Core Points - The conference call is focused on BorgWarner's second quarter results for 2025 [2] - The earnings release was made available on the company's website [4] - The company plans to attend various investor conferences leading up to the next earnings release [4] Company Participants - Key executives participating in the call include Craig D. Aaron (Executive VP & CFO), Joseph F. Fadool (President, CEO & Director), and Patrick Nolan (Vice President of Investor Relations) [1] Conference Call Participants - Notable research analysts from firms such as Evercore ISI, Wells Fargo Securities, Barclays Bank, Wolfe Research, BNP Paribas Exane, UBS Investment Bank, and Robert W. Baird & Co. are participating in the call [1]

General Information [Filing Information](index=1&type=section&id=Filing%20Information) This section details the filing as a Quarterly Report on Form 10-Q for the period ended June 30, 2025, by BorgWarner Inc., identifying it as a large accelerated filer with specific outstanding common stock - The document is a Quarterly Report on Form 10-Q for the period ended June 30, 2025[2](index=2&type=chunk) - BorgWarner Inc. is identified as a **large accelerated filer**[3](index=3&type=chunk) - As of July 25, 2025, the registrant had **216,392,876 shares of voting common stock outstanding**[3](index=3&type=chunk) [Forward-Looking Statements](index=3&type=section&id=CAUTIONARY%20STATEMENTS%20FOR%20FORWARD-LOOKING%20STATEMENTS) This section provides cautionary statements regarding forward-looking information in the report, highlighting that such statements are based on management's current expectations and are subject to various risks and uncertainties that could cause actual results to differ materially - Forward-looking statements are based on management's current outlook, expectations, estimates, and projections[6](index=6&type=chunk) - Actual results may differ materially due to risks and uncertainties, including supply disruptions, competitive challenges, rapidly changing technologies, and economic conditions[7](index=7&type=chunk) - The Company does not undertake any obligation to update or announce publicly any updates to or revisions to any of the forward-looking statements[7](index=7&type=chunk) [Use of Non-GAAP Financial Measures](index=4&type=section&id=Use%20of%20Non-GAAP%20Financial%20Measures) The report includes non-GAAP financial measures, which the Company believes offer useful additional information for investors to understand underlying performance and trends, but cautions that these measures have inherent limitations and should be used in conjunction with GAAP measures - Non-GAAP financial measures are included to provide additional information useful to investors in understanding underlying performance and trends[9](index=9&type=chunk) - These measures have inherent limitations and should not be considered in isolation or as a substitute for GAAP measures[9](index=9&type=chunk) - Reconciliations to the most directly comparable GAAP financial measures are provided in the report[9](index=9&type=chunk) PART I. Financial Information [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements of BorgWarner Inc. for the periods ended June 30, 2025, and December 31, 2024, including balance sheets, statements of operations, comprehensive income (loss), and cash flows, along with accompanying notes - The accompanying unaudited Condensed Consolidated Financial Statements are prepared in accordance with GAAP for interim financial information[19](index=19&type=chunk) - Operating results for the three and six months ended June 30, 2025, are not necessarily indicative of the results that may be expected for the full year[19](index=19&type=chunk) - The balance sheet as of December 31, 2024, was derived from the audited financial statements as of that date[19](index=19&type=chunk) [Condensed Consolidated Balance Sheets](index=5&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS%20%28UNAUDITED%29) Presents the Company's financial position as of June 30, 2025, and December 31, 2024, showing changes in assets, liabilities, and equity. Total assets increased, while short-term debt significantly decreased Condensed Consolidated Balance Sheets Summary | Metric | June 30, 2025 (in millions) | December 31, 2024 (in millions) | Change (YoY) | | :-------------------------------- | :-------------------------- | :---------------------------- | :----------- | | Total assets | $14,399 | $13,993 | +$406 | | Total liabilities | $8,330 | $8,287 | +$43 | | Total equity | $6,069 | $5,706 | +$363 | | Short-term debt | $6 | $398 | -$392 | | Long-term debt | $3,901 | $3,763 | +$138 | | Cash, cash equivalents and restricted cash | $2,041 | $2,094 | -$53 | | Receivables, net | $3,198 | $2,843 | +$355 | | Inventories | $1,216 | $1,251 | -$35 | | Retained earnings | $6,745 | $6,412 | +$333 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS%20%28UNAUDITED%29) Details the Company's financial performance for the three and six months ended June 30, 2025, and 2024, showing a slight increase in net sales for the quarter but a decrease for the six-month period, alongside a decline in net earnings attributable to BorgWarner Inc. for both periods Condensed Consolidated Statements of Operations Summary | Metric | 3 Months Ended June 30, 2025 (in millions) | 3 Months Ended June 30, 2024 (in millions) | Change (YoY) | 6 Months Ended June 30, 2025 (in millions) | 6 Months Ended June 30, 2024 (in millions) | Change (YoY) | | :------------------------------------------ | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Net sales | $3,638 | $3,603 | +$35 | $7,153 | $7,198 | -$45 | | Gross profit | $640 | $685 | -$45 | $1,279 | $1,329 | -$50 | | Operating income | $289 | $297 | -$8 | $526 | $592 | -$66 | | Net earnings attributable to BorgWarner Inc. | $224 | $303 | -$79 | $381 | $509 | -$128 | | Diluted EPS from continuing operations | $1.03 | $1.39 | -$0.36 | $1.75 | $2.32 | -$0.57 | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=7&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME%20%28LOSS%29%20%28UNAUDITED%29) Presents the comprehensive income (loss) for the three and six months ended June 30, 2025, and 2024, showing a significant increase in total comprehensive income for both periods, primarily driven by positive foreign currency translation adjustments in 2025 compared to losses in 2024 Condensed Consolidated Statements of Comprehensive Income (Loss) Summary | Metric | 3 Months Ended June 30, 2025 (in millions) | 3 Months Ended June 30, 2024 (in millions) | Change (YoY) | 6 Months Ended June 30, 2025 (in millions) | 6 Months Ended June 30, 2024 (in millions) | Change (YoY) | | :------------------------------------------ | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Net earnings attributable to BorgWarner Inc. | $224 | $303 | -$79 | $381 | $509 | -$128 | | Foreign currency translation adjustments | $103 | $(31) | +$134 | $162 | $(97) | +$259 | | Total other comprehensive income (loss) attributable to BorgWarner Inc. | $93 | $(55) | +$148 | $152 | $(110) | +$262 | | Comprehensive income attributable to BorgWarner Inc. | $317 | $248 | +$69 | $533 | $399 | +$134 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS%20%28UNAUDITED%29) Outlines the cash flow activities for the six months ended June 30, 2025, and 2024, indicating a substantial increase in net cash provided by operating activities and a decrease in cash used in investing activities, while cash used in financing activities significantly increased due to debt repayments Condensed Consolidated Statements of Cash Flows Summary | Metric | 6 Months Ended June 30, 2025 (in millions) | 6 Months Ended June 30, 2024 (in millions) | Change (YoY) | | :------------------------------------------ | :--------------------------------------- | :--------------------------------------- | :----------- | | Net cash provided by operating activities of continuing operations | $661 | $344 | +$317 | | Net cash used in investing activities from continuing operations | $(158) | $(313) | +$155 | | Net cash used in financing activities from continuing operations | $(606) | $(242) | -$364 | | Net decrease in cash, cash equivalents and restricted cash | $(53) | $(246) | +$193 | | Cash, cash equivalents and restricted cash of continuing operations at end of period | $2,041 | $1,288 | +$753 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=NOTES%20TO%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS%20%28UNAUDITED%29) Provides detailed explanations and disclosures for the condensed consolidated financial statements, covering accounting policies, recent pronouncements, acquisitions, dispositions, revenue recognition, restructuring, R&D, income taxes, and other financial instruments and liabilities [NOTE 1 BASIS OF PRESENTATION](index=9&type=section&id=NOTE%201%20BASIS%20OF%20PRESENTATION) Explains that the unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim information, and certain prior period amounts have been reclassified. It also highlights the new business unit structure effective July 1, 2024, and the spin-off of Fuel Systems and Aftermarket segments in July 2023 - The Company implemented a new business unit and management structure effective July 1, 2024, reporting results in four segments: Turbos & Thermal Technologies, Drivetrain & Morse Systems, PowerDrive Systems, and Battery & Charging Systems[21](index=21&type=chunk) - The Company completed the spin-off of its Fuel Systems and Aftermarket segments (PHINIA, Inc.) on July 3, 2023[22](index=22&type=chunk) [NOTE 2 NEW ACCOUNTING PRONOUNCEMENTS](index=10&type=section&id=NOTE%202%20NEW%20ACCOUNTING%20PRONOUNCEMENTS) Discusses recently issued accounting standards, ASU No. 2023-09 (Income Taxes) and ASU No. 2024-03 (Expense Disaggregation), noting that neither is expected to have a material impact on the Company's consolidated financial statements beyond incremental disclosures - ASU No. 2023-09, 'Income Taxes (Topic 740): Improvements to Income Tax Disclosures,' is effective for annual reporting periods beginning after December 15, 2024[24](index=24&type=chunk) - ASU No. 2024-03, 'Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses,' is effective for annual reporting periods beginning after December 15, 2026[25](index=25&type=chunk) - The Company does not expect these new guidances to have a material impact on its Consolidated Financial Statements other than related incremental disclosures[24](index=24&type=chunk)[25](index=25&type=chunk) [NOTE 3 ACQUISITIONS AND DISPOSITIONS](index=10&type=section&id=NOTE%203%20ACQUISITIONS%20AND%20DISPOSITIONS) Details recent acquisition activities, including Hubei Surpass Sun Electric Charging Business (SSE) and Drivetek AG, and the decision to exit the charging business (including SSE) in February 2025, resulting in charges and a sale of the SSE business - Acquired **100% of Hubei Surpass Sun Electric (SSE) electric vehicle solution, smart grid, and smart energy businesses** on March 1, 2023, for **¥288 million ($42 million)**[28](index=28&type=chunk) - Acquired **100% of Drivetek AG**, an engineering and product development company, on December 1, 2022, for **₣37 million ($39 million)**[32](index=32&type=chunk) - In February 2025, the Company decided to exit its charging business within the Battery & Charging Systems segment; production ceased in Q2 2025[33](index=33&type=chunk) - The SSE business was sold in Q2 2025 for approximately **$7 million**, resulting in charges of **$3 million (Q2 2025)** and **$22 million (H1 2025)** related to the loss on sale[34](index=34&type=chunk) - Total charges related to the exit of the charging business were **$6 million (Q2 2025)** and **$32 million (H1 2025)**, including **$9 million inventory write-off** and **$39 million in impairment charges** (intangible assets, goodwill, fixed assets) for H1 2025[35](index=35&type=chunk) [NOTE 4 REVENUE FROM CONTRACTS WITH CUSTOMERS](index=12&type=section&id=NOTE%204%20REVENUE%20FROM%20CONTRACTS%20WITH%20CUSTOMERS) Explains the Company's revenue recognition policies, primarily from OEM sales, and disaggregates revenue into Foundational products and eProducts, showing eProducts' increasing contribution to total net sales - Revenue is generally recognized upon shipment or delivery, with a limited number of highly customized products recognized using the input cost-to-cost method[37](index=37&type=chunk) Net Sales by Product Type | Product Type | 3 Months Ended June 30, 2025 (in millions) | 3 Months Ended June 30, 2024 (in millions) | Change (YoY) | 6 Months Ended June 30, 2025 (in millions) | 6 Months Ended June 30, 2024 (in millions) | Change (YoY) | | :------------------ | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Foundational products | $2,980 | $3,027 | -$47 | $5,858 | $6,116 | -$258 | | eProducts | $658 | $576 | +$82 | $1,295 | $1,082 | +$213 | | Total | $3,638 | $3,603 | +$35 | $7,153 | $7,198 | -$45 | Net Sales by Region | Region | Three Months Ended June 30, 2025 (in millions) | Three Months Ended June 30, 2024 (in millions) | Change (YoY) | | :------------ | :--------------------------------------------- | :--------------------------------------------- | :----------- | | North America | $1,002 | $1,048 | -$46 | | Europe | $1,360 | $1,359 | +$1 | | Asia | $1,204 | $1,134 | +$70 | | Other | $72 | $62 | +$10 | | Total | $3,638 | $3,603 | +$35 | [NOTE 5 RESTRUCTURING](index=14&type=section&id=NOTE%205%20RESTRUCTURING) Details the Company's restructuring activities aimed at streamlining operations and achieving cost reductions, including the 2024 Structural Cost Plan for PowerDrive Systems and the completed 2023 Structural Cost Plan for Foundational products, along with individually approved actions Restructuring Expense by Segment | Segment | Three Months Ended June 30, 2025 (in millions) | Three Months Ended June 30, 2024 (in millions) | Change (YoY) | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | :----------- | | Turbos & Thermal Technologies | $10 | $8 | +$2 | | Drivetrain & Morse Systems | $1 | $1 | $0 | | PowerDrive Systems | $1 | $14 | -$13 | | Battery & Charging Systems | $5 | $1 | +$4 | | Corporate | $0 | $1 | -$1 | | Total restructuring expense | $17 | $25 | -$8 | - The 2024 Structural Cost Plan, an approximately **$75 million plan** for the PowerDrive Systems segment, incurred **$1 million (Q2 2025)** and **$17 million (H1 2025)** in restructuring charges, with expected annual cost savings of **$100 million to $120 million by 2026**[49](index=49&type=chunk)[61](index=61&type=chunk) - The 2023 Structural Cost Plan, a **$130 million to $150 million plan** for Foundational products, is complete, with **$8 million (H1 2025)** and **$34 million (H1 2024)** in restructuring costs recorded, and expected annual gross savings of **$80 million to $90 million by 2027**[50](index=50&type=chunk) Restructuring Liability and Cash Payments | Metric | Balance at January 1, 2025 (in millions) | Balance at June 30, 2025 (in millions) | | :-------------------------- | :--------------------------------------- | :------------------------------------- | | Total restructuring liability | $44 | $44 | | Cash payments (H1 2025) | | $(50) | [NOTE 6 RESEARCH AND DEVELOPMENT COSTS](index=17&type=section&id=NOTE%206%20RESEARCH%20AND%20DEVELOPMENT%20COSTS) Details the Company's gross and net R&D expenditures, which are included in SG&A, with customer reimbursements netted against gross expenditures. Net R&D decreased for both the three and six months ended June 30, 2025 Research and Development Costs | Metric | 3 Months Ended June 30, 2025 (in millions) | 3 Months Ended June 30, 2024 (in millions) | Change (YoY) | 6 Months Ended June 30, 2025 (in millions) | 6 Months Ended June 30, 2024 (in millions) | Change (YoY) | | :---------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Gross R&D expenditures | $207 | $220 | -$13 | $403 | $438 | -$35 | | Customer reimbursements | $(25) | $(31) | +$6 | $(39) | $(62) | +$23 | | Net R&D expenditures | $182 | $189 | -$7 | $364 | $376 | -$12 | - Net R&D expenditures decreased by **$7 million (3.7%)** for Q2 2025 and **$12 million (3.2%)** for H1 2025[62](index=62&type=chunk) [NOTE 7 OTHER OPERATING EXPENSE, NET](index=18&type=section&id=NOTE%207%20OTHER%20OPERATING%20EXPENSE%2C%20NET) Itemizes the components of Other operating expense, net, highlighting significant charges in Q2 and H1 2025 related to the exit of the charging business, CEO transition compensation, and loss on asset sales, contrasting with prior period commercial contract settlements and Spin-Off adjustments Other Operating Expense, Net | Item | 3 Months Ended June 30, 2025 (in millions) | 3 Months Ended June 30, 2024 (in millions) | 6 Months Ended June 30, 2025 (in millions) | 6 Months Ended June 30, 2024 (in millions) | | :------------------------------------------ | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Costs to exit charging business | $4 | $0 | $23 | $0 | | Chief Executive Officer ("CEO") transition compensation | $6 | $0 | $6 | $0 | | Loss on sale of assets | $5 | $0 | $5 | $0 | | Adjustments associated with Spin-Off related balances | $2 | $11 | $(1) | $11 | | Commercial contract settlement | $0 | $15 | $0 | $15 | | Other operating expense, net | $14 | $22 | $31 | $23 | [NOTE 8 INCOME TAXES](index=19&type=section&id=NOTE%208%20INCOME%20TAXES) Discusses the Company's provision for income taxes and effective tax rates, noting significant discrete tax benefits in prior periods and the impact of the recently enacted One Big Beautiful Bill Act, which is not expected to materially impact financial statements - The effective tax rate for Q2 2025 was **18% (provision of $52 million)**, compared to **(10)% (benefit of $31 million)** for Q2 2024, which included an **$89 million discrete tax benefit**[69](index=69&type=chunk) - The effective tax rate for H1 2025 was **22% (provision of $113 million)**, compared to **5% (provision of $31 million)** for H1 2024, which included an **$89 million discrete tax benefit**[70](index=70&type=chunk) - The One Big Beautiful Bill Act, enacted July 4, 2025, restores 100% bonus depreciation and allows immediate expensing of domestic R&E expenditures, but is not expected to have a material impact on the Company's Consolidated Financial Statements[72](index=72&type=chunk) [NOTE 9 INVENTORIES](index=19&type=section&id=NOTE%209%20INVENTORIES) Provides a breakdown of inventory components, showing a slight decrease in total inventories from December 31, 2024, to June 30, 2025 Inventories by Component | Component | June 30, 2025 (in millions) | December 31, 2024 (in millions) | Change | | :-------------------- | :-------------------------- | :---------------------------- | :----- | | Raw material and supplies | $898 | $915 | -$17 | | Work in progress | $149 | $147 | +$2 | | Finished goods | $169 | $189 | -$20 | | Total Inventories | $1,216 | $1,251 | -$35 | [NOTE 10 OTHER ASSETS](index=20&type=section&id=NOTE%2010%20OTHER%20ASSETS) Details the composition of prepayments and other current assets, investments and long-term receivables, and other non-current assets, showing changes between June 30, 2025, and December 31, 2024 Prepayments and Other Current Assets | Component | June 30, 2025 (in millions) | December 31, 2024 (in millions) | | :-------------------------- | :-------------------------- | :---------------------------- | | Prepaid tooling | $125 | $107 | | Prepaid taxes | $90 | $98 | | Customer incentive payments | $18 | $22 | | Contract assets | $15 | $15 | | Derivative instruments | $14 | $19 | | Other | $61 | $72 | | Total prepayments and other current assets | $323 | $333 | Investments and Long-Term Receivables | Component | June 30, 2025 (in millions) | December 31, 2024 (in millions) | | :-------------------------- | :-------------------------- | :---------------------------- | | Investment in equity affiliates | $239 | $245 | | Investment in equity securities | $71 | $70 | | Long-term receivables | $57 | $41 | | Total investments and long-term receivables | $367 | $356 | Other Non-Current Assets | Component | June 30, 2025 (in millions) | December 31, 2024 (in millions) | | :-------------------------- | :-------------------------- | :---------------------------- | | Deferred income taxes | $492 | $359 | | Operating leases | $165 | $177 | | Derivative instruments | $16 | $89 | | Customer incentive payments | $10 | $23 | | Other | $72 | $62 | | Total other non-current assets | $755 | $710 | [NOTE 11 GOODWILL AND OTHER INTANGIBLES](index=20&type=section&id=NOTE%2011%20GOODWILL%20AND%20OTHER%20INTANGIBLES) Details the Company's goodwill and other intangible assets, including an impairment charge of $13 million related to goodwill allocated to the charging business and $22 million for other intangible assets due to the exit of the charging business in H1 2025 - A **$13 million goodwill impairment** was recorded in H1 2025 related to the charging business due to the Company's plan to exit this business[76](index=76&type=chunk) - An additional **$22 million impairment of other intangible assets** was recorded in H1 2025 as a result of the exit of the charging business[80](index=80&type=chunk) Net Goodwill Balance by Segment | Segment | Net Goodwill Balance, December 31, 2024 (in millions) | Net Goodwill Balance, June 30, 2025 (in millions) | Change | | :-------------------------- | :------------------------------------------ | :---------------------------------------- | :----- | | Turbos & Thermal Technologies | $733 | $777 | +$44 | | Drivetrain & Morse Systems | $1,120 | $1,134 | +$14 | | PowerDrive Systems | $0 | $0 | $0 | | Battery & Charging Systems | $504 | $556 | +$52 | | Total Net goodwill balance | $2,357 | $2,467 | +$110 | Other Intangible Assets | Asset Type | Net Carrying Amount, June 30, 2025 (in millions) | Net Carrying Amount, December 31, 2024 (in millions) | Change | | :-------------------------- | :--------------------------------------- | :------------------------------------------- | :----- | | Patented and unpatented technology | $148 | $180 | -$32 | | Customer relationships | $276 | $289 | -$13 | | Miscellaneous | $2 | $2 | $0 | | Unamortized trade names | $4 | $3 | +$1 | | Total other intangible assets | $430 | $474 | -$44 | [NOTE 12 PRODUCT WARRANTY](index=22&type=section&id=NOTE%2012%20PRODUCT%20WARRANTY) Describes the Company's product warranty provisions, which are estimated based on historical data and industry trends, and summarizes the activity in the product warranty accrual accounts Product Warranty Accrual Activity | (in millions) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :-------------------------- | :-------------------------- | | Beginning balance, January 1 | $215 | $196 | | Provisions for current period sales | $47 | $38 | | Adjustments of prior estimates | $3 | $6 | | Payments | $(27) | $(31) | | Other, primarily translation adjustment | $15 | $(5) | | Ending balance, June 30 | $253 | $204 | - The total product warranty liability increased from **$215 million** at December 31, 2024, to **$253 million** at June 30, 2025[83](index=83&type=chunk) [NOTE 13 DEBT](index=23&type=section&id=NOTE%2013%20DEBT) Provides details on the Company's debt structure, including the repayment of $334 million senior notes in March 2025, changes in short-term borrowings, and the status of its revolving credit facility and commercial paper program Debt Structure | Debt Type | June 30, 2025 (in millions) | December 31, 2024 (in millions) | Change | | :------------------------------------------ | :-------------------------- | :---------------------------- | :----- | | Short-term borrowings | $3 | $61 | -$58 | | 3.375% Senior notes due 03/15/25 | $0 | $334 | -$334 | | Total long-term debt (net of current portion) | $3,901 | $3,763 | +$138 | | Total Debt | $3,904 | $4,161 | -$257 | - The Company's **3.375% senior notes, totaling $334 million**, matured and were repaid on March 15, 2025[84](index=84&type=chunk) - Interest expense, net, increased to **$12 million (Q2 2025)** from **$8 million (Q2 2024)** and to **$24 million (H1 2025)** from **$13 million (H1 2024)**, primarily due to higher debt levels following the Company's issuance of **$1 billion of notes in August 2024**[86](index=86&type=chunk)[173](index=173&type=chunk)[186](index=186&type=chunk) - The Company has a **$2 billion multi-currency revolving credit facility** maturing in September 2028, with no outstanding borrowings as of June 30, 2025[86](index=86&type=chunk) [NOTE 14 OTHER LIABILITIES](index=25&type=section&id=NOTE%2014%20OTHER%20LIABILITIES) Presents a detailed breakdown of other current and non-current liabilities, showing overall increases in both categories from December 31, 2024, to June 30, 2025 Other Current Liabilities | Component | June 30, 2025 (in millions) | December 31, 2024 (in millions) | Change | | :-------------------------- | :-------------------------- | :---------------------------- | :----- | | Payroll and employee related | $271 | $361 | -$90 | | Customer related | $234 | $160 | +$74 | | Indirect taxes | $135 | $117 | +$18 | | Product warranties | $93 | $88 | +$5 | | Income taxes payable | $88 | $115 | -$27 | | Employee termination benefits | $25 | $31 | -$6 | | Total other current liabilities | $1,253 | $1,216 | +$37 | Other Non-Current Liabilities | Component | June 30, 2025 (in millions) | December 31, 2024 (in millions) | Change | | :-------------------------- | :-------------------------- | :---------------------------- | :----- | | Deferred income taxes | $177 | $167 | +$10 | | Product warranties | $160 | $127 | +$33 | | Other income tax liabilities | $135 | $118 | +$17 | | Operating leases | $132 | $144 | -$12 | | Derivative instruments | $122 | $5 | +$117 | | Deferred income | $107 | $88 | +$19 | | Total other non-current liabilities | $929 | $741 | +$188 | [NOTE 15 FAIR VALUE MEASUREMENTS](index=25&type=section&id=NOTE%2015%20FAIR%20VALUE%20MEASUREMENTS) Explains the Company's fair value measurements using the ASC Topic 820 hierarchy (Level 1, 2, and 3 inputs) and provides tables classifying assets and liabilities measured at fair value on a recurring basis, including earn-out liabilities - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[93](index=93&type=chunk)[94](index=94&type=chunk) Assets Measured at Fair Value on a Recurring Basis | Asset Type | Level 1 (in millions) | Level 2 (in millions) | Level 3 (in millions) | | :-------------------------- | :-------------------- | :-------------------- | :-------------------- | | Investment in equity securities | $0 | $0 | $0 | | Foreign currency contracts | $0 | $17 | $0 | | Net investment hedge contracts | $0 | $13 | $0 | Liabilities Measured at Fair Value on a Recurring Basis | Liability Type | Level 1 (in millions) | Level 2 (in millions) | Level 3 (in millions) | | :-------------------------- | :-------------------- | :-------------------- | :-------------------- | | Current earn-out liabilities | $0 | $0 | $3 | | Net investment hedge contracts | $0 | $113 | $0 | | Foreign currency contracts | $0 | $36 | $0 | - Level 3 current earn-out liabilities decreased from **$4 million** at January 1, 2025, to **$3 million** at June 30, 2025, due to settlements and reclassification[96](index=96&type=chunk) [NOTE 16 FINANCIAL INSTRUMENTS](index=27&type=section&id=NOTE%2016%20FINANCIAL%20INSTRUMENTS) Describes the Company's use of financial instruments, including cash flow hedges (foreign currency derivatives) and net investment hedges (cross-currency swaps and foreign currency-denominated debt), to manage commodity price, interest rate, and foreign currency risks - The Company uses foreign currency forward and option contracts as cash flow hedges to protect against exchange rate movements for forecasted cash flows[100](index=100&type=chunk) - Cross-currency swaps and foreign currency-denominated debt are used as net investment hedges to manage foreign currency exposure in non-U.S. subsidiaries[103](index=103&type=chunk)[105](index=105&type=chunk) - During Q2 2025, the Company unwound **$700 million of cross-currency swap contracts**, resulting in a cash outflow of approximately **$4 million**[104](index=104&type=chunk) Deferred Gain (Loss) in AOCI from Derivative Instruments | Contract Type | Deferred gain (loss) in AOCI at June 30, 2025 (in millions) | Deferred gain (loss) in AOCI at December 31, 2024 (in millions) | | :------------------------------------------ | :---------------------------------------------------------- | :------------------------------------------------------------- | | Cash flow hedges: Foreign currency | $(11) | $(7) | | Net investment hedges: Cross-currency swaps | $(109) | $84 | | Net investment hedges: Foreign currency-denominated debt | $34 | $168 | | Total | $(86) | $245 | [NOTE 17 RETIREMENT BENEFIT PLANS](index=32&type=section&id=NOTE%2017%20RETIREMENT%20BENEFIT%20PLANS) Outlines the Company's defined benefit pension plans and other postemployment benefit plans, detailing the components of net periodic benefit expense and a buy-in contract for its U.K. pension plan - The Company expects to contribute approximately **$20 million** to its defined benefit pension plans in 2025, with **$12 million** contributed through H1 2025[116](index=116&type=chunk) - Other postemployment benefit plans are funded on a pay-as-you-go basis[116](index=116&type=chunk) Net Periodic Benefit Cost | Metric | 3 Months Ended June 30, 2025 (in millions) | 3 Months Ended June 30, 2024 (in millions) | 6 Months Ended June 30, 2025 (in millions) | 6 Months Ended June 30, 2024 (in millions) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | US Pension benefits | $1 | $1 | $2 | $2 | | Non-US Pension benefits | $6 | $6 | $11 | $11 | | Total Net periodic benefit cost | $7 | $7 | $13 | $13 | - In December 2024, the Company entered into a second buy-in contract for its U.K. pension plan, liquidating approximately **$50 million of pension plan assets** for an insurance annuity[118](index=118&type=chunk) [NOTE 18 STOCKHOLDERS' EQUITY](index=33&type=section&id=NOTE%2018%20STOCKHOLDERS%27%20EQUITY) Summarizes the changes in stockholders' equity items, including dividends declared, stock issuances, and treasury stock purchases, for the three and six months ended June 30, 2025, and 2024 Stockholders' Equity Summary | Metric | December 31, 2024 (in millions) | June 30, 2025 (in millions) | Change | | :------------------------------------------ | :---------------------------- | :-------------------------- | :----- | | Total BorgWarner Inc. stockholders' equity | $5,532 | $5,923 | +$391 | | Retained earnings | $6,412 | $6,745 | +$333 | | Common stock held in treasury, at cost | $(2,537) | $(2,597) | -$60 | - Dividends declared were **$0.11 per share** for both the first and second quarters of 2025[120](index=120&type=chunk) - Payments for purchase of treasury stock amounted to **$(109) million** for the six months ended June 30, 2025[120](index=120&type=chunk) [NOTE 19 ACCUMULATED OTHER COMPREHENSIVE LOSS](index=34&type=section&id=NOTE%2019%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20LOSS) Provides a summary of activity within accumulated other comprehensive loss (AOCI), highlighting significant foreign currency translation adjustments and their impact on the overall balance Accumulated Other Comprehensive Loss (AOCI) Activity | Component | Beginning Balance (Dec 31, 2024, in millions) | Ending Balance (June 30, 2025, in millions) | Change (H1 2025) | | :------------------------------------------ | :-------------------------------------------- | :------------------------------------------ | :--------------- | | Foreign currency translation adjustments | $(882) | $(720) | +$162 | | Cash flow hedges | $(9) | $(12) | -$3 | | Defined benefit retirement plans | $(129) | $(136) | -$7 | | Total AOCI | $(1,020) | $(868) | +$152 | - Foreign currency translation adjustments positively impacted AOCI by **$162 million** for the six months ended June 30, 2025[126](index=126&type=chunk) [NOTE 20 CONTINGENCIES](index=35&type=section&id=NOTE%2020%20CONTINGENCIES) Discusses various commercial and legal claims, including a lawsuit against PHINIA for $120 million in VAT refunds and environmental liabilities at hazardous waste sites, stating that none are expected to have a material adverse effect on the Company's financial position - The Company commenced a lawsuit against PHINIA on September 19, 2024, seeking to recover approximately **$120 million in VAT refunds**[128](index=128&type=chunk) - The Company has been identified as a potentially responsible party (PRP) at **16 hazardous waste disposal sites** as of June 30, 2025[129](index=129&type=chunk) - An accrual for environmental liabilities of **$5 million** was recorded as of June 30, 2025, relating to four of the sites[131](index=131&type=chunk) - The Company does not believe that adverse outcomes in these matters are reasonably likely to have a material adverse effect on its results of operations, financial position, or cash flows[130](index=130&type=chunk) [NOTE 21 EARNINGS PER SHARE](index=36&type=section&id=NOTE%2021%20EARNINGS%20PER%20SHARE) Explains the calculation of basic and diluted earnings per share (EPS) and provides a reconciliation, showing a decrease in both basic and diluted EPS from continuing operations for the three and six months ended June 30, 2025, compared to 2024 Basic and Diluted EPS from Continuing Operations | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (YoY) | | :------------------------------------------ | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Basic EPS from continuing operations | $1.04 | $1.39 | -$0.35 | $1.76 | $2.33 | -$0.57 | | Diluted EPS from continuing operations | $1.03 | $1.39 | -$0.36 | $1.75 | $2.32 | -$0.57 | - Weighted average diluted shares outstanding decreased from **227.2 million** for Q2 2024 to **218.2 million** for Q2 2025[134](index=134&type=chunk) [NOTE 22 REPORTABLE SEGMENTS](index=37&type=section&id=NOTE%2022%20REPORTABLE%20SEGMENTS) Describes the Company's four reportable segments (Turbos & Thermal Technologies, Drivetrain & Morse Systems, PowerDrive Systems, and Battery & Charging Systems) and how Segment Adjusted Operating Income (Loss) is used to assess their performance, with prior period information recast for the new structure - Effective July 1, 2024, the Company reports results in four reportable segments: Turbos & Thermal Technologies, Drivetrain & Morse Systems, PowerDrive Systems, and Battery & Charging Systems[136](index=136&type=chunk) - Segment Adjusted Operating Income (Loss) is the primary measure used by the CODM to assess segment performance, excluding restructuring, M&A, intangible asset amortization, and impairment charges[138](index=138&type=chunk)[139](index=139&type=chunk) Net Sales and Segment Adjusted Operating Income (Loss) by Segment | Segment | Q2 2025 Net Sales (in millions) | Q2 2024 Net Sales (in millions) | Change (YoY) | Q2 2025 Segment Adjusted Operating Income (Loss) (in millions) | Q2 2024 Segment Adjusted Operating Income (Loss) (in millions) | Change (YoY) | | :-------------------------- | :------------------------------ | :------------------------------ | :----------- | :------------------------------------------------------------- | :------------------------------------------------------------- | :----------- | | Turbos & Thermal Technologies | $1,481 | $1,515 | -$34 | $227 | $224 | +$3 | | Drivetrain & Morse Systems | $1,429 | $1,442 | -$13 | $260 | $266 | -$6 | | PowerDrive Systems | $581 | $464 | +$117 | $(33) | $(49) | +$16 | | Battery & Charging Systems | $159 | $193 | -$34 | $(12) | $(10) | -$2 | | Total for reportable segments | $3,638 | $3,603 | +$35 | $442 | $431 | +$11 | [NOTE 23 OPERATING CASH FLOWS AND OTHER SUPPLEMENTAL FINANCIAL INFORMATION](index=42&type=section&id=NOTE%2023%20OPERATING%20CASH%20FLOWS%20AND%20OTHER%20SUPPLEMENTAL%20FINANCIAL%20INFORMATION) Provides a detailed reconciliation of net earnings from continuing operations to net cash provided by operating activities, highlighting significant non-cash adjustments and changes in working capital - Net cash provided by operating activities from continuing operations increased to **$661 million** for H1 2025, compared to **$344 million** for H1 2024[212](index=212&type=chunk) - Key non-cash adjustments for H1 2025 included depreciation and tooling amortization (**$301 million**), intangible asset amortization (**$33 million**), restructuring expense (**$23 million**), stock-based compensation (**$33 million**), impairment charges (**$42 million**), and costs to exit charging business (**$32 million**)[212](index=212&type=chunk) - Changes in working capital for H1 2025 included a **$201 million decrease in cash from receivables**, a **$96 million increase from inventories**, and a **$91 million decrease from accounts payable and accrued expenses**[212](index=212&type=chunk) [NOTE 24 DISCONTINUED OPERATIONS](index=43&type=section&id=NOTE%2024%20DISCONTINUED%20OPERATIONS) Details activities related to discontinued operations following the PHINIA spin-off, including transition services agreements and spin-off related expenses incurred in prior periods - The transition services agreement with PHINIA was amended in December 2024 to extend certain engineering services until September 30, 2025[147](index=147&type=chunk) - No activities related to these transition services occurred during the three and six months ended June 30, 2025[147](index=147&type=chunk) - The Company incurred a net loss from discontinued operations of **$14 million (Q2 2024)** and **$24 million (H1 2024)** related to Spin-Off costs[148](index=148&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=43&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Provides management's perspective on the Company's financial condition, results of operations, and liquidity, discussing key trends, strategic initiatives, and economic factors influencing performance for the three and six months ended June 30, 2025 [INTRODUCTION](index=43&type=section&id=INTRODUCTION) Introduces BorgWarner Inc. as a global leader in clean and efficient technology solutions for combustion, hybrid, and electric vehicles, serving OEMs worldwide - BorgWarner Inc. is a global product leader in clean and efficient technology solutions for combustion, hybrid, and electric vehicles[149](index=149&type=chunk) - The Company manufactures and sells products worldwide, primarily to OEMs of light vehicles, commercial vehicles, and off-highway vehicles[149](index=149&type=chunk) [BorgWarner Strategy](index=43&type=section&id=BorgWarner%20Strategy) Outlines the Company's strategy to achieve profitable growth through organic investments and technology-focused acquisitions, particularly in electric, hybrid, and combustion vehicle technologies, while navigating EV adoption volatility - The Company's current strategy focuses on profitable growth across its technology-focused product portfolio that supports electric, hybrid, and combustion vehicles[150](index=150&type=chunk) - This strategy entails growing its product portfolio through organic investments and technology-focused acquisitions[150](index=150&type=chunk) - eProducts revenue was approximately **$658 million (18% of total revenue)** for Q2 2025 and **$1,295 million (18% of total revenue)** for H1 2025[150](index=150&type=chunk) [Lawsuit Against PHINIA](index=44&type=section&id=Lawsuit%20Against%20PHINIA) Details the ongoing lawsuit against PHINIA, Inc. to recover approximately $120 million in VAT refunds, with PHINIA having asserted counterclaims - The Company commenced a lawsuit against PHINIA on September 19, 2024, seeking to recover approximately **$120 million of VAT refunds**[152](index=152&type=chunk) - PHINIA has responded to the lawsuit and asserted counterclaims, which the Delaware Superior Court denied the Company's motion to dismiss on April 10, 2025[152](index=152&type=chunk) - As of June 30, 2025, the Company had an asset related to these VAT refunds of approximately **$120 million**, included in Receivables, net[152](index=152&type=chunk) [Portfolio Actions](index=44&type=section&id=Portfolio%20Actions) Describes the Company's decision to exit its charging business within the Battery & Charging Systems segment, which ceased production in Q2 2025, and to consolidate its North American battery systems business to align with market dynamics - In February 2025, the Company decided to exit its charging business within the Battery & Charging Systems reportable segment, with production ceasing in Q2 2025[153](index=153&type=chunk) - This action is expected to eliminate approximately **$30 million of annualized adjusted operating losses by 2026**[153](index=153&type=chunk) - The Company also consolidated its North American battery systems business, expecting annual cost savings of approximately **$20 million by 2026**[154](index=154&type=chunk) [North Carolina Facility Hurricane](index=44&type=section&id=North%20Carolina%20Facility%20Hurricane) Reports on the impact of a hurricane on the Arden, North Carolina plant in September 2024, resulting in less than $10 million in asset damage, with operations resuming in Q4 2024 and committed insurance recoveries of $9 million recorded in Q2/H1 2025 - A hurricane disrupted operations at the Arden, North Carolina plant on September 26, 2024, causing less than **$10 million in asset damage**[155](index=155&type=chunk) - The Arden plant resumed full operations during the fourth quarter of 2024[155](index=155&type=chunk) - The Company recorded committed insurance recoveries of approximately **$9 million** during the three and six months ended June 30, 2025[155](index=155&type=chunk) [Acquisitions](index=44&type=section&id=Acquisitions) States that acquisitions are an integral part of the Company's growth strategy and refers to Note 3 for details on recent acquisitions - Acquisitions have been an integral component of the Company's growth and value creation strategy[156](index=156&type=chunk) - Refer to Note 3, 'Acquisitions and Dispositions,' for more information on recent acquisitions[156](index=156&type=chunk) [Key Trends and Economic Factors](index=44&type=section&id=Key%20Trends%20and%20Economic%20Factors) Discusses the Company's financial performance dependence on the cyclical global automotive industry, noting a 2% decrease in weighted average market production for H1 2025 and expecting relatively flat commodity and other costs in 2025, with potential volatility from tariffs - The Company's financial performance depends on conditions in the global automotive industry, which is cyclical and sensitive to economic factors[158](index=158&type=chunk) - Weighted average market production, as estimated by the Company, was down approximately **2%** for the six months ended June 30, 2025, compared to the prior year[158](index=158&type=chunk) - The Company expects commodities and other costs to be relatively flat in 2025, but anticipates greater uncertainty and volatility due to the imposition of tariffs[159](index=159&type=chunk) [Outlook](index=45&type=section&id=Outlook) The Company expects global industry production to decrease in 2025 but anticipates net new business growth and cost recovery actions to keep sales roughly flat year-over-year, excluding foreign currency impacts, while maintaining a positive long-term outlook driven by electrified vehicles and emissions standards - The Company expects global industry production to decrease year-over-year in 2025[160](index=160&type=chunk) - At the mid-point of its outlook, the Company expects sales to be roughly flat year-over-year, excluding the impact of foreign currencies, due to net new business-related sales growth and cost recovery actions[160](index=160&type=chunk) - The Company maintains a positive long-term outlook for its global business, driven by the adoption of product offerings for electrified vehicles and increasingly stringent global emissions standards[161](index=161&type=chunk) [RESULTS OF OPERATIONS](index=46&type=section&id=RESULTS%20OF%20OPERATIONS) Provides a detailed analysis of the Company's operating results for the three and six months ended June 30, 2025, compared to the prior year, covering net sales, cost of sales, gross profit, SG&A, and other income/expenses [Three Months Ended June 30, 2025 vs. Three Months Ended June 30, 2024](index=46&type=section&id=Three%20Months%20Ended%20June%2030%2C%202025%20vs.%20Three%20Months%20Ended%20June%2030%2C%202024) Net sales increased by 1% to $3,638 million, driven by foreign currency fluctuations and net new business, but gross profit and operating income decreased due to higher cost of sales and other operating expenses. Diluted EPS from continuing operations decreased to $1.03 from $1.39 - Net sales for Q2 2025 increased by **$35 million (1%)** to **$3,638 million**, primarily due to **$66 million from foreign currency fluctuations**[163](index=163&type=chunk) - Gross profit decreased by **$45 million** to **$640 million**, with gross margin declining from **19.0% to 17.6%**[165](index=165&type=chunk) - Operating income decreased by **$8 million** to **$289 million**[162](index=162&type=chunk) - Selling, general and administrative (SG&A) expenses decreased by **$24 million**, primarily due to foreign currency fluctuations and a **$7 million decrease in R&D costs**[170](index=170&type=chunk) - Other operating expense, net, decreased to **$14 million** from **$22 million**, primarily due to the absence of a **$15 million commercial contract settlement** from the prior year, partially offset by new charges related to the charging business exit and CEO transition compensation[171](index=171&type=chunk)[175](index=175&type=chunk) - Diluted EPS from continuing operations decreased to **$1.03** from **$1.39**[162](index=162&type=chunk) [Six Months Ended June 30, 2025 vs. Six Months Ended June 30, 2024](index=49&type=section&id=Six%20Months%20Ended%20June%2030%2C%202025%20vs.%20Six%20Months%20Ended%20June%2030%2C%202024) Net sales decreased by $45 million to $7,153 million, primarily due to lower market production and unfavorable customer pricing, leading to a decline in gross profit, operating income, and diluted EPS from continuing operations - Net sales for H1 2025 decreased by **$45 million** to **$7,153 million**, primarily due to a **2% decline in weighted average market production**[177](index=177&type=chunk) - Gross profit decreased by **$50 million** to **$1,279 million**, with gross margin declining from **18.5% to 17.9%**[178](index=178&type=chunk) - Operating income decreased by **$66 million** to **$526 million**[176](index=176&type=chunk) - SG&A expenses decreased by **$38 million**, driven by foreign currency fluctuations and lower employee-related costs[183](index=183&type=chunk) - Impairment charges of **$42 million** were recorded for intangible assets, goodwill, and fixed assets related to the charging business exit and battery systems consolidation[185](index=185&type=chunk) - Diluted EPS from continuing operations decreased to **$1.75** from **$2.32**[176](index=176&type=chunk) [Non-comparable items impacting the Company's earnings per diluted share](index=52&type=section&id=Non-comparable%20items%20impacting%20the%20Company%27s%20earnings%20per%20diluted%20share) Presents a table of non-comparable items that impacted the Company's diluted EPS, including restructuring expense, impairment charges, costs to exit the charging business, and CEO transition compensation Impact of Non-Comparable Items on Diluted EPS | Item | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Restructuring expense | $(0.06) | $(0.08) | $(0.17) | $(0.14) | | Impairment charges | $(0.01) | $0.00 | $(0.16) | $0.00 | | Costs to exit charging business | $(0.02) | $0.00 | $(0.13) | $0.00 | | Accelerated depreciation | $(0.08) | $(0.03) | $(0.08) | $(0.03) | | Chief Executive Officer ("CEO") transition compensation | $(0.03) | $0.00 | $(0.03) | $0.00 | | Total impact of non-comparable items per share - diluted | $(0.18) | $0.30 | $(0.57) | $0.10 | [Results by Reportable Segment](index=52&type=section&id=Results%20by%20Reportable%20Segment) Analyzes the net sales and Segment Adjusted Operating Income (Loss) for each of the Company's four reportable segments, highlighting performance drivers such as market production, eProducts growth, and restructuring savings [Three Months Ended June 30, 2025 vs. Three Months Ended June 30, 2024](index=53&type=section&id=Three%20Months%20Ended%20June%2030%2C%202025%20vs.%20Three%20Months%20Ended%20June%2030%2C%202024) Turbos & Thermal Technologies saw a slight sales decrease but increased operating income due to efficiencies. Drivetrain & Morse Systems experienced a sales and operating income decline. PowerDrive Systems showed significant sales growth and reduced operating loss driven by eProducts. Battery & Charging Systems had decreased sales and increased operating loss due to volume and the charging business exit - Turbos & Thermal Technologies net sales decreased by **$34 million (2%)**, but Segment Adjusted Operating Income increased by **$3 million** to **$227 million**, with margin improving to **15.3%**[194](index=194&type=chunk) - Drivetrain & Morse Systems net sales decreased by **$13 million (1%)**, and Segment Adjusted Operating Income decreased by **$6 million** to **$260 million**, with margin at **18.2%**[195](index=195&type=chunk) - PowerDrive Systems net sales increased by **$117 million (25%)** to **$581 million**, driven by eProducts growth, and Segment Adjusted Operating Loss decreased by **$16 million** to **$(33) million**, with margin improving to **(5.7)%**[196](index=196&type=chunk) - Battery & Charging Systems net sales decreased by **$34 million (18%)** to **$159 million**, and Segment Adjusted Operating Loss increased by **$2 million** to **$(12) million**, with margin at **(7.5)%**, due to volume decline and the charging business exit[197](index=197&type=chunk) [Six Months Ended June 30, 2025 vs. Six Months Ended June 30, 2024](index=54&type=section&id=Six%20Months%20Ended%20June%2030%2C%202025%20vs.%20Six%20Months%20Ended%20June%2030%2C%202024) Turbos & Thermal Technologies experienced a sales decrease but increased operating income. Drivetrain & Morse Systems saw declines in both sales and operating income. PowerDrive Systems achieved substantial sales growth and reduced operating loss from eProducts. Battery & Charging Systems faced sales decline and increased operating loss due to volume and the charging business exit - Turbos & Thermal Technologies net sales decreased by **$154 million (5%)**, but Segment Adjusted Operating Income increased by **$10 million** to **$462 million**, with margin improving to **15.7%**[200](index=200&type=chunk) - Drivetrain & Morse Systems net sales decreased by **$71 million (2%)**, and Segment Adjusted Operating Income decreased by **$16 million** to **$503 million**, with margin at **18.0%**[201](index=201&type=chunk) - PowerDrive Systems net sales increased by **$242 million (27%)** to **$1,142 million**, driven by eProducts growth, and Segment Adjusted Operating Loss decreased by **$35 million** to **$(76) million**, with margin improving to **(6.7)%**[202](index=202&type=chunk) - Battery & Charging Systems net sales decreased by **$61 million (16%)** to **$309 million**, and Segment Adjusted Operating Loss increased by **$9 million** to **$(34) million**, with margin at **(11.0)%**, due to volume decline and the charging business exit[203](index=203&type=chunk) [FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY](index=55&type=section&id=FINANCIAL%20CONDITION%2C%20CAPITAL%20RESOURCES%20AND%20LIQUIDITY) Discusses the Company's strong liquidity position of $4,041 million, comprising cash and an undrawn revolving credit facility, and its compliance with debt covenants. It also details cash flow activities from operations, investing, and financing - The Company maintained liquidity of **$4,041 million** as of June 30, 2025, including **$2,041 million in cash and cash equivalents** and an undrawn **$2,000 million multi-currency revolving credit facility**[204](index=204&type=chunk) - The Company was in full compliance with its covenants under the revolving credit facility[205](index=205&type=chunk) - Cash balances of **$948 million** were held by non-U.S. subsidiaries, with the majority available for repatriation[206](index=206&type=chunk) - The Board of Directors declared a quarterly cash dividend of **$0.17 per share** for Q3 2025, an increase of **$0.06 per share** from the previous quarter[210](index=210&type=chunk) - The Company holds credit ratings of **BBB from Standard & Poor's, Baa1 from Moody's, and BBB+ from Fitch Ratings**, all with a stable outlook[211](index=211&type=chunk) [Cash Flows](index=56&type=section&id=Cash%20Flows) Provides a summary of cash flows from operating, investing, and financing activities for the six months ended June 30, 2025, and 2024, highlighting significant changes in each category [Operating Activities](index=56&type=section&id=Operating%20Activities) Net cash provided by operating activities significantly increased to $661 million in H1 2025 from $344 million in H1 2024, driven by higher net earnings adjusted for non-cash charges and changes in working capital - Net cash provided by operating activities of continuing operations increased to **$661 million** for H1 2025, compared to **$344 million** for H1 2024, an increase of **$317 million**[212](index=212&type=chunk) - Cash paid for interest was **$61 million** for H1 2025, compared to **$70 million** for H1 2024[212](index=212&type=chunk) - Cash paid for income taxes, net of refunds, was **$188 million** for H1 2025, compared to **$197 million** for H1 2024[212](index=212&type=chunk) [Investing Activities](index=57&type=section&id=Investing%20Activities) Net cash used in investing activities decreased to $158 million in H1 2025 from $313 million in H1 2024, reflecting a disciplined approach to capital allocation and lower capital expenditures - Net cash used in investing activities from continuing operations decreased to **$158 million** for H1 2025, compared to **$313 million** for H1 2024, representing a **$155 million reduction** in cash used[213](index=213&type=chunk) - Capital expenditures, including tooling outlays, were **$(196) million** for H1 2025, compared to **$(355) million** for H1 2024[213](index=213&type=chunk) - Capital expenditures as a percentage of sales were **2.7%** for H1 2025, down from **4.9%** for H1 2024[213](index=213&type=chunk) [Financing Activities](index=57&type=section&id=Financing%20Activities) Net cash used in financing activities increased to $606 million in H1 2025 from $242 million in H1 2024, primarily due to $403 million in debt repayments - Net cash used in financing activities from continuing operations increased to **$606 million** for H1 2025, compared to **$242 million** for H1 2024, an increase of **$364 million** in cash used[214](index=214&type=chunk) - Repayments of debt, including the current portion, amounted to **$(403) million** for H1 2025, primarily due to the maturity of the Company's **3.375% senior notes**[214](index=214&type=chunk) - Payments for purchase of treasury stock were **$(108) million** for H1 2025, compared to **$(100) million** for H1 2024[214](index=214&type=chunk) [CONTINGENCIES](index=58&type=section&id=CONTINGENCIES) Refers to Note 20 for details on legal proceedings and environmental liabilities, reiterating that no material adverse effect on financial position or cash flows is expected - The Company is party to various commercial and legal claims, actions, and complaints, including matters involving warranty claims, intellectual property claims, and governmental investigations[216](index=216&type=chunk) - A lawsuit against PHINIA for approximately **$120 million in VAT refunds** is ongoing[217](index=217&type=chunk) - The Company has been identified as a potentially responsible party (PRP) at **16 hazardous waste disposal sites**[218](index=218&type=chunk) - 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[219](index=219&type=chunk) [New Accounting Pronouncements](index=58&type=section&id=New%20Accounting%20Pronouncements) Refers to Note 2 for a detailed description of new accounting pronouncements - Refer to Note 2, 'New Accounting Pronouncements,' to the Condensed Consolidated Financial Statements for a detailed description of new applicable accounting pronouncements[221](index=221&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=59&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Discusses the Company's exposure to foreign currency exchange rate risk, which is mitigated through local production, invoicing practices, and derivative instruments, and notes no material changes to interest rate or commodity price risk - There have been no material changes to the information concerning the Company's exposures to interest rate risk or commodity price risk as stated in the Company's Annual Report on Form 10-K for the year ended December 31, 2024[222](index=222&type=chunk) - The Company's most significant currency exposures relate to the British Pound, Chinese Renminbi, Euro, Hungarian Forint, Korean Won, Mexican Peso, Polish Zloty, and Swiss Franc[223](index=223&type=chunk) - Foreign currency exchange rate risk is mitigated by establishing local production facilities, invoicing customers in the same currency as the source of products, funding foreign investments through local currency loans, and using derivative instruments[223](index=223&type=chunk) Approximate Impact of Currency Fluctuations on OCI | Currency | Three Months Ended June 30, 2025 (% Change in U.S. Dollars) | Three Months Ended June 30, 2025 (Approximate Impact on OCI, in millions) | Six Months Ended June 30, 2025 (% Change in U.S. Dollars) | Six Months Ended June 30, 2025 (Approximate Impact on OCI, in millions) | | :------------- | :---------------------------------------------------------- | :----------------------------------------------------------------------- | :-------------------------------------------------------- | :--------------------------------------------------------------------- | | Euro | 8% | $23 | 13% | $51 | | Korean Won | 9% | $23 | 9% | $23 | | Chinese Renminbi | 1% | $16 | 2% | $23 | | British Pound | 6% | $12 | 10% | $18 | [Item 4. Controls and Procedures](index=60&type=section&id=Item%204.%20Controls%20and%20Procedures) Confirms the effectiveness of the Company's disclosure controls and procedures as of June 30, 2025, and reports no material changes in internal control over financial reporting during the period [Disclosure Controls and Procedures](index=60&type=section&id=Disclosure%20Controls%20and%20Procedures) The Company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2025 - The Company maintains disclosure controls and procedures designed to ensure timely and accurate reporting of information[226](index=226&type=chunk) - The Company's Chief Executive Officer and Chief Financial Officer concluded that these controls and procedures are effective as of June 30, 2025[226](index=226&type=chunk) [Changes in Internal Control over Financial Reporting](index=60&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No material changes in internal control over financial reporting occurred during the period covered by the report - There have been no changes in internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[227](index=227&type=chunk) PART II. Other Information [Item 1. Legal Proceedings](index=61&type=section&id=Item%201.%20Legal%20Proceedings) Refers to Note 20 for a discussion of legal proceedings and environmental litigation, which are incorporated by reference - The Company is subject to a number of claims and judicial and administrative proceedings arising out of its business[229](index=229&type=chunk) - Refer to Note 20, 'Contingencies,' to the Condensed Consolidated Financial Statements for a discussion of environmental and other litigation[229](index=229&type=chunk) [Item 1A. Risk Factors](index=61&type=section&id=Item%201A.%20Risk%20Factors) Updates the risk factors from the previous 10-K, specifically replacing the section on changes in U.S. administrative policy with a revised one that emphasizes the adverse effects of tariffs and trade policy changes on costs, supply chain, and demand - No material changes from the risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, except for the updated risk factor on changes in administrative policy[230](index=230&type=chunk) - The revised risk factor highlights that changes in administrative policy, including the imposition of or increases in tariffs, could adversely impact the Company's supply chain, increase costs, and reduce demand for its products[231](index=231&type=chunk) - In 2024, the Company imported approximately **$875 million** in value to the U.S., with significant portions originating from Mexico (**55%**), Canada (**10%**), South Korea (**10%**), and Malaysia, Germany, and China (**5% each**)[232](index=232&type=chunk) [Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=62&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Details the Company's share repurchase authorizations, including a new $1 billion authorization in July 2025, and provides a table of equity security purchases during Q2 2025 - In July 2025, the Company's Board of Directors authorized the purchase of up to **$1 billion of common stock**, replacing the previous authorization and expiring on December 31, 2028[233](index=233&type=chunk) - As of June 30, 2025, the Company had repurchased **$408 million of common stock** under the previous authorization[233](index=233&type=chunk) Issuer Purchases of Equity Securities | Period | Total number of shares purchased | Average price per share | Total number of shares purchased as part of publicly announced plans or programs | Approximate dollar value of shares that may yet be purchased under plans or programs (in millions) | | :-------------------------- | :------------------------------- | :---------------------- | :----------------------------------------------------------------------- | :----------------------------------------------------------------------------- | | April 1, 2025 - April 30, 2025 | 3,107

Core Insights - BorgWarner reported adjusted earnings of $1.21 per share for Q2 2025, exceeding the Zacks Consensus Estimate of $1.06 and increasing from $1.19 in the prior-year quarter [1] - The company achieved net sales of $3.64 billion, a 1% year-over-year increase, surpassing the Zacks Consensus Estimate of $3.55 billion [1] Segmental Performance - **Turbos & Thermal Technologies**: Net sales were $1.48 billion, down from $1.5 billion year-over-year, but above the Zacks Consensus Estimate of $1.47 billion. Adjusted operating income rose to $227 million from $224 million, exceeding the estimate of $218 million [2] - **Drivetrain & Morse Systems**: Net sales totaled $1.43 billion, slightly down from $1.44 billion year-over-year, yet above the Zacks Consensus Estimate of $1.41 billion. Adjusted operating income decreased to $260 million from $266 million but surpassed the estimate of $257 million [3] - **PowerDrive Systems**: Sales increased by 25% year-over-year to $581 million, exceeding the Zacks Consensus Estimate of $464 million. The segment reported an adjusted operating loss of $33 million, improved from a loss of $49 million in the same period of 2024 [4] - **Battery & Charging Systems**: Sales were $159 million, down from $193 million year-over-year, missing the Zacks Consensus Estimate of $217 million. The segment incurred an adjusted operating loss of $12 million, wider than the $10 million loss in the previous year but narrower than the estimate of a $17.17 million loss [5] Financial Overview - As of June 30, 2025, BorgWarner had $2 billion in cash and equivalents, down from $2.09 billion at the end of 2024. Long-term debt increased to $3.9 billion from $3.76 billion [6] - Net cash provided by operating activities was $579 million, with capital expenditures totaling $77 million and free cash flow at $507 million [6] Dividend and Buyback - The company declared a quarterly cash dividend of 17 cents per share, a 55% increase from the previous payout, to be paid on September 15, 2025 [7] - BorgWarner also increased its buyback authorization to $1 billion [7] 2025 Guidance - BorgWarner raised its full-year 2025 net sales guidance to a range of $14-$14.4 billion, up from $13.6-$14.2 billion. Adjusted operating margin is now expected to be between 10.1-10.3%, an increase from the previous guidance of 9.6-10.2% [8] - Adjusted earnings per share are now estimated to be in the range of $4.45-$4.65, up from $4-$4.45. Operating cash flow is projected between $1,368-$1,418 million, and free cash flow is expected to be $700-$800 million, an increase from the previous forecast of $650-$750 million [10]

Core Insights - BorgWarner reported $3.64 billion in revenue for Q2 2025, a year-over-year increase of 1% and exceeding the Zacks Consensus Estimate of $3.56 billion by 2.31% [1] - The company achieved an EPS of $1.21, up from $1.19 a year ago, and surpassed the consensus EPS estimate of $1.06 by 14.15% [1] Financial Performance Metrics - Organic Net Sales Change was -0.9%, compared to an estimated 0.1% by analysts [4] - Net Sales for Turbos & Thermal Technologies reached $1.48 billion, matching the three-analyst average estimate [4] - Net Sales for Drivetrain & Morse Systems was $1.43 billion, slightly above the $1.41 billion average estimate [4] - Net Sales for Battery & Charging Systems was $159 million, significantly below the estimated $216.69 million [4] - Net Sales for PowerDrive Systems was $581 million, exceeding the average estimate of $463.7 million [4] - Adjusted Operating Income for Turbos & Thermal Technologies was $227 million, above the estimated $217.94 million [4] - Adjusted Operating Income for Battery & Charging Systems was a loss of $12 million, better than the estimated loss of $17.17 million [4] - Adjusted Operating Income for PowerDrive Systems was a loss of $33 million, in line with the average estimate of $-33.02 million [4] - Adjusted Operating Income for Drivetrain & Morse Systems was $260 million, slightly above the average estimate of $256.55 million [4] Stock Performance - BorgWarner's shares have returned -2.8% over the past month, contrasting with the Zacks S&P 500 composite's +2.7% change [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market [3]

Financial Data and Key Metrics Changes - The company reported sales of over $3.6 billion, which was relatively flat year over year, excluding foreign exchange impacts [22] - Adjusted operating margin was strong at 10.3%, despite a $15 million or 40 basis point net tariff headwind [23][25] - Free cash flow increased by 71% year over year to $507 million [23][25] - The company increased its full year sales guidance to a range of $14 billion to $14.4 billion, up from previous guidance of $13.6 billion to $14.2 billion [26] - Adjusted EPS is projected to be in the range of $4.45 to $4.65, an 8% increase from prior guidance [29] Business Line Data and Key Metrics Changes - Light vehicle e product sales increased by 31% year over year, driven by strong growth in Europe and Asia [22][24] - Organic sales were relatively flat year over year, with a decline in the commercial vehicle battery and charging systems segment impacting overall performance [8][22] - The company secured multiple new business awards across its portfolio, indicating strong demand for efficient powertrain technology [20] Market Data and Key Metrics Changes - The company expects a full year market assumption to be down 0.5% to 2.5%, an improvement from previous estimates of down 2% to 4% [28] - The guidance now assumes a full year sales benefit of $140 million from foreign currencies, a significant increase from prior estimates [27] Company Strategy and Development Direction - The company is focused on a balanced capital allocation approach, returning over $130 million to shareholders through dividends and share repurchases [9][33] - The Board approved a 55% increase in the quarterly cash dividend and an increase in share repurchase authorization to $1 billion, reflecting confidence in long-term cash generation [9][30] - The company aims to continue investing both organically and inorganically to support growth, with a disciplined approach to M&A opportunities [17][90] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term earnings power of the business, citing strong operational performance and cost controls [20][34] - The company anticipates continued outperformance of market production by 100 to 150 basis points [34] - Management acknowledged headwinds from the battery business but remains optimistic about long-term growth in that segment [102] Other Important Information - The company highlighted strong award activity in both foundational and e products, indicating robust demand for its technologies [10][20] - The company has returned over $3.5 billion to shareholders since 2020, demonstrating a commitment to shareholder value [16] Q&A Session Summary Question: Organic growth outlook and tariff impacts - Management noted that organic sales were impacted by lower battery sales, primarily in North America, and expected a full year headwind from the battery segment [38][40] Question: Capital allocation and cash levels - Management confirmed a liquidity target of 20% of sales and indicated that cash levels are currently higher, allowing for continued shareholder returns [45] Question: Margin conversion and guidance - Management explained that the strong conversion of sales to income is due to effective cost controls and productivity improvements [58][60] Question: Path to positive organic growth in foundational segments - Management expressed optimism about outgrowing the market in combustion and e products, citing increased RFQ activity and new program wins [62][64] Question: Battery business outlook and restructuring actions - Management indicated that the battery business is slightly EBITDA positive and cash flow breakeven, with actions taken to manage volatility [102] Question: Performance of PowerDrive segment - Management highlighted strong first half performance and indicated that the focus remains on outgrowing industry production while converting growth into income [104][106]

Financial Data and Key Metrics Changes - The company reported sales of over $3.6 billion, which was relatively flat year over year, excluding foreign exchange impacts [23] - Adjusted operating margin was strong at 10.3%, despite a 40 basis point headwind from tariffs [24][26] - Free cash flow increased by 71% year over year, reaching $507 million [24][26] - The company increased its full year sales guidance to a range of $14 billion to $14.4 billion, up from previous guidance of $13.6 billion to $14.2 billion [27] Business Line Data and Key Metrics Changes - Light vehicle e product sales increased by 31% year over year, significantly outpacing the overall market growth [6][23] - Organic sales were relatively flat year over year, but excluding the decline in the commercial vehicle battery and charging systems segment, organic sales were up modestly [7][23] - The company secured multiple new business awards across its product lines, indicating strong demand for efficient powertrain technology [21][22] Market Data and Key Metrics Changes - The company expects a market production decline of 0.5% to 2.5% for the year, an improvement from previous estimates of a decline of 2% to 4% [29] - The full year sales outgrowth is projected to be approximately 100 to 150 basis points above market production [29] Company Strategy and Development Direction - The company is focused on a balanced capital allocation strategy, returning over $130 million to shareholders through dividends and share repurchases [8][21] - A 55% increase in the quarterly cash dividend and an increase in share repurchase authorization to $1 billion were approved, reflecting confidence in long-term cash generation [8][33] - The company aims to continue investing both organically and inorganically to support growth, with a disciplined approach to M&A opportunities [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term earnings power of the business, citing strong operational performance and cost controls [21][33] - The company anticipates continued strong performance in the second half of the year, with expectations for margin stability despite tariff headwinds [34][35] - Management highlighted the importance of outgrowing market production by 100 to 150 basis points and maintaining a focus on improving long-term positioning [35] Other Important Information - The company has returned over $3.5 billion of capital to shareholders since 2020 [16] - The management emphasized the importance of leveraging core competencies in evaluating M&A opportunities [19][90] Q&A Session Summary Question: Organic growth outlook and tariff impacts - Management noted that organic sales increased modestly when excluding the battery segment, with a headwind from lower battery sales primarily in North America [40] - For the full year, the battery segment is expected to contribute a 100 basis point headwind to overall growth [41] Question: Capital allocation and cash levels - The company maintains a liquidity target of 20% of sales and is currently above that level, allowing for consistent cash returns to shareholders [46] Question: Margin conversion and guidance - Management explained that the strong conversion of sales to income is due to effective cost controls and productivity improvements [58] Question: Performance of foundational segments - Management acknowledged the challenges in the combustion market but expressed optimism about future growth opportunities in hybrid and electric segments [62][63] Question: Battery business outlook - The battery business is currently slightly EBITDA positive and cash flow breakeven, with management confident in its long-term growth potential despite current headwinds [103] Question: RFQ activity and hybrid market - There has been a significant increase in RFQ activity for advanced hybrids, indicating strong future demand [106]

Company Overview & Strategy - BorgWarner's vision is a clean, energy-efficient world, and its mission is to deliver innovative and sustainable mobility solutions[9, 10] - The company aims to outgrow end markets, build on its product portfolio, and drive enhanced financial performance[21] - BorgWarner's value proposition includes a strong product portfolio, leading market share, financial strength, customer relationships, and a decentralized operating model[19] Financial Performance & Outlook - The company's 2024 foundational sales were approximately $12 billion[26] - BorgWarner estimates an adjusted operating margin between 96% and 102% for 2025[58, 59] - The company anticipates free cash flow between $650 million and $750 million in 2025[59] Market Dynamics & Opportunities - The estimated BorgWarner weighted light vehicle/commercial vehicle market is expected to decrease by 2% to 4% in 2025[62, 63] - The content opportunity per light vehicle increases from $548 for combustion engines to $2,569 for battery electric vehicles (BEVs) in 2027[24] - BorgWarner is exiting the charging business, which is expected to increase adjusted operating income by approximately $15 million in 2025 and $30 million in 2026[43] Capital Allocation - From 2020-2024, BorgWarner allocated capital with 57% towards M&A, 21% towards buybacks, 14% towards dividends and 8% towards Non-Controlling Interest Dividends, totaling $49 billion[53] - Since 2020, BorgWarner has returned approximately $35 billion to shareholders, including $1033 billion in buybacks, $720 million in shareholder dividends, and ~$17 billion market cap of PHINIA at spin-off[53]

Group 1: Earnings Performance - BorgWarner reported quarterly earnings of $1.21 per share, exceeding the Zacks Consensus Estimate of $1.06 per share, and showing a slight increase from $1.19 per share a year ago, representing an earnings surprise of +14.15% [1] - The company has surpassed consensus EPS estimates in all four of the last quarters [2] - BorgWarner's revenues for the quarter ended June 2025 were $3.64 billion, surpassing the Zacks Consensus Estimate by 2.31%, compared to $3.6 billion in the same quarter last year [2] Group 2: Stock Performance and Outlook - BorgWarner shares have increased approximately 8.6% since the beginning of the year, outperforming the S&P 500's gain of 8.2% [3] - The future performance of BorgWarner's stock will largely depend on management's commentary during the earnings call and the company's earnings outlook [3][4] - The current consensus EPS estimate for the upcoming quarter is $1.05 on revenues of $3.49 billion, and for the current fiscal year, it is $4.26 on revenues of $13.92 billion [7] Group 3: Industry Context - The Automotive - Original Equipment industry, to which BorgWarner belongs, is currently ranked in the top 33% of over 250 Zacks industries, indicating a favorable outlook [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact BorgWarner's stock performance [5][6]

[Executive Summary](index=1&type=section&id=Executive%20Summary) [Second Quarter 2025 Performance Overview](index=1&type=section&id=Second%20Quarter%202025%20Performance%20Overview) BorgWarner reported strong Q2 2025 results with a slight increase in U.S. GAAP net sales and relatively flat organic sales year-over-year, aligning with market performance. Light vehicle eProduct sales showed significant growth, contributing to a solid adjusted operating margin despite tariff headwinds - U.S. GAAP net sales increased approximately **1.0%** year-over-year compared with second quarter 2024, while organic sales were relatively flat[4](index=4&type=chunk) - The Company's light vehicle eProduct sales increased **31%** year-over-year[4](index=4&type=chunk) - Achieved a U.S. GAAP operating margin of **7.9%** and an adjusted operating margin of **10.3%** in Q2 2025, despite a **40 basis point** net headwind from tariffs[4](index=4&type=chunk) [Capital Allocation and Shareholder Value Actions](index=1&type=section&id=Capital%20Allocation%20and%20Shareholder%20Value%20Actions) The company undertook several actions to enhance long-term shareholder value, including significant share repurchases, an increased share repurchase authorization, and a substantial dividend increase - Purchased approximately **$108 million** of its outstanding shares during the second quarter[4](index=4&type=chunk) - BorgWarner's Board of Directors authorized an increase to its share repurchase program to **$1 billion**, allowing repurchases through 2028[4](index=4&type=chunk) - The Company's Board of Directors approved a **55% increase** to its quarterly cash dividend per share[4](index=4&type=chunk) [New Business Awards](index=1&type=section&id=New%20Business%20Awards) BorgWarner secured multiple new business awards across its portfolio, including foundational turbocharger contracts and several eProduct awards, which are expected to support long-term profitable growth [Foundational Awards](index=1&type=section&id=Foundational%20Awards) - Secured two turbocharger awards with a major global OEM for 1.0-liter gasoline/hybrid platforms in Europe and 3.0-liter gasoline hybrid applications in North America, with production expected to begin in **2027** and **2028**[4](index=4&type=chunk) - Received a turbocharger award with a major East Asian OEM for hybrid electric vehicle SUV applications, with production expected to begin in **2027**[4](index=4&type=chunk) - Secured a turbocharger award with a major global OEM for a hybrid powertrain in a sports car platform, with production expected to begin in **2028**[4](index=4&type=chunk) [eProduct Awards](index=2&type=section&id=eProduct%20Awards) - Awarded a dual inverter contract with a major Chinese OEM for its hybrid vehicle lineup, extending a partnership established in **2021**, with production expected by the end of **2025**[7](index=7&type=chunk) - Secured an electric motor award with a major Chinese OEM for a platform-based design compatible across a full range of NEV applications (BEV and hybrid models), with production expected to begin in **2026**[7](index=7&type=chunk) - Secured contracts with two major global OEMs to supply high-voltage coolant heater technology for plug-in hybrid electric vehicle platforms, with production expected to begin in **2028** for both[7](index=7&type=chunk) - Secured a new program for its electric cross differential technology for a leading Chinese OEM's electric vehicles in China[7](index=7&type=chunk) [Financial Results (Continuing Operations Basis)](index=3&type=section&id=Financial%20Results%20(Continuing%20Operations%20Basis)) [Second Quarter 2025 Highlights](index=2&type=section&id=Second%20Quarter%202025%20Highlights) BorgWarner reported Q2 2025 net sales of $3,638 million, a 1% increase YoY, primarily driven by strong eProduct sales. GAAP net earnings were $1.03 per diluted share, while adjusted net earnings were $1.21 per diluted share, up 2% YoY. The company also generated strong operating cash flow of $579 million and free cash flow of $507 million Key Financial Metrics | Metric | Q2 2025 Value | Q2 2024 Value | YoY Change | | :------------------------------------------ | :-------------- | :-------------- | :--------- | | U.S. GAAP Net Sales (Millions USD) | $3,638 | $3,603 | +1% | | Organic Sales | N/A | N/A | Relatively flat | | U.S. GAAP Net Earnings per diluted share (USD) | $1.03 | $1.39 | -26% | | Adjusted Net Earnings per diluted share (USD) | $1.21 | $1.19 | +2% | | U.S. GAAP Operating Income (Millions USD) | $289 | $297 | -2.7% | | Adjusted Operating Income (Millions USD) | $373 | $376 | -0.8% | | Net cash provided by operating activities (Millions USD) | $579 | $462 | +25.3% | | Free cash flow (Millions USD) | $507 | $297 | +70.7% | [Detailed Earnings Analysis (GAAP vs. Adjusted)](index=3&type=section&id=Detailed%20Earnings%20Analysis%20(GAAP%20vs.%20Adjusted)) The company provides a detailed reconciliation of GAAP earnings per diluted share to adjusted earnings per diluted share, excluding various non-comparable items such as restructuring expense, impairment charges, and costs to exit the charging business, to offer a clearer view of ongoing operations. The increase in adjusted net earnings per diluted share was primarily due to a lower share count Non-comparable Items Impact on Earnings per Diluted Share | Non-comparable Item | Q2 2025 Impact per diluted share (USD) | Q2 2024 Impact per diluted share (USD) | | :------------------------------------ | :------------------------------- | :------------------------------- | | Restructuring expense | $0.06 | $0.08 | | Impairment charges | $0.01 | — | | Costs to exit charging business | $0.02 | — | | Accelerated depreciation | $0.08 | $0.03 | | Write-off of customer incentive asset | $0.03 | — | | Chief Executive Officer ("CEO") transition compensation | $0.03 | — | | Loss on sale of assets | $0.02 | — | | Adjustments associated with Spin-Off related balances | $0.01 | $0.05 | | Tax adjustments | $(0.08) | $(0.42) | | Other non-comparable items | — | $0.01 | - Adjusted net earnings per diluted share for Q2 2025 were **$1.21**, up approximately **2%** from **$1.19** in Q2 2024, primarily due to a lower share count[9](index=9&type=chunk) [Segment Performance](index=7&type=section&id=Segment%20Performance) Analysis of net sales and adjusted operating income by segment reveals varied performance. PowerDrive Systems showed significant sales growth, while Battery & Charging Systems experienced a decline. Turbos & Thermal Technologies and Drivetrain & Morse Systems maintained relatively stable sales and operating income Net Sales by Segment | Segment | Q2 2025 Net Sales (Millions USD) | Q2 2024 Net Sales (Millions USD) | YoY Change | | :-------------------------- | :------------------------------- | :------------------------------- | :--------- | | Turbos & Thermal Technologies | $1,481 | $1,515 | -2.2% | | Drivetrain & Morse Systems | $1,429 | $1,442 | -0.9% | | PowerDrive Systems | $581 | $464 | +25.2% | | Battery & Charging Systems | $159 | $193 | -17.6% | | Net sales (Total) | $3,638 | $3,603 | +1.0% | Adjusted Operating Income by Segment | Segment | Q2 2025 Adj. Op. Income (Millions USD) | Q2 2024 Adj. Op. Income (Millions USD) | YoY Change | | :-------------------------- | :------------------------------------- | :------------------------------------- | :--------- | | Turbos & Thermal Technologies | $227 | $224 | +1.3% | | Drivetrain & Morse Systems | $260 | $266 | -2.3% | | PowerDrive Systems | $(33) | $(49) | +32.7% (loss reduction) | | Battery & Charging Systems | $(12) | $(10) | -20.0% (loss increase) | [Full Year 2025 Guidance Update](index=4&type=section&id=Full%20Year%202025%20Guidance%20Update) [Sales and Market Outlook](index=4&type=section&id=Sales%20and%20Market%20Outlook) BorgWarner increased its full-year 2025 net sales guidance to $14.0 billion to $14.4 billion, driven by higher industry production expectations and favorable foreign exchange impacts. The company anticipates outgrowing the market by approximately 100 to 150 basis points, despite an expected overall market decline - Increased 2025 full year net sales guidance to a range of **$14.0 billion to $14.4 billion** (from previous $13.6 billion to $14.2 billion), due to higher industry production expectations and favorable foreign exchange[10](index=10&type=chunk) - Expects weighted light and commercial vehicle markets to be in the range of **down 2.5% to down 0.5%** in 2025 (an increase from the prior range of down 4% to down 2%)[10](index=10&type=chunk) - Sales guidance implies a year-over-year change in organic sales of **down 1.5% to up 1%**, or estimated outgrowth above market production of approximately **100 to 150 basis points**[10](index=10&type=chunk) Market Production Outlook by Region | Region | Light vehicle | Commercial vehicle | BorgWarner-Weighted | | :-------------- | :------------------ | :----------------- | :------------------ | | North America | (6)% to (1.5)% | ~(20)% | (7.5)% to (3.5)% | | Europe | (3)% to (2)% | ~0% | (2.5)% to (1.5)% | | China | 2.5% to 4.5% | ~4.5% | 3% to 4.5% | | Total | (0.5)% to 1.5% | ~(1)% | (2.5)% to (0.5)% | [Profitability and Cash Flow Guidance](index=4&type=section&id=Profitability%20and%20Cash%20Flow%20Guidance) The company raised its 2025 adjusted operating margin guidance to 10.1% to 10.3% and adjusted net earnings per diluted share to $4.45 to $4.65, reflecting strong year-to-date results and improved market conditions. Full-year free cash flow guidance also increased by $50 million - U.S. GAAP operating margin is expected to be in the range of **8.3% to 8.5%** in 2025[11](index=11&type=chunk) - Adjusted operating margin is expected to be in the range of **10.1% to 10.3%** (increased from previous 9.6% to 10.2%)[11](index=11&type=chunk) - Adjusted net earnings are expected to be in the range of **$4.45 to $4.65 per diluted share** (increased from previous $4.00 to $4.45)[11](index=11&type=chunk) - Full-year operating cash flow is expected to be **$1,368 million to $1,418 million**, and free cash flow is expected to be **$700 million to $800 million** (a **$50 million increase** from prior guidance)[11](index=11&type=chunk) [Non-GAAP Financial Measures](index=10&type=section&id=Non-GAAP%20Financial%20Measures) [Definitions of Non-GAAP Measures](index=10&type=section&id=Definitions%20of%20Non-GAAP%20Measures) This section provides clear definitions for the non-GAAP financial measures used by BorgWarner, including Adjusted Operating Income, Adjusted Operating Margin, Adjusted Net Earnings, Adjusted Earnings per Diluted Share, Free Cash Flow, and Organic Net Sales Change, explaining how each is derived from GAAP measures - Adjusted Operating Income: Operating income adjusted to exclude restructuring, M&A, intangible asset amortization, other net expenses, discontinued operations, and other non-recurring gains/losses[26](index=26&type=chunk) - Adjusted Net Earnings: Net earnings attributable to the Company, adjusted to eliminate the impact of restructuring expense, merger, acquisition and divestiture expense, other net expenses, discontinued operations and other gains and losses not reflective of the Company's ongoing operations and related tax effects. Intangible asset amortization expense continues to be included[27](index=27&type=chunk) - Free Cash Flow: Net cash provided by operating activities minus capital expenditures, net of customer advances related to capital expenditures[29](index=29&type=chunk) - Organic Net Sales Change: Net sales change year-over-year excluding the estimated impact of foreign exchange and net mergers, acquisitions and divestitures[30](index=30&type=chunk) [Reconciliations of Non-GAAP Measures](index=11&type=section&id=Reconciliations%20of%20Non-GAAP%20Measures) The report provides detailed reconciliations of key non-GAAP financial measures to their most directly comparable U.S. GAAP measures for both the second quarter and year-to-date periods, illustrating the adjustments made for non-comparable items Adjusted Operating Income Reconciliation | Metric | Q2 2025 (Millions USD) | Q2 2024 (Millions USD) | | :------------------------------------ | :----------------------- | :----------------------- | | Operating income | $289 | $297 | | Non-comparable items (total) | $84 | $79 | | Adjusted operating income | $373 | $376 | | Adjusted operating margin | 10.3% | 10.4% | Free Cash Flow Reconciliation | Metric | Q2 2025 (Millions USD) | Q2 2024 (Millions USD) | | :-------------------------------------------------- | :----------------------- | :----------------------- | | Net cash provided by operating activities from continuing operations | $579 | $462 | | Capital expenditures, including tooling outlays | $(77) | $(165) | | Customer advances related to capital expenditures | $5 | — | | Free cash flow | $507 | $297 | Organic Net Sales Change by Segment | Segment | Q2 2025 Organic Net Sales Change % | | :-------------------------- | :------------------------------- | | Turbos & Thermal Technologies | (4.2)% | | Drivetrain & Morse Systems | (2.5)% | | PowerDrive Systems | 23.5% | | Battery & Charging Systems | (20.2)% | | Net sales (Total) | (0.9)% | [Consolidated Financial Statements (Unaudited)](index=6&type=section&id=Consolidated%20Financial%20Statements%20(Unaudited)) [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The condensed consolidated statements of operations show BorgWarner's financial performance for the three and six months ended June 30, 2025, detailing net sales, cost of sales, gross profit, operating income, and net earnings, both for continuing and discontinued operations Condensed Consolidated Statements of Operations | Metric | Three Months Ended June 30, 2025 (Millions USD) | Three Months Ended June 30, 2024 (Millions USD) | | :------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Net sales | $3,638 | $3,603 | | Cost of sales | $2,998 | $2,918 | | Gross profit | $640 | $685 | | Operating income | $289 | $297 | | Net earnings attributable to BorgWarner Inc. | $224 | $303 | | Earnings per share from continuing operations — diluted | $1.03 | $1.39 | [Condensed Consolidated Balance Sheets](index=8&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The condensed consolidated balance sheets present BorgWarner's financial position as of June 30, 2025, and December 31, 2024, outlining total assets, liabilities, and equity Condensed Consolidated Balance Sheets | Metric | June 30, 2025 (Millions USD) | December 31, 2024 (Millions USD) | | :------------------------------------ | :----------------------------- | :----------------------------- | | Cash, cash equivalents and restricted cash | $2,041 | $2,094 | | Total current assets | $6,778 | $6,521 | | Total assets | $14,399 | $13,993 | | Total current liabilities | $3,352 | $3,646 | | Total liabilities | $8,330 | $8,287 | | Total BorgWarner Inc. stockholders' equity | $5,923 | $5,532 | | Total equity | $6,069 | $5,706 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The condensed consolidated statements of cash flows detail the cash generated and used by BorgWarner's operating, investing, and financing activities for the six months ended June 30, 2025, and 2024, highlighting a significant increase in net cash provided by operating activities from continuing operations Condensed Consolidated Statements of Cash Flows | Metric | Six Months Ended June 30, 2025 (Millions USD) | Six Months Ended June 30, 2024 (Millions USD) | | :-------------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities from continuing operations | $661 | $344 | | Net cash used in investing activities from continuing operations | $(158) | $(313) | | Net cash used in financing activities from continuing operations | $(606) | $(242) | | Net decrease in cash, cash equivalents and restricted cash | $(53) | $(246) | [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) [Forward-Looking Statements Disclaimer](index=4&type=section&id=Forward-Looking%20Statements%20Disclaimer) This section serves as a standard legal disclaimer, cautioning readers that the press release contains forward-looking statements based on management's current expectations and projections. It highlights that actual results may differ materially due to various risks and uncertainties, and the company does not undertake to update these statements - This press release may contain forward-looking statements based on management's current outlook, expectations, estimates, and projections[15](index=15&type=chunk) - Forward-looking statements are not guarantees of performance, and actual results may differ materially from those expressed, projected, or implied due to various risks and uncertainties[16](index=16&type=chunk)[17](index=17&type=chunk) - The company does not undertake any obligation to update or announce publicly any updates to or revisions to any of the forward-looking statements[17](index=17&type=chunk) [Company Information & Investor Relations](index=4&type=section&id=Company%20Information%20%26%20Investor%20Relations) [Company Profile and Investor Access](index=4&type=section&id=Company%20Profile%20and%20Investor%20Access) This section provides information about BorgWarner's identity as a global product leader in mobility innovation, its focus on eMobility, and details for investors to access the conference call webcast and presentation regarding the second quarter 2025 results and guidance - BorgWarner Inc. (NYSE: BWA) is a transformative global product leader in mobility innovation, accelerating the world's transition to eMobility[13](index=13&type=chunk) - A conference call concerning second quarter 2025 results and guidance will be webcast at: https://www.borgwarner.com/investors[12](index=12&type=chunk) - An earnings call presentation will also be available at https://www.borgwarner.com/investors[12](index=12&type=chunk)

Core Insights - BorgWarner is enhancing its partnership with a major global OEM by supplying wastegate turbocharger technology for a hybrid powertrain option for a high-profile sports car platform, with production expected to start in Q3 2028 [1][7] Group 1: Technology and Product Features - The wastegate turbo technology provides excellent response times and power density, improving engine performance while allowing for a lightweight design and high reliability [2] - This turbo technology is designed for gasoline engines ranging from 0.9 to 3.0 liters and is electrically actuated to enhance fuel economy and reduce emissions [3] - The turbo can achieve a maximum output of 450 horsepower and 460 pound-feet of torque, facilitating rapid acceleration [2] Group 2: Strategic Importance - The contract signifies a competitive victory for BorgWarner's engineering team and highlights the company's product leadership in the wastegate turbo sector [2] - The collaboration with the OEM is seen as a key differentiator in providing clean and efficient propulsion solutions [2]