BorgWarner Inc.

10/29/2026 | Press release | Distributed by Public on 10/29/2026 10:39

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
INTRODUCTION
BorgWarner Inc. (collectively with its consolidated subsidiaries, the "Company" or "BorgWarner") is a global product leader in clean and efficient technology solutions for combustion, hybrid and electric vehicles. BorgWarner's products help improve vehicle performance, propulsion efficiency, stability and air quality. The Company manufactures and sells these products worldwide, primarily to original equipment manufacturers ("OEMs") of light vehicles (passenger cars, sport-utility vehicles, vans and light trucks). The Company's products are also sold to other OEMs of commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway vehicles (agricultural and construction machinery and marine applications). The Company also manufactures and sells its products to certain tier one vehicle systems suppliers and into the aftermarket for light, commercial and off-highway vehicles. The Company operates manufacturing facilities serving customers in Europe, the Americas and Asia and is an original equipment supplier to nearly every major automotive OEM in the world.
BorgWarner Strategy
The Company's current strategy is to focus on profitable growth across its technology-focused product portfolio that supports electric, hybrid and combustion vehicles. This entails growing its product portfolio through organic investments and technology-focused acquisitions. The Company's balanced portfolio is particularly critical as the automotive industry continues to see electric vehicle adoption volatility across different regions. During the three months ended September 30, 2026 and 2025, the Company's revenue from eProducts, which include all products utilized on or for electric vehicles ("EVs") plus those same products and components that are included in hybrid powertrains whose underlying technologies are adaptable or applicable to those used in or for EVs, was approximately $708 million and $606 million, respectively, or 20% and 17% of the Company's total revenue. During the nine months ended September 30, 2026 and 2025, the Company's eProduct revenue was approximately $1,968 million and $1,901 million, respectively, or 18% of its total revenue.
Lawsuit Against PHINIA
On September 19, 2024, the Company commenced a lawsuit against PHINIA, Inc. ("PHINIA"), seeking to recover from PHINIA approximately $120 million of value added tax ("VAT") refunds that PHINIA received or expected to receive from governmental agencies as well as damages and interest. On October 15, 2025, the Company entered into a settlement agreement with PHINIA, pursuant to which PHINIA agreed to pay the Company $78 million. As of September 30, 2026, the Company had assets related to these VAT refunds of approximately $21 million in Receivables, net in the Condensed Consolidated Balance Sheet, which is due no later than December 1, 2026. Refer to Part 1, Item 1 of this report for more information.
Portfolio Actions
In February 2025, the Company made the decision to exit its charging business within the reportable segment formerly called Battery & Charging Systems. Production operations ceased during the second quarter of 2025. This decision was made following the Company's continuing evaluation of its product portfolio and future investments. This action was expected to create a more focused portfolio and eliminate approximately $30 million of annualized adjusted operating losses by the end of 2026. In the first quarter of 2026, as a result of the aforementioned disposition, this reportable segment was renamed Battery Energy Systems. The name change reflects the segment's revised focus after the divestiture. The change did not impact the composition of the segment or require recasting of prior period segment results. Prior periods continue to be presented as previously reported. Refer to Note 3, "Acquisitions and
Dispositions," to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this report for more information.
In February 2025, the Company also made the decision to consolidate its North American battery systems business, which is expected to align the business' cost structure to current market dynamics. This action was expected to result in annual cost savings of approximately $20 million by the end of 2026.
Acquisitions
Acquisitions have been an integral component of the Company's growth and value creation strategy. Refer to Note 3, "Acquisitions and Dispositions," to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this report for more information, including a summary of recent acquisitions.
Key Trends and Economic Factors
Economic Conditions. The Company's financial performance depends on conditions in the global automotive industry. Automotive and truck production is cyclical and sensitive to general economic conditions and other factors, including interest rates, consumer credit and consumer spending and preferences. Government policies, such as the imposition of, termination or invalidation of or other changes in tariffs (including retaliatory tariffs), or the commencement or termination of consumer tax incentives, such as EV tax credits and programs to invest in infrastructure, including EV charging stations, may affect consumer preferences. Economic declines or impacts of tariffs that result in a material reduction in automotive or truck production would have an adverse effect on the Company's sales. The weighted light vehicle market production, as estimated by the Company for the nine months ended September 30, 2026, was down approximately 1% from the nine months ended September 30, 2025. Weighted light vehicle market production reflects light vehicle production as reported by Mobility Global, weighted for the Company's geographic exposure, as estimated by the Company.
Tariff Refund Recovery. The Company continues to actively pursue the refund recovery of certain tariffs paid to the U.S. government, which were levied under the International Emergency Economic Powers Act and subsequently invalidated by the United States ("U.S.") Supreme Court on February 20, 2026. Following this ruling, the Company has submitted tariff recovery claims through the U.S. Customs and Border Protection ("CBP") portal. While the Company has received approximately $35 million in refunds, and may continue to receive refunds of such tariffs, the ultimate recoverability, timing and amount of future refunds continues to remain uncertain and subject to CBP review and further legal, regulatory and administrative developments. As a result, the Company has not recognized a refund receivable as of September 30, 2026. The Company will continue to monitor the refund process for further developments.
Commodities and Other Inflationary Impacts. During 2025, prices for commodities showed a lower level of volatility in comparison to what the Company had experienced from the beginning of 2021. The Company currently expects commodity prices and other input costs to show a higher level of volatility in 2026 compared to 2025. Commodity markets are influenced by geopolitical instability, which can contribute to supply chain fragmentation, higher logistics costs and increased price across energy, metals and other critical inputs.
Outlook
The Company expects weighted light vehicle market to be down 1% to 2% year-over-year in 2026. In particular, the Company expects a negative sales impact from declining sales in the Company's Battery Energy Systems reportable segment. As a result, at the mid-point of its outlook, the Company expects total sales in 2026 to decline year-over-year, excluding the impact of foreign currencies.
The Company maintains a positive long-term outlook for its global business and is committed to new product development and strategic investments to enhance its product leadership strategy. There are several trends that are driving the Company's long-term growth that management expects to continue, including adoption of product offerings for electrified vehicles and increasingly stringent global emissions standards that support demand for the Company's products that drive vehicle efficiency as well as power generation industrial solutions growth. The Company expects its power generation industrial solutions sales to be approximately $300 million in 2027.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2026 vs. Three Months Ended September 30, 2025
The following table presents a summary of our operating results:
Three Months Ended September 30,
(in millions, except per share data) 2026 2025
Net sales % of net sales % of net sales
Turbos & Thermal Technologies $ 1,372 39.4 % $ 1,437 40.0 %
Drivetrain & Morse Systems 1,346 38.6 1,452 40.4
PowerDrive Systems 705 20.2 582 16.2
Battery Energy Systems 78 2.2 132 3.7
Inter-segment eliminations (14) (0.4) (12) (0.3)
Total net sales 3,487 100.0 3,591 100.0
Cost of sales 2,825 81.0 2,927 81.5
Gross profit 662 19.0 664 18.5
Selling, general and administrative expenses - R&D, net 172 4.9 189 5.3
Selling, general and administrative expenses - Other 138 4.0 152 4.2
Restructuring expense 50 1.4 23 0.6
Other operating expense (income), net - - 52 1.4
Operating income 302 8.7 248 6.9
Equity in affiliates' (earnings) loss, net of tax (10) (0.3) (11) (0.3)
Unrealized (gain) loss on equity securities (4) (0.1) (1) -
Interest expense (income), net 6 0.3 9 0.3
Other postretirement expense (income) 12 0.3 3 0.1
Earnings before income taxes and noncontrolling interest 298 8.5 248 6.9
Provision for income taxes 65 1.8 75 2.1
Net earnings 233 6.7 173 4.8
Net earnings attributable to noncontrolling interest 12 0.4 15 0.4
Net earnings attributable to BorgWarner Inc. $ 221 6.3 % $ 158 4.4 %
Earnings per share - diluted $ 1.08 $ 0.73
Net sales
Net sales for the three months ended September 30, 2026 totaled $3,487 million, a decrease of $104 million, or 3%, compared to the three months ended September 30, 2025. The change in net sales for the three months ended September 30, 2026 was primarily driven by the following:
•Unfavorable volume, mix and net new business decreased sales by approximately $100 million, primarily due to a decrease of approximately 2% in the weighted light vehicle market production as estimated by the Company and a decrease in the Battery Energy Systems reportable segment sales.
•Fluctuations in foreign currencies resulted in a year-over-year increase in sales of approximately $8 million, primarily due to a strengthening of the Chinese Renminbi, partially offset by a weakening of the Euro and Korean Won, in each case relative to the U.S. Dollar.
Cost of sales and gross profit
Cost of sales and cost of sales as a percentage of net sales were $2,825 million and 81.0%, respectively, during the three months ended September 30, 2026, compared to $2,927 million and 81.5%, respectively, during the three months ended September 30, 2025. The change in cost of sales for the three months ended September 30, 2026 was primarily driven by the following:
•Purchasing savings and unfavorable volume, mix and net new business, decreased cost of sales by approximately $106 million.
•Fluctuations in foreign currencies resulted in a year-over-year increase in cost of sales of approximately $5 million, primarily due to a strengthening of the Chinese Renminbi, partially offset by a weakening of the Euro and Korean Won, in each case relative to the U.S. Dollar.
Gross profit and gross margin were $662 million and 19.0%, respectively, during the three months ended September 30, 2026, compared to $664 million and 18.5%, respectively, during the three months ended September 30, 2025. The increase in gross margin was primarily due to the factors discussed above.
Selling, general and administrative expenses ("SG&A") SG&A for the three months ended September 30, 2026 was $310 million as compared to $341 million for the three months ended September 30, 2025. SG&A as a percentage of net sales was 8.9% and 9.5% for the three months ended September 30, 2026 and 2025, respectively. The change in SG&A was primarily due to a decrease in net Research & Development ("R&D") costs of $17 million and fluctuations in foreign currencies resulting in a decrease in SG&A of approximately $5 million.
Restructuring expense was $50 million and $23 million for the three months ended September 30, 2026 and 2025, respectively. The increase was primarily due to $25 million of employee termination benefits recognized related to a voluntary separation program approved during the three months ended September 30, 2026. Nearly all of the restructuring charges are expected to be cash expenditures, funded by cash on hand. Refer to Note 5, "Restructuring," to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this report for more information.
Other operating expense (income), net was insignificant and $52 million for the three months ended September 30, 2026 and 2025, respectively. The change was primarily due to:
•During the three months ended September 30, 2025, the Company recorded charges of $38 million related to a legal settlement, inclusive of associated legal fees and $5 million related to duplicative compensation, which were not recurring in the three months ended September 30, 2026. Refer to Note 20, "Contingencies," to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this report for more information.
Other operating expense (income), net is primarily comprised of items included within the subtitle "Non-comparable items impacting the Company's per diluted share and net earnings" below.
Equity in affiliates' (earnings) loss, net of tax was $10 million and $11 million of earnings for the three months ended September 30, 2026 and 2025, respectively. This line item is driven by the results of the Company's unconsolidated joint ventures.
Interest expense (income), net was $6 million and $9 million of expense for the three months ended September 30, 2026 and 2025, respectively. During the three months ended September 30, 2026, the Company partially extinguished the 4.950%, 5.400% and 4.375% senior notes and fully extinguished the 7.125% senior notes. Refer to Note 13, "Debt," to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this report for more information.
Other postretirement expense (income) was $12 million and $3 million for the three months ended September 30, 2026 and 2025, respectively. The increase was primarily due to the $10 million non-cash settlement loss associated with the planned termination of one of the Company's U.S. defined benefit pension plans ("U.S. Pension Plan"). Refer to Note 17, "Retirement Benefit Plans," to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this report for more information.
Provision for income taxes was $65 million for the three months ended September 30, 2026, resulting in an effective rate of 22%, compared to $75 million, or an effective rate of 30%, for the three months ended September 30, 2025. The decrease in the effective tax rate was primarily due to the impact of certain permanent non-deductible expenses incurred in the prior year that did not recur in the current year. Additionally, during the three months ended September 30, 2026, the Company recorded a discrete tax expense of $16 million related to net changes to valuation allowances and a discrete tax benefit of $13 million related to various changes in filing positions for prior years. During the three months ended September 30, 2025, the Company recorded a discrete tax expense of $7 million related to various changes in filing positions for prior years and a discrete tax benefit of $6 million related to the exit of the charging business.
Nine Months Ended September 30, 2026 vs. Nine Months Ended September 30, 2025
The following table presents a summary of our operating results:
Nine Months Ended September 30,
(in millions, except per share data) 2026 2025
Net sales % of net sales % of net sales
Turbos & Thermal Technologies $ 4,247 39.9 % $ 4,372 40.7 %
Drivetrain & Morse Systems 4,223 39.6 4,242 39.5
PowerDrive Systems 1,957 18.3 1,724 16.0
Battery Energy Systems 280 2.6 441 4.1
Inter-segment eliminations (39) (0.4) (35) (0.3)
Total net sales 10,668 100.0 10,744 100.0
Cost of sales 8,608 80.7 8,801 81.9
Gross profit 2,060 19.3 1,943 18.1
Selling, general and administrative expenses - R&D, net 525 4.9 553 5.1
Selling, general and administrative expenses - Other 444 4.3 420 3.9
Restructuring expense 89 0.8 71 0.7
Other operating expense (income), net (6) (0.1) 83 0.8
Impairment charges - - 42 0.4
Operating income 1,008 9.4 774 7.2
Equity in affiliates' (earnings) loss, net of tax (26) (0.2) (29) (0.3)
Unrealized (gain) loss on equity securities (7) (0.1) (2) -
Interest expense (income), net 27 0.2 33 0.3
Other postretirement expense (income) 16 0.1 8 0.1
Earnings before income taxes and noncontrolling interest 998 9.4 764 7.1
Provision for income taxes 219 2.1 188 1.7
Net earnings 779 7.3 576 5.4
Net earnings attributable to noncontrolling interest 39 0.4 37 0.3
Net earnings attributable to BorgWarner Inc. $ 740 6.9 % $ 539 5.0 %
Earnings per share - diluted $ 3.59 $ 2.48
Net sales
Net sales for the nine months ended September 30, 2026 totaled $10,668 million, a decrease of $76 million, or 1%, compared to the nine months ended September 30, 2025. The change in net sales for the nine months ended September 30, 2026 was primarily driven by the following:
•Unfavorable volume, mix and net new business decreased sales by approximately $336 million primarily due to a decrease of approximately 1% in the weighted light vehicle market production as estimated by the Company and a decrease in the Battery Energy Systems reportable segment sales.
•Fluctuations in foreign currencies resulted in a year-over-year increase in sales of approximately $229 million, primarily due to a strengthening of the Euro and Chinese Renminbi, partially offset by a weakening of the Korean Won, in each case relative to the U.S. Dollar.
•Customer recoveries relating to tariffs increased sales by approximately $31 million.
Cost of sales and gross profit
Cost of sales and cost of sales as a percentage of net sales were $8,608 million and 80.7%, respectively, during the nine months ended September 30, 2026, compared to $8,801 million and 81.9%, respectively, during the nine months ended September 30, 2025. The change in cost of sales for the nine months ended September 30, 2026 was primarily driven by the following:
•Purchasing savings and unfavorable volume, mix and net new business decreased cost of sales by approximately $339 million.
•Cost of sales also decreased by restructuring savings, manufacturing efficiencies and reduced depreciation.
•Fluctuations in foreign currencies resulted in a year-over-year increase in cost of sales of approximately $187 million, primarily due to a strengthening of the Euro and Chinese Renminbi, partially offset by a weakening of the Korean Won, in each case relative to the U.S. Dollar.
Gross profit and gross margin were $2,060 million and 19.3%, respectively, during the nine months ended September 30, 2026, compared to $1,943 million and 18.1%, respectively, during the nine months ended September 30, 2025. The increase in gross margin was primarily due to the factors discussed above.
Selling, general and administrative expenses ("SG&A")
SG&A for the nine months ended September 30, 2026 was $969 million as compared to $973 million for the nine months ended September 30, 2025. SG&A as a percentage of net sales was 9.1% for the nine months ended September 30, 2026 and 2025, respectively. The change in SG&A was primarily due to decreases in R&D costs of $28 million, which was partially offset by fluctuations in foreign currencies resulting in an increase in SG&A of approximately $24 million.
Restructuring expense was $89 million and $71 million for the nine months ended September 30, 2026 and 2025, respectively. The increase in restructuring expense was primarily due to $25 million of employee termination benefits for a voluntary separation program approved during the three months ended September 30, 2026. Nearly all of the restructuring charges are expected to be cash expenditures. Refer to Note 5, "Restructuring," to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this report for more information.
Other operating expense (income), net was $6 million of income and $83 million of expense for the nine months ended September 30, 2026 and 2025, respectively. The change in Other operating expense (income), net was primarily due to:
•During the nine months ended September 30, 2025, the Company recorded charges of $38 million related to a legal settlement, inclusive of associated legal fees, $23 million related to the exit of its charging business within the Battery Energy Systems reportable segment, $11 million related to duplicative compensation and a $6 million loss on the sale of equipment from a closed facility in North America, which were not recurring in nine months ended September 30, 2026. Refer to Note 20, "Contingencies" and Note 3, "Acquisitions and Dispositions," to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this report for more information.
Other operating expense (income), net is primarily comprised of items included within the subtitle "Non-comparable items impacting the Company's earnings per diluted share and net earnings" below.
Impairment charges were $42 million for the nine months ended September 30, 2025. The Company recorded impairments of intangible assets, goodwill and fixed assets related to the planned exit of its charging business and the consolidation of the Company's North American battery systems business
footprint within the Battery Energy Systems reportable segment. There were no impairment charges for the nine months ended September 30, 2026.
Equity in affiliates' (earnings) loss, net of tax was $26 million and $29 million of earnings for the nine months ended September 30, 2026 and 2025, respectively. This line item is driven by the results of the Company's unconsolidated joint ventures.
Interest expense (income), net was $27 million and $33 million of expense for the nine months ended September 30, 2026 and 2025, respectively. During the three months ended September 30, 2026, the Company partially extinguished the 4.950%, 5.400% and 4.375% senior notes and fully extinguished the 7.125% senior notes. Refer to Note 13, "Debt," to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this report for more information.
Other postretirement expense (income) was $16 million and $8 million for the nine months ended September 30, 2026 and 2025, respectively. The increase was primarily due to the $10 million non-cash settlement loss associated with the planned termination of the Company's U.S. Pension Plan. Refer to Note 17, "Retirement Benefit Plans," to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this report for more information.
Provision for income taxes was $219 million and $188 million for the nine months ended September 30, 2026 and 2025, respectively, resulting in an effective rate of 22% and 25% for the nine months ended September 30, 2026 and 2025, respectively. During the nine months ended September 30, 2026, the Company recorded a discrete tax expense of $17 million related to net changes to valuation allowances and a discrete tax benefit of $13 million related to various changes in filing positions for prior years. During the nine months ended September 30, 2025, the Company recorded a discrete tax benefit of $12 million related to the exit of the charging business, a discrete tax expense of $4 million related to net changes to valuation allowances and a discrete tax expense of $3 million related to various changes in filing positions for prior years.
Non-comparable items impacting the Company's earnings per diluted share
The Company's earnings per diluted share were $1.08 and $0.73 for the three months ended September 30, 2026 and 2025, respectively, and $3.59 and $2.48 for the nine months ended September 30, 2026 and 2025, respectively. The non-comparable items presented below are calculated after tax using the corresponding effective tax rate discrete to each item and the weighted average number of diluted shares for each of the periods then ended. The Company believes the following table is useful in highlighting non-comparable items that impacted its earnings per diluted share:
Three Months Ended September 30, Nine Months Ended September 30,
Non-comparable items: 2026 2025 2026 2025
Restructuring expense $ (0.20) $ (0.10) $ (0.32) $ (0.26)
Accelerated depreciation (0.04) (0.19) (0.07) (0.28)
U.S. pension plan settlement loss (0.04) - (0.04) -
Loss on debt extinguishment (0.02) - (0.02) -
Adjustments associated with Spin-Off related balances - (0.04) (0.01) (0.03)
Impairment charges - - - (0.16)
Write-off of customer incentive asset - - - (0.03)
Costs to exit charging business - - - (0.14)
Legal settlement - (0.18) - (0.18)
Chief Executive Officer ("CEO") transition compensation - (0.02) - (0.05)
Loss on sale of assets - (0.01) - (0.02)
Loss on sale of businesses - (0.01) - (0.01)
Insurance recovery - 0.07 - 0.07
Merger and acquisition (expense) income, net - - 0.01 (0.02)
Unrealized gain (loss) on equity securities 0.02 0.01 0.03 0.01
Tax adjustments (0.02) - (0.02) 0.06
Other non-comparable items (0.01) (0.04) (0.02) (0.05)
Total impact of non-comparable items per share - diluted $ (0.31) $ (0.51) $ (0.46) $ (1.09)
Results by Reportable Segment
The Company discloses segment information under four reportable segments, consistent with the way operating results are evaluated by management: Turbos & Thermal Technologies, Drivetrain & Morse Systems, PowerDrive Systems and Battery Energy Systems. These segments are strategic business groups that are managed separately as each represents a specific grouping of related automotive components and systems.
Segment Adjusted Operating Income (Loss) is the measure of segment income or loss used by the Company. Segment Adjusted Operating Income (Loss) is comprised of operating income adjusted for restructuring, merger, acquisition and divestiture expense, intangible asset amortization expense, impairment charges and other items not reflective of ongoing operating income or loss. The Company believes Segment Adjusted Operating Income (Loss) is most reflective of the operational profitability or loss of its reportable segments.
The following tables present net sales and Segment Adjusted Operating Income (Loss) for the Company's reportable segments:
Three Months Ended September 30, 2026 vs. Three Months Ended September 30, 2025
Three Months Ended September 30, 2026 Three Months Ended September 30, 2025
(in millions) Net sales Segment Adjusted Operating Income (Loss) % margin Net sales Segment Adjusted Operating Income (Loss) % margin
Turbos & Thermal Technologies $ 1,372 $ 201 14.7 % $ 1,437 $ 219 15.2 %
Drivetrain & Morse Systems 1,346 250 18.6 % 1,452 267 18.4 %
PowerDrive Systems 705 (5) (0.7) % 582 (35) (6.0) %
Battery Energy Systems 78 (3) (3.8) % 132 (7) (5.3) %
Inter-segment eliminations (14) - (12) -
Totals for reportable segments $ 3,487 $ 443 $ 3,591 $ 444
The Turbos & Thermal Technologies segment's net sales decreased $65 million, or 5%, and Segment Adjusted Operating Income decreased $18 million from the three months ended September 30, 2025. Unfavorable volume, mix and net new business resulted in a decrease in net sales of approximately $57 million due to lower volumes in Europe and Asia. The Segment Adjusted Operating margin decreased due to lower sales, manufacturing-related issues and power generation industrial solutions business start up costs.
The Drivetrain & Morse Systems segment's net sales decreased $106 million, or 7%, and Segment Adjusted Operating Income decreased $17 million from the three months ended September 30, 2025. Unfavorable volume, mix and net new business decreased net sales by approximately $101 million due to lower volumes in Asia and North America. The Segment Adjusted Operating margin increased primarily due to productivity and supply chain savings, partially offset by lower sales,.
The PowerDrive Systems segment's net sales increased $123 million, or 21%, and Segment Adjusted Operating Loss decreased $30 million from the three months ended September 30, 2025. Favorable volume, mix and net new business, primarily in Europe, and customer recoveries increased net sales by approximately $114 million. Additionally, foreign currencies resulted in a year-over-year increase in net sales of approximately $9 million due to a strengthening of the Chinese Renminbi, partially offset by a weakening of the Euro and Korean Won, in each case relative to the U.S. Dollar. The Segment Adjusted Operating margin loss decreased primarily due to customer recoveries and restructuring savings, partially offset by manufacturing related issues.
The Battery Energy Systems segment's net sales decreased $54 million, or 41%, and Segment Adjusted Operating Loss decreased $4 million from the three months ended September 30, 2025. Unfavorable volume, mix and net new business decreased net sales by approximately $54 million primarily due to lower demand in Europe. The Segment Adjusted Operating margin loss decreased primarily due to customer recoveries and restructuring savings.
Nine Months Ended September 30, 2026 vs. Nine Months Ended September 30, 2025
Nine Months Ended September 30, 2026 Nine Months Ended September 30, 2025
(in millions) Net sales Segment Adjusted Operating Income (Loss) % margin Net sales Segment Adjusted Operating Income (Loss) % margin
Turbos & Thermal Technologies $ 4,247 $ 640 15.1 % $ 4,372 $ 681 15.6 %
Drivetrain & Morse Systems 4,223 787 18.6 % 4,242 770 18.2 %
PowerDrive Systems 1,957 (70) (3.6) % 1,724 (111) (6.4) %
Battery Energy Systems 280 (7) (2.5) % 441 (41) (9.3) %
Inter-segment eliminations (39) - (35) -
Totals for reportable segments $ 10,668 $ 1,350 $ 10,744 $ 1,299
The Turbos & Thermal Technologies segment's net sales decreased $125 million, or 3%, and Segment Adjusted Operating Income decreased $41 million from the nine months ended September 30, 2025. Unfavorable volume, mix and net new business resulted in a decrease in net sales by approximately $238 million due to lower volumes in Europe and Asia. This was partially offset by the impact of foreign currencies of approximately $103 million due to a strengthening of the Euro and Chinese Renminbi, partially offset by a weakening of the Korean Won, in each case relative to the U.S. Dollar. The Segment Adjusted Operating margin decreased due to lower sales, manufacturing-related issues and power generation industrial solutions business start up costs, partially offset by supply chain savings and other cost actions.
The Drivetrain & Morse Systems segment's net sales decreased $19 million, or relatively flat, and Segment Adjusted Operating Income increased $17 million from the nine months ended September 30, 2025. Unfavorable volume, mix and net new business resulted in a decrease in net sales by approximately $96 million due to lower volumes in Asia and North America. This was partially offset by the impact of foreign currencies, which resulted in a year-over-year increase in net sales of approximately $61 million primarily due to a strengthening of the Euro and Chinese Renminbi, partially offset by a weakening of the Korean Won, in each case relative to the U.S. Dollar. The Segment Adjusted Operating margin increased primarily due to manufacturing efficiencies and supply chain savings, partially offset by lower sales.
The PowerDrive Systems segment's net sales increased $233 million, or 14%, and Segment Adjusted Operating Loss decreased $41 million from the nine months ended September 30, 2025. Favorable volume, mix and net new business, primarily in Europe, and customer recoveries increased net sales by approximately $176 million. Additionally, foreign currencies resulted in a year-over-year increase in net sales of approximately $56 million primarily due to a strengthening of the Euro and Chinese Renminbi, partially offset by a weakening of the Korean Won, in each case relative to the U.S. Dollar. The Segment Adjusted Operating margin loss decreased primarily due to customer recoveries and restructuring and supply chain savings, partially offset by launch-related costs, manufacturing-related issues and higher manufacturing costs.
The Battery Energy Systems segment's net sales decreased $161 million, or 37%, and Segment Adjusted Operating Loss decreased $34 million from the nine months ended September 30, 2025. Unfavorable volume, mix and net new business decreased net sales by approximately $174 million primarily due to lower demand in Europe. This decrease was partially offset by the impact of foreign currencies of approximately $9 million due to a strengthening of the Euro relative to the U.S. Dollar. The Segment Adjusted Operating margin loss decreased primarily due to the exit of the charging business, customer recoveries and restructuring savings.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
The Company maintains various liquidity sources, including cash and cash equivalents and the undrawn portion of its multi-currency revolving credit agreement. As of September 30, 2026, the Company had liquidity of $3.6 billion, comprised of cash, cash equivalent and restricted cash balances of $1.6 billion and an undrawn multi-currency revolving credit facility of $2.0 billion.
As of September 30, 2026, the Company was in full compliance with its covenants under the revolving credit facility and had full access to the undrawn amount under the revolving credit facility. Given the Company's strong liquidity position, management believes that it will have sufficient liquidity and will maintain compliance with all covenants under the revolving credit facility through at least the next 12 months.
The Company's $2.0 billion multi-currency revolving credit facility includes a feature that allows the facility to be increased by $1.0 billion with bank group approval. This facility matures in September 2028. The credit facility agreement contains customary events of default and one key financial covenant, which is a debt-to-EBITDA ("Earnings Before Interest, Taxes, Depreciation and Amortization") ratio. The Company was in compliance with the financial covenant at September 30, 2026. At September 30, 2026 and December 31, 2025, the Company had no outstanding borrowings under this facility.
As of September 30, 2026, cash balances of $1.2 billion were held by the Company's subsidiaries outside of the U.S. Cash and cash equivalents held by these subsidiaries are used to fund foreign operational activities and future investments, including acquisitions. The majority of cash and cash equivalents held outside the U.S. is available for repatriation. The Company uses its U.S. liquidity primarily for various corporate purposes, including but not limited to debt service, share repurchases, dividend distributions, acquisitions and other corporate expenses.
The Company's commercial paper program allows the Company to issue up to $2.0 billion of short-term, unsecured commercial paper notes under the limits of its multi-currency revolving credit facility. Under this program, the Company may issue notes from time to time and use the proceeds for general corporate purposes. The Company had no outstanding borrowings under this program as of September 30, 2026 and December 31, 2025.
The total current combined borrowing capacity under the multi-currency revolving credit facility and commercial paper program cannot exceed $2.0 billion.
In addition, the Company's universal shelf registration statement filed with the U.S. Securities and Exchange Commission provides the Company with the ability to issue various debt and equity securities subject to market conditions.
On each of February 5, 2026, April 29, 2026 and July 30, 2026 the Company's Board of Directors declared quarterly cash dividends of $0.17 per share of common stock. The dividends declared in the first quarter, second quarter and third quarter were paid on March 16, 2026, June 15, 2026 and September 15, 2026, respectively.
From a credit quality perspective, the Company has a Baa1 from Moody's and BBB+ from Fitch Ratings and Standard & Poor's. The current outlook from each of Standard & Poor's, Moody's and Fitch Ratings is stable. None of the Company's debt agreements require accelerated repayment in the event of a downgrade in credit ratings.
Cash Flows
Operating Activities
Nine Months Ended September 30,
(in millions) 2026 2025
OPERATING ACTIVITIES
Net earnings $ 779 $ 576
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and tooling amortization 404 504
Intangible asset amortization 43 49
Restructuring expense, net of cash paid 44 31
Stock-based compensation expense 38 52
Loss on debt extinguishment 4 -
Loss on sale of assets - 6
Loss on sale of businesses - 2
Impairment charges - 42
Costs to exit charging business - 32
Deferred income tax benefit (31) (73)
Unrealized (gain) loss on equity securities (7) (2)
Other non-cash adjustments 4 14
Adjustments to reconcile net earnings to net cash provided by operating activities 499 657
Retirement plan contributions (17) (17)
Changes in assets and liabilities, excluding effects of acquisitions, divestitures and foreign currency translation adjustments:
Receivables (113) (305)
Inventories (100) 78
Accounts payable and accrued expenses 30 (23)
Other assets and liabilities (20) 63
Net cash provided by operating activities $ 1,058 $ 1,029
Net cash provided by operating activities was $1,058 million during the nine months ended September 30, 2026 compared to $1,029 million for the nine months ended September 30, 2025. The increase for the nine months ended September 30, 2026 was primarily due to stronger accounts receivable and payable performance, partially offset by an increase in inventory.
Investing Activities
Nine Months Ended September 30,
(in millions) 2026 2025
INVESTING ACTIVITIES
Capital expenditures, including tooling outlays $ (364) $ (307)
Customer advances related to capital expenditures 6 16
Insurance proceeds received for damage to property, plant and equipment - 4
Proceeds from settlement of net investment hedges, net 18 18
Payments for investments in equity securities (2) -
Proceeds from the sale of business, net - 7
Proceeds from asset disposals and other, net 2 16
Net cash used in investing activities $ (340) $ (246)
Net cash used in investing activities was $340 million during the nine months ended September 30, 2026 compared to $246 million during the nine months ended September 30, 2025. As a percentage of sales, capital expenditures, net of customer advances, were 3.4% and 2.7% for the nine months ended September 30, 2026 and 2025, respectively. The year-over-year increase in capital expenditures was primarily driven by higher eProduct and power generation industrial solutions investments.
Financing Activities
Nine Months Ended September 30,
(in millions) 2026 2025
FINANCING ACTIVITIES
Payments of notes payable $ - $ (5)
Additions to debt 3 -
Repayments of debt, including current portion (864) (406)
Payments for purchase of treasury stock (425) (210)
Payments for excise tax on purchase of treasury stock (5) -
Payments for stock-based compensation items (34) (22)
Payment for business acquired, net of cash acquired (3) -
Payments for contingent consideration (1) (4)
Dividends paid to BorgWarner stockholders (104) (84)
Dividends paid to noncontrolling stockholders (13) (22)
Net cash used in financing activities $ (1,446) $ (753)
Net cash used in financing activities was $1,446 million during the nine months ended September 30, 2026 compared to $753 million during the nine months ended September 30, 2025. Net cash used in financing activities during the nine months ended September 30, 2026 was primarily related to an aggregate of $860 million of payments, pursuant to an executed tender offer and make-whole redemption for cash, for the partial debt extinguishment of the Company's 4.950%, 5.400% and 4.375% senior notes and the full debt extinguishment of the Company's 7.125% senior notes, $425 million of BorgWarner share repurchases and $104 million in dividends paid to the Company's stockholders. Refer to Note 13, "Debt," and Note 18, "Stockholders' Equity," to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this report for more information. Net cash used in financing activities during the nine months ended September 30, 2025, was primarily related to $406 million of debt repayments associated with the maturity of the Company's 3.375% senior notes on March 15, 2025, $210 million of BorgWarner share repurchases, $84 million in dividends paid to the Company's stockholders and $22 million in dividends paid to noncontrolling stockholders of the Company's consolidated joint ventures.
CONTINGENCIES
Refer to Note 20, "Contingencies," to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this report for more information regarding contingencies.
New Accounting Pronouncements
Refer to Note 2, "New Accounting Pronouncements," to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this report for a detailed description of new applicable accounting pronouncements.
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