Our business success depends on attracting and retaining qualified personnel.
Our ability to sustain and grow our business requires us to hire, retain and develop a highly skilled and diverse management team and workforce worldwide. In particular, any unplanned turnover or inability to attract and retain key employees and employees with engineering, technical and software capabilities in numbers sufficient for our needs could adversely affect our business.
Our profitability and results of operations may be adversely affected by new business launch difficulties.
The launch of new business is a complex process, the success of which depends on a wide range of factors, including the production readiness of our manufacturing facilities and manufacturing processes and those of our suppliers, as well as factors related to tooling, equipment, employees, initial product quality and other factors. Our failure to successfully launch new business, or our inability to accurately estimate the cost to design, develop and launch new business, could have an adverse effect on our profitability and results of operations.
To the extent we are not able to successfully launch new business, vehicle production at our customers could be significantly delayed or shut down. Such situations could result in 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.
Part of our workforce is unionized, which could subject us to work stoppages.
As of December 31, 2025, approximately 13% of our U.S. workforce was unionized. We have a domestic collective bargaining agreement for one facility in New York, which expires in September 2028. The workforce at certain of our international facilities is also unionized. A prolongeddispute with our employees could have an adverse effect on our business.
Work stoppages, production shutdowns and similar events could significantly disrupt our business.
Because the automotive industry relies heavily on just-in-time delivery of components during the assembly and manufacture of vehicles, a work stoppage or production shutdown at one or more of our manufacturing and assembly facilities could have adverse effects on our business. Similarly, if one or more of our customers were to experience a work stoppage or production shutdown, that customer would likely halt or limit purchases of our products, which could result in the shutdown of the related manufacturing facilities. A significant disruption in the supply of a key component due to supply constraints or due to a work stoppage or production shutdown at one of our suppliers or any other supplier could have the same consequences and, accordingly, have an adverse effect on our financial results.
Our benefit plan expenses and obligations may fluctuate depending on various factors, including changes in interest rates, changes in regulations and plan asset returns.
We have unfunded obligations under certain of our defined benefit pension and other postemployment benefit plans. The valuation of our future payment obligations under the plans and the related plan assets is subject to significant adverse changes if the credit and capital markets cause interest rates and
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projected rates of return to decline. Such declines could also require us to make significant additional contributions to our pension plans in the future. Additionally, a material deterioration in the funded status of the plans could significantly increase our pension expenses and reduce profitability in the future.
We also sponsor post-employment medical benefit plans in the U.S. that are unfunded. If medical costs continue to increase or actuarial assumptions are modified, this could have an adverse effect on our business.
We continually monitor changes in global pension regulations as the complexity of pension laws in the jurisdictions where we sponsor plans can present financial risks in the event of noncompliance.
We are subject to extensive environmental regulations that are subject to change and involve significant risks.
Our operations are subject to laws governing, among other things, emissions to air, discharges to waters, and the generation, management, transportation and disposal of waste and other materials. The operation of automotive parts manufacturing plants entails risks in these areas, and we cannot assure that we will not incur material costs or liabilities as a result. Through various acquisitions over the years, we have acquired a number of manufacturing facilities, and we cannot assure that we will not incur material costs and liabilities relating to activities that predate our ownership. In addition, potentially significant expenditures could be required to comply with evolving interpretations of existing environmental, health and safety laws and regulations or any new such laws and regulations (including concerns about global climate change and its impact) that may be adopted in the future. Costs associated with failure to comply with such laws and regulations could have an adverse effect on our business.
Our operations may be affected by greenhouse emissions and climate change and related regulations.
Climate change is receiving increasing attention worldwide, which has led to significant legislative and regulatory efforts to limit greenhouse gas emissions. Our manufacturing plants use energy, including electricity and natural gas, and certain of our plants emit amounts of greenhouse gas that may be affected by these legislative and regulatory efforts. Greenhouse gas regulation could increase the price of the electricity we purchase, increase costs for use of natural gas, potentially restrict access to or the use of natural gas, require us to purchase allowances to offset our own emissions or result in an overall increase in costs of raw materials, any one of which could increase our costs, reduce competitiveness in a global economy or otherwise negatively affect our financial condition, results of operations and reputation. Many of our suppliers face similar circumstances. Supply disruptions would raise market rates and jeopardize the continuity of production and could have an adverse effect on our financial results.
Climate changes could also disrupt our operations by impacting the availability and cost of materials within our supply chain and could also increase insurance and other operating costs. In addition, extreme weather events may damage a facility or surrounding infrastructure, making the facility unusable for a time. These factors may impact our decisions to construct new facilities.
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We have been and are exposed to liabilities related to environmental, product warranties, product recalls, litigation and other claims.
We and certain of our current and former direct and indirect corporate predecessors, subsidiaries and divisions have been identified by the United States Environmental Protection Agency and certain state environmental agencies and private parties as potentially responsible parties at various hazardous waste disposal sites under the Comprehensive Environmental Response, Compensation and Liability Act and equivalent state laws, and, as such, may be liable for the cost of clean-up and other remedial activities at such sites. While responsibility for clean-up and other remedial activities at such sites is typically shared among potentially responsible parties based on an allocation formula, we could have greater liability under applicable statutes. Refer to Note 21, “Contingencies,” to the Consolidated Financial Statements in Item 8 of this report for further discussion.
We provide product warranties to our customers for some of our products. Under these product warranties, we may be required to bear costs and expenses for the repair or replacement of these products. As suppliers become more integrally involved in the vehicle design process and assume more of the vehicle assembly functions, auto manufacturers are increasingly looking to their suppliers for contribution when faced with recalls and product warranty claims. A recall claim brought against us, or a product warranty claim brought against us, could adversely impact our results of operations. In addition, a recall claim could require us to review our entire product portfolio to assess whether similar issues are present in other product lines, which could result in significant disruption to our business and could have an adverse impact on our results of operations. We cannot assure that costs and expenses associated with these product warranties will not be material or that those costs will not exceed our available insurance, or any amounts accrued for such product warranties in our financial statements.
We are involved, from time to time, in legal proceedings and commercial or contractual disputes, which could have an adverse impact on our business .
We are involved in legal proceedings and commercial or contractual 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.
For more information regarding our legal matters, see Item 3. Legal Proceedings of this report.
Compliance with and changes in laws could be costly and could affect our operating results.
We have operations in multiple countries that can be impacted by expected and unexpected changes in the legal and business environments in which we operate. Compliance-related issues in certain countries associated with laws such as the Foreign Corrupt Practices Act and other anti-corruption laws could adversely affect our business. We have internal policies and procedures relating to compliance with such laws; however, there is a risk that such policies and procedures will not always protect us from the improper acts of employees, agents, business partners, joint venture partners, or representatives, particularly in the case of recently acquired operations that may not have significant training in applicable compliance policies and procedures. Violations of these laws, which are complex, may result in criminalpenalties, sanctions and/or fines that could have an adverse effect on our business, financial condition, and results of operations and reputation.
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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, additional limitations on greenhouse gas emissions or other matters related to climate change and other changes in laws in countries where we operate or intend to operate.
Changes in tax laws or tax rates 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, and 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 tax matters involves uncertainty, and there are no assurances that the outcomes will be favorable.
We are subject to risks related to our international operations.
We have manufacturing and technical facilities in many regions, including Europe, Asia, and the Americas. For 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.
Because we are a U.S. holding company, one significant source of our funds is distributions from our non-U.S. subsidiaries. Certain countries in which we operate have adopted or could institute currency
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exchange controls that limit or prohibit our non-U.S. subsidiaries' ability to convert local currency into U.S. Dollars or to make payments outside the country. This could subject us to the risks of local currency devaluation and business disruption.
Our business in China is subject to aggressive competition and is sensitive to economic, political, and market conditions.
Maintaining a strong position in the Chinese market is a key component of our global growth strategy. The automotive supply market in China is highly competitive, with competition from many of the largest global manufacturers and numerous smaller domestic manufacturers. As the Chinese market evolves, market participants have acted, and we anticipate will continue to 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.
For 2025, approximately 21% of our consolidated net sales were attributable to China.
A downgrade in the ratings of our debt could restrict our ability to access the debt capital markets.
Changes in the ratings that rating agencies assign to our debt may ultimately impact our access to the debt capital markets and the costs we incur to borrow funds. If ratings for our debt fall below investment grade, our access to the debt capital markets could become restricted and our cost of borrowing or the interest rate for any subsequently issued debt would likely increase.
Our revolving credit agreement includes an increase in interest rates if the ratings for our debt are downgraded. The interest cost on our revolving credit agreement is based on a rating grid. Further, an increase in the level of our indebtedness and related interest costs may increase our vulnerability to adverse general economic and industry conditions and may affect our ability to obtain additional financing.
Risks related to our customers
We rely on sales to major customers and our supply agreements with them are generally requirements contracts, and a decline in the production requirements of any of our customers, and in particular our major customers could adversely impact our revenues and profitability.
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.
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Some of our sales are concentrated. Our worldwide sales in 2025 to Volkswagen and Ford constituted approximately 13% and 12% of our 2025 consolidated net sales, respectively. Sales to the Company’s top ten customers represented 71% of sales for the year ended December 31, 2025. Changes in our business relationships with any of our major customers or in the timing, size and continuation of their various programs could have a disproportionately material adverse impact on our business. While we continually bid on new business with our existing customers and continually seek to diversify our customer base, our efforts may not be successful. The loss of any of these major customers, the loss of business with respect to one or more of their vehicle models for which we have high component content, or a significant decline in the production levels of such vehicles would negatively impact our business, results of operations and financial condition.
We are sensitive to the effects of our major customers’ labor relations.
All three of our primary North American customers, Ford, Stellantis, and General Motors, have major union contracts with the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (or “UAW”). 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 and operating results.
Risks related to our suppliers
We could be adversely affected by supply shortages of components from our suppliers.
In an effort to manage and reduce the cost of purchased goods and services, we have been rationalizing our supply base. As a result, we remain dependent on fewer sources of supply for certain components used in the manufacture of our products. We select suppliers based on total value (including total landed price, quality, delivery, and technology), taking into consideration their production capacities and financial condition. We expect that they will deliver to our stated written expectations.
However, there can be no assurance that capacity limitations, industry shortages, labor or social unrest, weather emergencies, commercial disputes, government actions, riots, wars, sabotage, cyber-attacks, non-conforming parts, acts of terrorism, “Acts of God,” or other problems that our suppliers experience will not result in shortages or delays in their supply of components to us. If we experience a prolongedshortage 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.
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Suppliers’ economic distress could result in supply interruptions and, in turn, disrupt our operations and 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 and results of operations.
We are subject to possible insolvency of financial counterparties.
We engage in numerous financial transactions and contracts, including insurance policies, letters of credit, credit line agreements, financial derivatives, and investment management agreements involving various counterparties. We are subject to the risk that one or more of these counterparties may become insolvent and, therefore, be unable to meet its obligations under such contracts.
Risks related to the spin-off of PHINIA Inc.
The spin-off of PHINIA may not achieve anticipated tax benefits and may expose us to additional tax risks.
We may not realize the anticipated tax benefits of the spin-off of PHINIA. While it is intended that the transaction was tax-free to the Company’s stockholders for U.S. federal income tax purposes, there is no assurance that the transaction will qualify for this treatment. If the spin-off is ultimately determined to be taxable, the Company, PHINIA, or the Company’s stockholders could incur income tax liabilities that could be significant. If we do not realize the anticipated tax benefits of the spin-off, it could adversely affect our business, results of operations, cash flows and financial condition.
Potential liabilities pursuant to the spin-off of PHINIA could materially and adversely affect our business.
In connection with the spin-off, we entered into a separation and distribution agreement and related agreements with PHINIA to govern the spin-off and the relationship between the two companies following the completion of the spin-off. These agreements provide for specific indemnity and liability obligations of each party and have led, and could in the future lead, to disputes between us. For example, on September 19, 2024, we commenced a lawsuit against PHINIA, seeking to recover from PHINIA approximately $120 million of value added tax (“VAT”) refunds that PHINIA received or expects 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 that established PHINIA as an independent company. PHINIA responded to the lawsuit and also asserted counterclaimsagainst 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. As a result, the Company recorded a net charge of $40 million as of December 31, 2025, 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, which is included in Other operating expense, net in the Company’s
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Consolidated Statements of Operations in Item 8 of this report. If we are required to indemnify PHINIA and other parties under the circumstances set forth in the agreements with PHINIA, we may be subject to future liabilities. In addition, with respect to the liabilities for which PHINIA and the other parties have agreed to indemnify us under these agreements, the indemnity rights we have against PHINIA and such other parties may not be sufficient to protect us against the full amount of the liabilities, further PHINIA or such other parties may not be able to fully satisfy their indemnification obligations. It is also possible that a court could disregard the allocation of assets and liabilities agreed to among the Company, PHINIA and such other parties and require the Company to assume responsibility for obligations allocated to PHINIA or such other parties or to cause the Company to not realize an asset on its Consolidated Balance Sheet. Any of these outcomes could result in additional costs, reduce the value of our assets or otherwise negatively affect our business and financial results.
Other risks
A variety of other factors could adversely affect our business.
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.
critical
volatility
Lawsuit Against PHINIA
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 received or expects 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 that established PHINIA as an independent company. PHINIA responded to the lawsuit and also asserted counterclaimsagainst 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. 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 restated tax matters agreement and related legal fees, which is included in Other operating expense, net in the Company’s Consolidated Statements of Operations. As of December 31, 2025, after giving effect to the Settlement Agreement and the $31 million payment received during the fourth quarter of 2025, the Company had assets related to these VAT refunds of approximately $47 million included in Receivables, net in the Company’s Consolidated Balance Sheet in Item 8 of this report.
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Portfolio Actions
In February 2025, the Company made the decision to exit its charging business within the Battery & Charging Systems reportable segment. 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 intended to create a more focused portfolio and is expected to eliminate approximately $30 million of annualized adjusted operating losses by 2026. Refer to Note 2, “Acquisitions and Dispositions,” to the Consolidated Financial Statements in Item 8 of this report for more information.
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 is expected to result in annual cost savings of approximately $20 million by 2026.
North Carolina Facility Hurricane
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) covered the repair or replacement of the Company’s assets that incurred loss or damage and provided coverage for interruption to its business, including lost profits, and reimbursement for other expenses and costs that were incurred related to the damages and losses sustained. For the year ended December 31, 2025, the Company recorded committed insurance recoveries of 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
Acquisitions have been an integral component of the Company’s growth and value creation strategy. Refer to Note 2, “Acquisitions and Dispositions,” to the Consolidated Financial Statements in Item 8 of this report for more information, including a summary of recent acquisitions.
Key Trends and Economic Factors
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 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 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 year ended December 31, 2025, was approximately flat from the year ended December 31, 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 2025, prices for commodities showed a lower level of volatility in comparison to what the Company had experienced from the beginning of 2021. The Company expects commodities and other costs to be relatively flat in 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.
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Outlook
The Company expects global industry production to be flat to down modestly year-over-year in 2026. The Company expects a negative sales impact from declining sales in the Company’s Battery & Charging Systems 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.
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RESULTS OF OPERATIONS
A detailed comparison of the Company’s 2023 operating results to the Company’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 2024 Annual Report on Form 10-K filed February 6, 2025.
The following table presents a summary of the Company’s operating results:
Year Ended December 31,
(in millions, except per share data)
Net sales
% of net sales
% of net sales
Turbos & Thermal Technologies
Drivetrain & Morse Systems
PowerDrive Systems
Battery & Charging Systems
Inter-segment eliminations
Total net sales
Cost of sales
Gross profit
Selling, general and administrative expenses - R&D, net
Selling, general and administrative expenses - Other
Restructuring expense
Other operating expense, net
Impairment charges
Operating income
Equity in affiliates’ earnings, net of tax
Unrealized (gain) loss on equity securities
Interest expense, net
Other postretirement expense
Earnings from continuing operations before income taxes and noncontrolling interest
Provision for income taxes
Net earnings from continuing operations
Net loss from discontinued operations
Net earnings
Net earnings from continuing operations attributable to the noncontrolling interest, net of tax
Net earnings attributable to BorgWarner Inc.
Earnings per share from continuing operations — diluted
Net sales
Net sales for the year ended December 31, 2025 totaled $14,316 million, an increase of $230 million, or 2%, from the year ended December 31, 2024. The change in net sales for the year ended December 31, 2025 was primarily driven by the following:
• Fluctuations in foreign currencies resulted in a year-over-year increase in sales of approximately $154 million, primarily due to the strengthening of the Euro and Thai Baht, partially offset by the weakening of the Korean Won and Brazilian Real, in each case relative to the U.S. Dollar.
• Customer recoveries relating to tariffs increased sales by approximately $80 million.
• Sales increased approximately $52 million related to favorable volume, mix and net new business and higher eProduct sales, partially offset by unfavorable customer pricing and downtime at one of the Company’s European customers due to a cyber-related shutdown. The weighted average market production as estimated by the Company, was approximately flat from the year ended
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December 31, 2025 in comparison to December 31, 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.
• Sales decreased approximately $56 million related to the exit of its charging business.
Cost of sales and gross profit
Cost of sales and cost of sales as a percentage of net sales were $11,642 million and 81.3%, respectively, during the year ended December 31, 2025, compared to $11,438 million and 81.2%, respectively, during the year ended December 31, 2024. The change in cost of sales for the year ended December 31, 2025 was primarily driven by the following:
• Fluctuations in foreign currencies resulted in a year-over-year increase in cost of sales of approximately $133 million, primarily due to the strengthening of the Euro, partially offset by the weakening of the Korean Won and Brazilian Real relative to the U.S. Dollar.
• Tariff expense resulted in a year-over-year increase in cost of sales of approximately $108 million.
• Cost of sales decreased approximately $21 million related to an insurance recovery on a resolved historical warranty matter.
• Cost of sales decreased approximately $20 million primarily due to purchasing and restructuring savings, partially offset by favorable volume, mix and net new business.
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. The change in gross margin was primarily due to the factors discussed above.
Selling, general and administrative expenses (“SG&A”)
SG&A for the year ended December 31, 2025 was $1,304 million as compared to $1,350 million for the year ended December 31, 2024. SG&A as a percentage of net sales was 9.1% and 9.6% for the years ended December 31, 2025 and 2024, respectively. The change in SG&A was primarily attributable to:
• Research and development (“R&D”) costs decreased $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. The decrease in R&D costs, net of customer reimbursements, was primarily due to decreasing net investment related to the Company’s eProducts.
• SG&A decreased approximately $17 million primarily related to fluctuations in foreign currencies partially offset by incentive compensation.
Restructuring expense was $101 million and $74 million for the years ended December 31, 2025 and 2024, respectively, primarily related to employee termination benefits. Refer to Note 4 “Restructuring” to
the Consolidated Financial Statements in Item 8 of this report for more information.
In 2023, the Company announced a $130 million to $150 million restructuring plan to address structural cost primarily in its Foundational products businesses. During the year ended December 31, 2025, the Company recorded $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 increased market volatility, which could include realignment of the segment’s manufacturing footprint. During the year ended December 31, 2025, the Company recorded $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.
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During the year ended December 31, 2025, the Company recorded $62 million of restructuring costs for individually approved restructuring actions.
Nearly all of the restructuring charges are expected to be cash expenditures, funded by cash on hand.
Other operating expense, net was an expense of $109 million and expense of $32 million for the years ended December 31, 2025 and 2024, respectively. The change in Other operating expense, net was primarily due to:
• During the year ended December 31, 2025, the Company recorded a charge of $40 million related to a legal settlement, inclusive of associated legal fees. Refer to Note 21, “Contingencies,” to the Consolidated Financial Statements in Item 8 of this report for more information.
• During the year ended December 31, 2025, the Company recorded charges of $23 million related to the exit of its charging business within the Battery & Charging Systems reportable segment. Refer to Note 2, “Acquisitions and Dispositions,” and Note 12, “Goodwill and Other Intangibles,” to the Consolidated Financial Statements in Item 8 of this report for more information.
• During the year ended December 31, 2025, the Company recorded a charge of $16 million related to the impairment of an investment without a readily determinable fair value.
• During the year ended December 31, 2025, the Company recorded charges of $11 million related to duplicative CEO compensation.
• During the year ended December 31, 2025, the Company recorded a loss of $9 million related to the sale of equipment from a closed facility in North America and the sale of a building in Europe. During the year ended December 31, 2024, the Company recorded a $2 million loss on the sale of fixed assets at a European manufacturing facility.
• During the year ended December 31, 2025, the Company recorded expense of $7 million primarily for adjustments related to the contract manufacturing agreement with PHINIA and adjustments to net amounts owed to the Company related to the tax matters agreement between the Company and PHINIA, unrelated to the legal settlement discussed above. During the year ended December 31, 2024, the Company recorded expense of $17 million primarily for adjustments to net amounts owed to the Company related to the tax matters agreement between the Company and PHINIA.
• During the year ended December 31, 2025, the Company recorded merger and acquisition expense, net of $5 million primarily related to professional fees associated with specific acquisition initiatives. During the year ended December 31, 2024, the Company recorded merger and acquisition expense, net of $2 million, primarily due to professional fees associated with specific acquisition initiatives, mostly offset by a gain of $6 million related to the revision of its expected earn-out-related to the Drivetek acquisition.
• During the year ended December 31, 2025, the Company recorded a net loss of $2 million related to a business closure in North America, a plant disposal in China and the sale of an operation in Europe. During the year ended December 31, 2024, the Company recorded a net loss on sale of business of $6 million primarily related to the estimated loss on an immaterial business that met held for sale accounting criteria.
• During the year ended December 31, 2024, the Company recorded a loss of approximately $15 million related to the settlement of a commercial contract assumed in its acquisition of the electric hybrid systems business segment of Eldor Corporation.
• During the year ended December 31, 2024, the Company recorded other income in the amount of $5 million for net service reimbursements related to the Spin-Off. These transition services were related to information technology, human resources, finance, facilities, procurement, sales, intellectual property and engineering. Refer to Note 26, “Discontinued Operations,” to the Consolidated Financial Statements in Item 8 of this report for more information.
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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.
Impairment charges were $624 million and $646 million for the years ended December 31, 2025 and 2024, respectively. The change in Impairment charges was primarily due to:
• During the year ended December 31, 2025, the Company recorded goodwill impairment of $423 million related to goodwill at Battery & Charging Systems. During the year ended December 31, 2024, the Company recorded goodwill impairment charges of $577 million related to goodwill at PowerDrive Systems and Battery & Charging Systems. Refer to Note 2, “Acquisitions and Dispositions,” and Note 12, “Goodwill and Other Intangibles,” to the Consolidated Financial Statements in Item 8 of this report for more information.
• During the year ended December 31, 2025, the Company recorded charges of $174 million related to certain property, plant and equipment at locations in the Company’s Battery & Charging Systems and PowerDrive Systems reporting segments. During the year ended December 31, 2024, the Company recorded charges of $69 million related to certain property, plant and equipment at locations in the Company’s Battery & Charging Systems and PowerDrive Systems reporting segments. Refer to Note 1, “Summary of Significant Accounting Policies,” to the Consolidated Financial Statements in Item 8 of this report for more information.
• During the year ended December 31, 2025, the Company recorded intangible asset impairment of $27 million, of which $22 million related to the exit of its charging business within the Battery & Charging Systems reportable segment. Refer to Note 2, “Acquisitions and Dispositions,” to the Consolidated Financial Statements in Item 8 of this report for more information. Additionally, the Company recorded impairment of $5 million related to intangible assets at PowerDrive Systems.
Equity in affiliates’ earnings, net of tax was $35 million and $27 million in the years ended December 31, 2025 and 2024, respectively. This line item is driven by the results of the Company’s unconsolidated joint ventures.
Unrealized (gain) loss on equity securities was a gain of $3 million and a loss of $1 million in the years ended December 31, 2025 and 2024, respectively. This line item reflects the net unrealized gains or losses recognized due to valuing the Company’s investments at fair value.
Interest expense, net was $39 million and $20 million in the years ended December 31, 2025 and 2024, respectively. The increase was primarily due to higher interest rates following the Company’s refinancing and issuance of $1 billion of notes in 2024 and $10 million gain on debt extinguishment in August 2024.
Other postretirement expense was $11 million and $13 million in the years ended December 31, 2025 and 2024, respectively. The decrease in other postretirement expense for the year ended December 31, 2025 was primarily due to lower settlement costs.
Provision for income taxes was $189 million for the year ended December 31, 2025, resulting in an effective tax rate of 36%. This compared to $111 million, or an effective rate of 21%, for the year ended December 31, 2024. In 2025, the Company reflected a $126 million tax impact of non-deductible impairment of goodwill. In addition, the Company recorded a tax benefit of $29 million related to reductions in certain unrecognized tax benefits and accrued interest for matters remeasured after various audit closures, a tax benefit of $16 million related to the exit of the charging business and a tax benefit of $7 million related to tax law changes.
In 2024, the Company reflected a $151 million tax impact of non-deductible impairment of goodwill. In addition, the Company recorded a tax benefit of $107 million related to reductions in certain unrecognized tax benefits and accrued interest for matters where the statute of limitationslapsed and a tax benefit of $36 million related to post Spin-Off restructuring.
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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 was $58 million and $61 million in the years ended December 31, 2025 and 2024, respectively. The decrease was primarily due to a decline in demand for certain of the Company’s Foundational products in China.
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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 $1.28 and $1.63 for the years ended December 31, 2025 and 2024, 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:
Adjustments associated with Spin-Off related balances
Write-off of customer incentive asset
Merger and acquisition expense, net
Loss on sale of businesses
Change in accounting method
Commercial contract settlement
Gain on debt extinguishment
Unrealized gain on equity securities
Insurance recovery
Tax adjustments 1
Other non-comparable items
Total impact of non-comparable items per share — diluted:
In 2025, the Company recorded a tax benefit of $29 million related to reductions in certain unrecognized tax benefits and accrued interest for matters remeasured after various audit closures. In addition, the Company recorded a tax benefit of $16 million related to the exit of the charging business and a tax benefit of $7 million related to tax law changes. In 2024, the Company recorded a tax benefit of $107 million related to reductions in certain unrecognized tax benefits and accrued interest for matters where the statute of limitationslapsed and a tax benefit of $36 million related to post Spin-Off restructuring.
Results by Reportable Segment
The Company discloses segment information under four reportable segments, consistent with the way operating results are evaluated by management: Turbos & Thermal Technologies, Drivetrain & Morse Systems, PowerDrive Systems and Battery & Charging Systems. These segments are strategic business groups, which are managed separately as each represents a specific grouping of related automotive components and systems.
Segment Adjusted Operating Income (Loss) is the measure of segment income or loss used by the Company. Segment Adjusted Operating Income (Loss) is comprised of operating income adjusted for restructuring, merger, acquisition and divestiture expense, intangible asset amortization expense, impairment charges and other items not reflective of ongoing operating income or loss. The Company believes Segment Adjusted Operating Income (Loss) is most reflective of the operational profitability or loss of its reportable segments.
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Segment Adjusted Operating Income (Loss) excludes certain corporate costs, which primarily represent headquarters’ expenses not directly attributable to the individual segments. Corporate expenses not allocated to Segment Adjusted Operating Income (Loss) were $261 million and $279 million for the years ended December 31, 2025 and 2024, respectively.
A detailed comparison of the Company’s 2023 net sales and Segment Adjusted Operating Income (Loss) to the Company’s 2024 net sales and Segment Adjusted Operating Income (Loss) for the Company’s reportable segments can be found in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in the Company’s 2024 Annual Report on Form 10-K filed February 6, 2025.
The following tables present net sales and Segment Adjusted Operating Income (Loss) for the Company’s reportable segments:
Year Ended December 31, 2025 vs. Year Ended December 31, 2024
Year ended December 31, 2025
Year ended December 31, 2024
(in millions)
Net sales
Segment Adjusted Operating Income (Loss)
% margin
Net sales
Segment Adjusted Operating Income (Loss)
% margin
Turbos & Thermal Technologies
Drivetrain & Morse Systems
PowerDrive Systems
Battery & Charging Systems
Inter-segment eliminations
Totals
Turbos & Thermal Technologies net sales for the year ended December 31, 2025 decreased $115 million, or 2%, and Segment Adjusted Operating Income increased $2 million from the year ended December 31, 2024. The sales decrease was primarily due to volume of approximately $192 million driven by lower volumes in Europe, partially offset by higher volumes in the Americas and aftermarket. These decreases were partially offset by the impact of foreign currencies, which resulted in a year-over-year increase in sales of approximately $77 million, primarily due to the strengthening of the Euro and British Pound, partially offset by the weakening of the Brazilian Real and Korean Won, in each case relative to the U.S. Dollar. Segment Adjusted Operating margin was 15.2% for the year ended December 31, 2025, compared to 14.9% in the year ended December 31, 2024. The Segment Adjusted Operating margin increase was primarily due to supply chain savings, manufacturing efficiencies and restructuring savings, partially offset by decremental conversion on lower sales.
Drivetrain & Morse Systems net sales for the year ended December 31, 2025 increased $77 million, or 1%, and Segment Adjusted Operating Income increased $31 million from the year ended December 31, 2024. Foreign currencies resulted in a year-over-year increase in sales of approximately $42 million, primarily due to the strengthening of the Euro and Thai Baht, partially offset by the weakening of the Korean Won, in each case relative to the U.S. Dollar. The increase was also due to approximately $35 million of volume, mix and net new business driven by higher transfer case volumes in the Americas, partially offset by lower sales in China and downtime at one of the Company’s European customers due to a cyber related shutdown. Segment Adjusted Operating margin was 18.4% in the year ended December 31, 2025, compared to 18.1% in the year ended December 31, 2024. The Segment Adjusted Operating margin increase was primarily due to incremental conversion on higher sales, supply chain savings and manufacturing efficiencies.
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PowerDrive Systems net sales for the year ended December 31, 2025 increased $410 million, or 21%, and Segment Adjusted Operating Loss decreased $61 million from the year ended December 31, 2024. The sales increase was primarily due to approximately $388 million of volume, mix and net new business driven by eProducts growth in China and Europe. Foreign currencies also resulted in a year-over-year increase in sales of approximately $22 million, primarily due to the strengthening of the Euro, partially offset by the weakening of the Korean Won, in each case relative to the U.S. Dollar. Segment Adjusted Operating margin was (3.5)% in the year ended December 31, 2025, compared to (7.4)% in the year ended December 31, 2024. The increase in Segment Adjusted Operating margin was primarily due to incremental conversion on higher sales, customer volume recoveries and supply chain and restructuring savings.
Battery & Charging Systems net sales for the year ended December 31, 2025 decreased $139 million, or 19%, and Segment Adjusted Operating Loss decreased $8 million from the year ended December 31, 2024. The sales decrease was primarily due to approximately $65 million of lower volume, mix and net new business primarily due to lower battery back volumes. Additionally, sales decreased approximately $56 million related to the exit of the charging business. Finally, a decrease in normal contractual customer commodity pass-through arrangements decreased net sales by $31 million. These decreases were partially offset by the impact of foreign currencies, which resulted in a year-over-year increase in sales of approximately $13 million, primarily due to the strengthening in the Euro relative to the U.S. Dollar. Segment Adjusted Operating margin was (6.6)% in the year ended December 31, 2025, compared to (6.4)% in the year ended December 31, 2024. The decrease in the Segment Adjusted Operating margin was primarily due to lower sales and higher depreciation costs, offset by restructuring savings, customer recoveries and other operational improvements.
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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, 2025, the Company had liquidity of $4,313 million, comprised of cash and cash equivalent balances of $2,313 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. The total debt expected to mature through the end of 2026 is $5 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, 2025, cash balances of $1,350 million were held by the Company’s subsidiaries outside of the United States. Cash and cash equivalents held by these subsidiaries are 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 September 2028. The credit facility agreement contains customary events of default and one key financial covenant, 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, 2025. At December 31, 2025 and 2024, the Company had no outstanding borrowings under this facility.
The Company’s commercial paper program allows the Company to issue up to $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, 2025 and 2024.
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 revolving credit facility, the Company’s universal shelf registration statement filed with the U.S. Securities and Exchange Commission provides the Company with the ability to issue various debt and equity securities subject to market conditions.
On February 6, 2025 and April 30, 2025, the Company’s Board of Directors declared quarterly cash dividends of $0.11 per share of common stock, respectively. The dividends declared in the first quarter and second quarter were paid on March 17, 2025 and June 16, 2025, respectively. On July 30, 2025 and November 12, 2025 , the Company’s Board of Directors declared quarterly cash dividends of $0.17 per share of common stock, respectively. The dividends declared in the third quarter and fourth quarter were paid on September 15, 2025 and December 15, 2025, respectively.
From a credit quality perspective, the Company has a credit rating of BBB from Standard & Poor’s, Baa1 from Moody’s and BBB+ from Fitch Ratings. The current outlook from each of Standard & Poor’s, Moody’s and Fitch is stable. None of the Company's debt agreements requires 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)
OPERATING ACTIVITIES OF CONTINUING OPERATIONS
Net earnings from continuing operations
Adjustments to reconcile net earnings from continuing operations to net cash provided by operating activities from continuing operations:
Depreciation and tooling amortization
Intangible asset amortization
Restructuring expense, net of cash paid
Stock-based compensation expense
Loss on sales of assets
Loss on sales of businesses
Gain on debt extinguishment
Asset impairments
Impairment of investment
Change in accounting method
Unrealized and realized (gain) loss on equity securities
Deferred income tax benefit
Other non-cash adjustments
Adjustments to reconcile net earnings from continuing operations to net cash provided by operating activities from continuing operations
Retirement plan contributions
Changes in assets and liabilities:
Receivables
Inventories
Accounts payable and accrued expenses
Other assets and liabilities
Net cash provided by operating activities from continuing operations
Net cash provided by operating activities was $1,648 million for the year ended December 31, 2025 compared to $1,382 million for the year ended December 31, 2024. The increase for the year ended December 31, 2025, compared with the year ended December 31, 2024, was primarily due to higher net earnings adjusted for non-cash charges, lower pension contributions and change in working capital.
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Investing Activities
Year Ended December 31,
(in millions)
INVESTING ACTIVITIES OF CONTINUING OPERATIONS
Capital expenditures, including tooling outlays
Customer advances related to capital expenditures
Insurance proceeds received for damage to property, plant and equipment
Proceeds from sale of businesses, net
Proceeds from settlement of net investment hedges, net
Payments for investments in equity securities, net
Proceeds from asset disposals and other, net
Net cash used in investing activities from continuing operations
Net cash used in investing activities was $368 million for the year ended December 31, 2025 compared to $603 million for the year ended December 31, 2024. As a percentage of sales, capital expenditures were 3.3% and 4.8% for the years ended December 31, 2025 and 2024, respectively. The year-over-year decline in capital expenditures primarily reflects lower eProduct investments.
Financing Activities
Year Ended December 31,
(in millions)
FINANCING ACTIVITIES OF CONTINUING OPERATIONS
Payments on notes payable
Additions to debt
Repayments of debt, including current portion
Payments for debt issuance costs
Payments for purchase of treasury stock
Payments for stock-based compensation items
Payments for business acquired, net of cash acquired
Payments for contingent consideration
Dividends paid to BorgWarner stockholders
Dividends paid to noncontrolling stockholders
Net cash used in financing activities from continuing operations
Net cash used in financing activities was $1,116 million for the year ended December 31, 2025 compared to $167 million for the year ended December 31, 2024. Net cash used in financing activities during the year ended December 31, 2025 was primarily related to $508 million of BorgWarner share repurchases, $409 million of debt repayments associated with the maturity of the Company’s 3.375% senior notes on March 15, 2025 and other short-term borrowings, $119 million in dividends paid to the Company’s stockholders and $49 million in dividends paid to noncontrolling stockholders of the Company’s consolidated joint ventures.
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Contractual Obligations
The Company’s significant cash requirements for contractual obligations as of December 31, 2025 primarily consisted of the principal and interest payments on its notes payable and long-term debt, non-cancelable financing lease obligations, capital spending obligations and purchase obligations. The principal amount of notes payable due within the next twelve months was $5 million and long-term debt was $3,925 million, excluding the impact of unamortized premiums and discounts of approximately $31 million, as of December 31, 2025. The projected interest payments over the terms of that debt due within the next twelve months and beyond were $109 million and $805 million, respectively, as of December 31, 2025. Refer to Note 14, “Debt,” to the Consolidated Financial Statements in Item 8 of this report for more information.
As of December 31, 2025, non-cancelable operating lease obligations due within twelve months and beyond were $39 million and $165 million, respectively. Refer to Note 22, “Leases and Commitments,” to the Consolidated Financial Statements in Item 8 of this report for more information. Capital spending obligations due within the next twelve months were $116 million as of December 31, 2025.
The Company enters into agreements with its suppliers to assist in meeting its customers’ production needs. These agreements vary as to duration and terms, and historically, most do not provide for minimum purchases by the Company, or they are requirements-based arrangements. However, as of December 31, 2025, the Company had contractual purchase commitments of approximately $180 million for certain electronics components to be paid through 2027.
Management believes that the combination of cash from operations, cash balances, available credit facilities, and the universal shelf registration capacity will be sufficient to satisfy the Company’s cash needs for its current level of operations and its planned operations for the foreseeable future. Management will continue to balance the Company’s needs for organic growth, inorganic growth, debt reduction, cash conservation and return of cash to shareholders.
Postretirement Defined Benefits
The Company’s policy is to fund its defined benefit pension plans in accordance with applicable government regulations and to make additional contributions when appropriate. At December 31, 2025, all legal funding requirements had been met. The Company contributed $23 million, $39 million and $21 million to its defined benefit pension plans in the years ended December 31, 2025, 2024 and 2023, respectively.
The Company expects to contribute approximately $25 million into its defined benefit pension plans during 2026. Of the $25 million in projected 2026 contributions, $8 million are contractually obligated, while any remaining payments would be discretionary.
The funded status of all pension plans was a net unfunded position of $36 million and $66 million at December 31, 2025 and 2024, respectively. T he decrease in the net unfunded position was a result of a higher pension assets, which was primarily due to asset returns during the period and the impact of foreign exchange. Of t he total net unfunded amounts, $17 million and $32 million at December 31, 2025 and 2024, respectively, were related to plans in Germany, where there is no tax deduction allowed under the applicable regulations to fund the plans; hence, the common practice is to make contributions as benefit payments become due.
Other postemployment benefits primarily consist of health care benefits for certain former employees and retirees of the Company’s U.S. operations. The Company funds these benefits as retiree claims are incurred. Other postemployment benefits had an unfunded status of $27 million and $29 million at December 31, 2025 and 2024, respectively.
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In August 2025, the Company executed an amendment to the plan document of one of the Company’s U.S. defined benefit pension plans (“U.S. Pension Plan”) to terminate the plan effective October 31, 2025. The termination of the U.S. Pension Plan is expected to take up to eighteen months to complete. As part of the termination process, the Company expects to settle benefit obligations under the U.S. Pension Plan through a combination of lump sum payments to eligible plan participants and the purchase of a group annuity contract under which future benefit obligations and administration will be transferred to a third-party insurance company. Such settlements will be funded primarily from plan assets. At December 31, 2025, the U.S. Pension Plan’s projected benefit obligation exceeded the fair value of the assets by $4 million under U.S. GAAP.
In December 2024, the Company entered into a second buy-in contract (the first buy-in contract was entered into in 2019) with an insurance company related to its U.K. pension plan. Pursuant to this agreement, the Company liquidated approximately $50 million of pension plan assets to invest in an insurance annuity. At December 31, 2025, the U.K. pension plan had plan assets of $131 million, all held by the insurance company. The projected benefit obligation of the U.K. pension plan at December 31, 2025 was $104 million under U.S. GAAP. The U.K. pension plan was overfunded by $27 million as of December 31, 2025, under U.S. GAAP.
The Company believes it will be able to fund the requirements of these plans through cash generated from operations or other available sources of financing for the foreseeable future.
Refer to Note 18, “Retirement Benefit Plans,” to the Consolidated Financial Statements in Item 8 of this report for more information regarding costs and assumptions for employee retirement benefits.
OTHER MATTERS
Contingencies
In the normal course of business, the Company is party to various commercial and legal claims, actions and complaints, including matters involving warranty claims, intellectual property claims, governmental investigations and related proceedings, general liability and other risks. It is not possible to predict with certainty whether or not the Company will ultimately be successful in any of these commercial and legal matters or what the impact might be. The Company does not believe that adverse outcomes in any of these commercial and legal claims, actions and complaints are reasonably likely to have a material adverse effect on the Company’s results of operations, financial position or cash flows. An adverse outcome could, nonetheless, be material to the results of operations or cash flows as the ultimate resolutions of these matters are inherently unpredictable.
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Lawsuit Against PHINIA
On September 19, 2024, the Company commenced a lawsuit against PHINIA, seeking to recover from PHINIA approximately $120 million of VAT refunds that PHINIA received or expects 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 that established PHINIA as an independent company. PHINIA responded to the lawsuit and also asserted counterclaimsagainst the Company. On October 15, 2025, the Company entered into 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. 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 restated tax matters agreement and related legal fees, which is included in Other operating expense, net in the Company’s Consolidated Statements of Operations. As of December 31, 2025, after giving effect to the Settlement Agreement and the $31 million payment received during the fourth quarter of 2025, the Company had assets related to these VAT refunds of approximately $47 million included in Receivables, net on the Company’s Consolidated Balance Sheet.
Environmental
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 (“PRPs”) at various hazardous waste disposal sites under the Comprehensive Environmental Response, Compensation and Liability Act (“Superfund”) and equivalent state or local laws and, as such, may have been liable for the cost of clean-up and other remedial activities at 16 and 17 such sites as of December 31, 2025 and 2024, respectively. Responsibility for clean-up and other remedial activities at a Superfund site is typically shared among PRPs based on an allocation formula.
The Company believes that none of these matters, individually or in the aggregate, will have a material adverse effect on its results of operations, financial position or cash flows. Generally, this is because either the estimates of the maximum potential liability at a site are not material or the liability will be shared with other PRPs, although no assurance can be given with respect to the ultimate outcome of any such matter.
Refer to Note 21, “Contingencies,” to the Consolidated Financial Statements in Item 8 of this report for further details and information respecting the Company’s environmental liability.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. Critical accounting policies are those that are most important to the portrayal of the Company’s financial condition and results of operations. Some of these policies require management's most difficult, subjective or complex judgments in the preparation of the financial statements and accompanying notes. Management makes estimates and assumptions about the effect of matters that are inherently uncertain, relating to the reporting of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. The Company’s most critical accounting policies are discussed below.
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Business combinations The Company allocates the cost of an acquired business to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess value of the cost of an acquired business over the estimated fair value of the assets acquired and liabilities assumed is recognized as goodwill. The valuation of the acquired assets and liabilities will impact the determination of future operating results. The Company uses a variety of information sources to determine the value of acquired assets and liabilities, including third-party appraisers for the values and lives of property, identifiable intangibles and inventories, and actuaries for defined benefit retirement plans. Goodwill is assigned to reporting units as of the date of the related acquisition. If goodwill is assigned to more than one reporting unit, the Company utilizes a method that is consistent with the manner in which the amount of goodwill in a business combination is determined. Costs related to the acquisition of a business are expensed as incurred.
Acquired intangible assets include customer relationships, developed technology and trade names. The Company estimates the fair value of acquired intangible assets using various valuation techniques. The primary valuation techniques used include forms of the income approach, specifically the relief-from-royalty and multi-period excess earnings valuation methods. Under these valuation approaches, the Company is required to make estimates and assumptions from a market participant perspective, which may include revenue growth rates, estimated earnings, royalty rates, obsolescence factors, contributory asset charges, customer attrition and discount rates. Under the multi-period excess earnings method, value is estimated as the present value of the benefits anticipated from ownership of the asset, in excess of the returns required on the investment in contributory assets that are necessary to realize those benefits. The intangible asset’s estimated earnings are determined as the residual earnings after quantifying estimated earnings from contributory assets. When the Company estimates fair value using the relief-from-royalty method, it calculates the cost savings associated with owning rather than licensing the assets. Assumed royalty rates are applied to projected revenue for the remaining useful lives of the assets to estimate the royalty savings.
While the Company uses its best estimates and assumptions, fair value estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Any adjustments required after the measurement period are recorded in the consolidated statement of earnings.
Future changes in the judgments, assumptions and estimates that are used in acquisition valuations and intangible asset and goodwill impairment testing, including discount rates or future operating results and related cash flow projections, could result in significantly different estimates of the fair values in the future. An increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated fair values, which may result in impairment charges that could materially affect the Company’s financial statements in any given year.
Impairment of long-lived assets, including definite-lived intangible assets The Company reviews the carrying value of its long-lived assets, whether held for use or disposal, including other amortizing intangible assets, when events and circumstances warrant such a review under Accounting Standards Codification (“ASC”) Topic 360. In assessing long-lived assets for an impairmentloss, assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. In assessing long-lived assets for impairment, management generally considers individual facilities to be the lowest level for which identifiable cash flows are largely independent. A recoverability review is performed using the undiscounted cash flows if there is a triggering event. If the undiscounted cash flow test for recoverability identifies a possible impairment, management will perform a fair value analysis. Management determines fair value under ASC Topic 820 using the appropriate valuation technique of market, income or cost approach. If the carrying value of a long-lived asset is considered impaired, an impairment charge is
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recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value, calculated based on independent appraisals, discounted cash flows, estimated salvage value, or estimated orderly liquidation value, giving consideration to the highest and best use of the relevant assets.
Management believes that the estimates of future cash flows and fair value assumptions are reasonable; however, changes in assumptions underlying these estimates could affect the valuations. Significant judgments and estimates used by management when evaluating long-lived assets for impairment include (i) an assessment as to whether an adverse event or circumstance has triggered the need for an impairment review; (ii) undiscounted future cash flows generated by the asset; and (iii) fair valuation of the asset. Events and conditions that could result in impairment in the value of long-lived assets include changes in the industries in which the Company operates, particularly the impact of a downturn in the global economy, as well as competition and advances in technology, adverse changes in the regulatory environment, or other factors leading to reduction in expected long-term sales or profitability.
Goodwill and other indefinite-lived intangible assets During the fourth quarter of each year, the Company tests goodwill for impairment by either performing a qualitative assessment or a quantitative analysis. In addition, the Company may test goodwill in between annual test dates if an event occurs or circumstances change that could indicate it is more-likely-than-not that the fair value of a reporting unit is below its carrying value.
The qualitative assessment evaluates various events and circumstances, such as macroeconomic conditions, industry and market conditions, cost factors, relevant events and financial trends, that may impact a reporting unit's fair value. Using this qualitative assessment, the Company determines whether it is more-likely-than-not the reporting unit's fair value exceeds its carrying value. If it is determined that it is not more-likely-than-not the reporting unit's fair value exceeds the carrying value, or upon consideration of other factors, including recent acquisition, restructuring or disposal activity or to refresh the fair values, the Company performs a quantitative goodwill impairment analysis.
During the first quarter of 2025, as a result of the Company’s plan to exit the charging business, the Company separately allocated the goodwill from its historical reporting unit of Battery & Charging Systems to the battery systems business and to the charging business on a relative fair value basis. The Company estimated the allocated fair values of the businesses from the historical reporting unit based upon the present value of their anticipated future cash flows. The estimated fair value of the charging business was determined using a cost approach. The Company’s determination of fair value involved judgment and the use of estimates and assumptions. During the first quarter, the relative fair value analysis resulted in an allocation, and subsequent impairment, of $13 million related to the goodwill allocated to the charging business. Refer to Note 2, “Acquisitions and Dispositions,” to the Consolidated Financial Statements in Item 8 of this report for more information.
In conjunction with the goodwill allocation in the first quarter of 2025, the Company performed a quantitative impairment assessment of the Battery & Charging Systems’ goodwill after the impairment of the charging business’ goodwill. Based on the interim impairment test in the first quarter of 2025, the Battery & Charging Systems reporting unit had an estimated fair value that exceeded its carrying value, including goodwill, by approximately 18%, resulting in no impairment at that time.
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During the fourth quarter of 2025, the Company performed a qualitative analysis on its Turbos & Thermal Technologies and Drivetrain & Morse Systems reporting units and performed a quantitative analysis on its Battery & Charging Systems reporting unit. The goodwill associated with the Company’s PowerDrive Systems reporting unit was fully impaired during the year ended December 31, 2024. The Company’s qualitative assessment indicated it was more-likely-than-not that the fair value of the Turbos & Thermal Technologies and Drivetrain & Morse Systems reporting units exceeded their carrying values. For the quantitative analysis, the estimated fair values were determined using an income approach. Under the income approach, fair value is determined based on present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. The Company used internal forecasts to estimate future cash flows and included an estimate of long-term future growth rates based on the Company’s most recent views of the long-term outlook for its business.
For the reporting unit for which the Company performed a quantitative analysis, the Company believes the assumptions and estimates used to determine the estimated fair value are reasonable. Different assumptions could materially affect the estimated fair value. The significant assumptions affecting the Company’s 2025 goodwill quantitative impairment review were as follows:
• Discount rates: The Company used a 14% weighted average cost of capital (“WACC”) as the discount rates for future cash flows. The WACC is intended to represent a rate of return that would be expected by a market participant.
• Operating income (loss) margin: The Company used historical and expected operating income (loss) margins, which may vary based on the projection of the reporting unit being evaluated.
• Revenue growth rates: The Company used a global automotive market industry growth rate forecast adjusted to estimate its own market participation for product lines.
I n addition to the above significant assumptions, the Company noted the following risks to volume and operating income assumptions that could have an impact on the discounted cash flow models:
• The automotive industry is cyclical, and the Company’s results of operations could be adversely affected by industry downturns.
• The automotive industry is evolving, and if the Company does not respond appropriately, its results of operations could be adversely affected.
• The Company is dependent on market segments that use its key products and could be affected by decreasing demand in those segments.
• The Company is subject to risks related to international operations.
During the fourth quarter of 2025, in connection with the preparation of the Company’s annual financial statements, the Company noted deterioration in the forecast for its Battery & Charging Systems business. This deterioration was due to dual sourcing actions by certain customers, pricing pressures from competitors and electric vehicle adoption delays in North America. As a result, during the fourth quarter of 2025, the Company recorded a goodwill impairment charge of $410 million related to the Battery & Charging Systems reporting unit.
The fair value of the Battery & Charging Systems reporting unit’s goodwill is sensitive to differences between estimated and actual cash flows, including changes in the projected revenue, projected operating margin and discount rate used to evaluate the fair value of these assets and market multiples assumptions applied by the Company. Future changes in the judgments, assumptions and estimates from those used in valuations and goodwill impairment testing, including discount rates or future operating results and related cash flow projections, could result in significantly different estimates of the fair values in the future. An increase in discount rates, a reduction in projected cash flows or a combination of the
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two could lead to a reduction in the estimated fair values, which may result in impairment charges that could materially affect the Company’s financial statements in any given year.
Similar to goodwill, the Company can elect to perform the impairment test for indefinite-lived intangibles other than goodwill (primarily trade names) using a qualitative analysis, considering similar factors as outlined in the goodwill discussion, to determine if it is more-likely-than-not that the fair value of the trade names is less than the respective carrying values. If the Company elects to perform or is required to perform a quantitative analysis, the test consists of a comparison of the fair value of the indefinite-lived intangible asset to the carrying value of the asset as of the impairment testing date. The Company estimates the fair value of indefinite-lived intangibles using the relief-from-royalty method, which it believes is an appropriate and widely used valuation technique for such assets. The fair value derived from the relief-from-royalty method is measured as the discounted cash flow savings realized from owning such trade names and not being required to pay a royalty for their use.
Refer to Note 12, “Goodwill and Other Intangibles,” to the Consolidated Financial Statements in Item 8 of this report for more information regarding goodwill.
Product warranties The Company provides warranties on some, but not all, of its products. The warranty terms are typically from one to three years. Provisions for estimated expenses related to product warranty are made at the time products are sold. These estimates are established using historical information about the nature, frequency and average cost of warranty claim settlements as well as product manufacturing and industry developments and recoveries from third parties. Management actively studies trends of warranty claims and takes action to improve product quality and minimize warranty claims. Costs of product recalls, which may include the cost of the product being replaced as well as the customer’s cost of the recall, including labor to remove and replace the recalled part, are accrued as part of the Company’s warranty accrual at the time an obligation becomes probable and can be reasonably estimated. Management believes that the warranty accrual is appropriate; however, if actual claims incurred differ from the original estimates or there are changes in our assumptions, it could materially affect the Company’s financial statements.
At December 31, 2025, the total accrued warranty liability was $254 million. The accrual is represented as $86 million in Other current liabilities and $168 million in Other non-current liabilities on the Consolidated Balance Sheets.
Refer to Note 13, “Product Warranty,” to the Consolidated Financial Statements in Item 8 of this report for more information regarding product warranties.
Postretirement defined benefits The Company provides postretirement defined benefits to a number of its current and former employees. Costs associated with postretirement defined benefits include pension and other postemployment health care expenses for former employees, retirees and surviving spouses and dependents.
The Company’s defined benefit pension and other postemployment benefit plans are accounted for in accordance with ASC Topic 715. The determination of the Company’s obligation and expense for its pension and other postemployment benefits, such as retiree health care, is dependent on certain assumptions used by actuaries in calculating such amounts. Certain assumptions, including the expected long-term rate of return on plan assets, discount rate, rates of increase in compensation and health care costs trends are described in Note 18, “Retirement Benefit Plans,” to the Consolidated Financial Statements in Item 8 of this report. The effects of any modification to those assumptions, or actual results that differ from assumptions used, are either recognized immediately or amortized over future periods in accordance with GAAP.
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The primary assumptions affecting the Company’s accounting for employee benefits under ASC Topics 712 and 715 as of December 31, 2025 are as follows:
• Expected long-term rate of return on plan assets : The expected long-term rate of return is used in the calculation of net periodic benefit cost. The required use of the expected long-term rate of return on plan assets may result in recognized returns that are greater or less than the actual returns on those plan assets in any given year. Over time, however, the expected long-term rate of return on plan assets is designed to approximate actual earned long-term returns. The expected long-term rate of return for pension assets has been determined based on various inputs, including historical returns for the different asset classes held by the Company’s trusts and its asset allocation, as well as inputs from internal and external sources regarding expected capital market return, inflation and other variables. The Company also considers the impact of active management of the plans’ invested assets. In determining its pension expense for the year ended December 31, 2025, the Company used long-term rates of return on plan assets ranging from 2.8% to 7.9% outside of the U.S. and 5% in the U.S. The primary funded non-U.S. plans are in the U.K. and Germany.
Actual returns on U.S. pension assets were 7.3% and 0.6% for the years ended December 31, 2025 and 2024, respectively, compared to the expected rate of return assumptions of 5% for the years ended December 31, 2025 and 2024.
Actual returns on U.K. pension assets were 5.9% and (3.7)% for the years ended December 31, 2025 and 2024, respectively, compared to the expected rate of return assumption of 4.8% and 4.0%, respectively, for the same years ended.
Actual returns on German pension assets were 0.8% and 7.0% for the years ended December 31, 2025 and 2024, respectively, compared to the expected rate of return assumptions of 4.2% for the years ended December 31, 2025 and 2024.
• Discount rate : The discount rate is used to calculate pension and other postemployment benefit (“OPEB”) obligations. In determining the discount rate, the Company utilizes a full-yield approach in the estimation of service and interest components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. For its significant plans, the Company used discount rates ranging from 1.0% to 10.5% to determine its pension and other benefit obligations as of December 31, 2025, including weighted average discount rates of 4.1% in the U.S., 4.6% outside of the U.S. (including 5.5% in the U.K.) and 4.9% for U.S. other postemployment health care plans. The U.S. and U.K. discount rates reflect the fact that the U.S. and U.K. pension plans have been closed for new participants.
• Health care cost trend : For postemployment employee health care plan accounting, the Company reviews external data and Company-specific historical trends for health care cost to determine the health care cost trend rate assumptions. In determining the projected benefit obligation for postemployment health care plans as of December 31, 2025, the Company used health care cost trend rates of 6.8%, declining to an ultimate trend rate of 4.8% by the year 2034.
While the Company believes that these assumptions are appropriate, significant differences in actual experience or significant changes in these assumptions may materially affect the Company's pension and OPEB and its future expense.
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The sensitivity to a 25 basis point change in the assumptions for discount rate related to 2026 pre-tax pension expense for Company sponsored U.S. and non-U.S. pension plans is expected to be negligible.
The following table illustrates the sensitivity to a change in expected return on assets related to 2026 pre-tax pension expense for Company sponsored U.S. and non-U.S. pension:
(in millions)
Impact on U.S. PBO
Impact on Non-U.S. PBO
25 basis point decrease in expected return on assets
25 basis point increase in expected return on assets
The following table illustrates the sensitivity to a change in discount rate for Company sponsored U.S. and non-U.S. pension plans on its pension obligations:
(in millions)
Impact on U.S. PBO
Impact on Non-U.S. PBO
25 basis point decrease in discount rate
25 basis point increase in discount rate
The sensitivity to a 25 basis point change in the discount rate assumption and to the assumed health care cost trend related to the Company’s OPEB obligation and service and interest cost is expected to be negligible.
Refer to Note 18, “Retirement Benefit Plans,” to the Consolidated Financial Statements in Item 8 of this report for more information regarding the Company’s retirement benefit plans.
RestructuringRestructuring costs may occur when the Company takes action to exit or significantly curtail a part of its operations or implements a reorganization that affects the nature and focus of operations. A restructuring charge can consist of severance costs associated with reductions to the workforce, costs to terminate a contract, professional fees and other costs incurred related to the implementation of restructuring activities.
The Company generally records costs associated with voluntary separations at the time of employee acceptance. Costs for involuntary separation programs are recorded when management has approved the plan for separation, the employees are identified and aware of the benefits to which they are entitled and it is unlikely that the plan will change significantly. When a plan of separation requires approval by or consultation with the relevant labor organization or government, the costs are recorded upon agreement. Costs associated with benefits that are contingent on the employee continuing to provide service are expensed over the required service period.
Restructuring accruals can include estimates related to employee termination costs. Actual costs may vary from these estimates. These accruals are reviewed on a quarterly basis and changes to restructuring accruals are appropriately recognized when identified.
Income taxes The Company accounts for income taxes in accordance with ASC Topic 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized.
Accounting for income taxes is complex, in part because the Company conducts business globally and, therefore, files income tax returns in numerous tax jurisdictions. Management judgment is required in
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determining the Company’s worldwide provision for income taxes and recording the related assets and liabilities, including accruals for unrecognized tax benefits and assessing the need for valuation allowances. In calculating the provision for income taxes on an interim basis, the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances known at each interim period. In determining the need for a valuation allowance, the historical and projected financial performance of the operation recording the net deferred tax asset is considered along with any other pertinent information. Since future financial results may differ from previous estimates, periodic adjustments to the Company’s valuation allowance may be necessary.
The Company is subject to income taxes in the U.S. at the federal and state level and numerous non-U.S. jurisdictions. The determination of accruals for unrecognized tax benefits includes the application of complex tax laws in a multitude of jurisdictions across the Company's global operations. Management judgment is required in determining the accruals for unrecognized tax benefits. In the ordinary course of the Company’s business, there are many transactions and calculations where the ultimate tax determination is less than certain. Accruals for unrecognized tax benefits are established when, despite the belief that tax positions are supportable, there remain certain positions that do not meet the minimum probability threshold, which is a tax position that is more-likely-than-not to be sustained upon examination by the applicable taxing authority. The Company has certain U.S. state income tax returns and certain non-U.S. income tax returns that are currently under various stages of audit by applicable tax authorities. At December 31, 2025, the Company had a liability for tax positions the Company estimates are not more-likely-than-not to be sustained based on the technical merits, which is included in Other non-current liabilities. Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year.
The Company records valuation allowances to reduce the carrying value of certain deferred tax assets to amounts that it expects are more-likely-than-not to be realized. Existing deferred tax assets, net operating losses and tax credits by jurisdiction and expectations of the ability to utilize these tax attributes are assessed through a review of past, current and estimated future taxable income and tax planning strategies.
Estimates of future taxable income, including income generated from prudent and feasible tax planning strategies resulting from actual or planned business and operational developments, could change in the near term, perhaps materially, which may require the Company to consider any potential impact to the assessment of the recoverability of the related deferred tax asset. Such potential impact could be material to the Company’s consolidated financial condition or results of operations for an individual reporting period.
In future periods, the Company’s effective tax rate and tax liability may be impacted due to changes in U.S. and non-U.S. tax laws and as a result of regulatory or legislative developments related to such laws. This could include U.S. and non-U.S. tax law developments related to changes to long-standing tax principles arising from proposals made by the Organization for Economic Co-operation and Development that seek to allocate greater taxing rights to countries where customers are located and establish a global minimum tax rate of at least 15% .
Refer to Note 7, “Income Taxes,” to the Consolidated Financial Statements in Item 8 of this report for more information regarding income taxes.
New Accounting Pronouncements
Refer to Note 1, “Summary of Significant Accounting Policies,” to the Consolidated Financial Statements in Item 8 of this report for more information regarding new applicable accounting pronouncements.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s primary market risks include fluctuations in interest rates and foreign currency exchange rates. To manage these risks, the Company enters into a variety of derivative contracts with the intent of mitigating our risk to fluctuations in currency exchange rates and interest rates. The Company is also affected by changes in the prices of commodities used or consumed in its manufacturing operations. Some of its commodity purchase price risk is covered by supply agreements with customers and suppliers. Other commodity purchase price risk is occasionally addressed by hedging strategies, which include forward contracts. The Company enters into derivative instruments only with high credit quality counterparties and diversifies its positions across such counterparties to reduce its exposure to credit losses. The Company does not engage in any derivative instruments for purposes other than hedging specific operating risks.
The Company has established policies and procedures to manage sensitivity to interest rate, foreign currency exchange rate and commodity purchase price risk, which include monitoring the level of exposure to each market risk. For quantitative disclosures about market risk, refer to Note 17, “Financial Instruments,” to the Consolidated Financial Statements in Item 8 of this report for information with respect to interest rate risk, foreign currency exchange rate risk and commodity purchase price risk.
Interest Rate Risk
Interest rate risk is the risk that the Company will incur economic losses due to adverse changes in interest rates. The Company manages its interest rate risk by monitoring its exposure to fixed and variable rates while attempting to optimize its interest costs. The Company selectively uses interest rate swaps to reduce market value risk associated with changes in interest rates (fair value hedges). At December 31, 2025, all of the Company’s long-term debt had fixed interest rates.
Foreign Currency Exchange Rate Risk
Foreign currency exchange rate risk is the risk that the Company will incur economic losses due to adverse changes in foreign currency exchange rates. Currently, the Company’s most significant currency exposures relate to the Brazilian Real, British Pound, Chinese Renminbi, Euro, Hungarian Forint, Korean Won, Mexican Peso, Polish Zloty and Swiss Franc. The Company mitigates its foreign currency exchange rate risk by establishing local production facilities and related supply chain participants in the markets it serves, by invoicing customers in the same currency as the source of the products and by funding some of its investments in foreign markets through local currency loans. The Company also monitors its foreign currency exposure in each country and implements strategies to respond to changing economic and political environments. In addition, the Company regularly enters into forward currency contracts, cross-currency swaps and foreign currency-denominated debt designated as net investment hedges to reduce exposure to translation exchange rate risk. As of December 31, 2025 and 2024, the Company recorded a deferred loss of $35 million and a deferred gain of $245 million, respectively, before taxes, for designated cash flow and net investment hedges within accumulated other comprehensive income (loss) in the Consolidated Balance Sheets in Item 8 of this report.
The significant foreign currency translation adjustments, including the impact of the cash flow net investment hedges discussed above, during the years ended December 31, 2025 and 2024, are shown in the following table, which provides the percentage change in U.S. Dollars against the respective currencies and the approximate impacts of these changes recorded within other comprehensive income (loss) for the respective periods.
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(in millions, except for percentages)
December 31, 2025
Euro
Chinese Renminbi
British Pound
Brazilian Real
(in millions, except for percentages)
December 31, 2024
Euro
Chinese Renminbi
Korean Won
Commodity Price Risk
Commodity price risk is the possibility that the Company will incur economic losses due to adverse changes in the cost of raw materials used in the production of its products. Commodity forward and option contracts are occasionally executed to offset exposure to potential change in prices mainly for various non-ferrous metals and natural gas consumption used in the manufacturing of vehicle components. As of December 31, 2025 and 2024, the Company had no outstanding commodity swap contracts.
Disclosure Regarding Forward-Looking Statements
The matters discussed in this Item 7 include forward looking statements. See “Forward Looking Statements” at the beginning of this report.
