Borgwarner Inc: Form 10-Q for the period ended Mar 31, 2025

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 (“SUVs”), vans and light trucks). The Company’s products are also sold to other OEMs of commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway vehicles (agricultural and construction machinery and marine applications). The Company also manufactures and sells its products to certain tier one vehicle systems suppliers and into the aftermarket for light, commercial and off-highway vehicles. The Company operates manufacturing facilities serving customers in Europe, the Americas and Asia and is an original equipment supplier to nearly every major automotive OEM in the world.

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 March 31, 2025 and 2024, the Company’s eProducts revenue was approximately $637 million and $506 million respectively, or 18% and 14% of its total revenue, respectively.

On July 3, 2023, BorgWarner completed the previously announced spin-off (“Spin-Off”) of its Fuel Systems and Aftermarket segments in a transaction intended to qualify as tax free to the Company’s stockholders for U.S. federal income tax purposes, which was accomplished by the distribution of 100% of the outstanding common stock of PHINIA, Inc. (“PHINIA”) to holders of record of common stock of the Company on a pro-rata basis.

Lawsuit Against PHINIA

On September 19, 2024, the Company commenced a lawsuit against PHINIA, seeking to recover from PHINIA approximately $120 million of value added tax (“VAT”) refunds that PHINIA has received or expects to receive from governmental agencies as well as damages and interest, which PHINIA has refused to pay to the Company. These refunds consist of VAT paid by the Company in periods prior to or directly related to the Spin-Off through which the Company established PHINIA as an independent company. Prior to the initiation of the lawsuit, PHINIA had paid certain VAT refund amounts to the Company. The Company asserts PHINIA’s obligation to pay the Company these VAT refunds and related amounts is plainly set forth in a binding tax matters agreement between the Company and PHINIA, which the parties agreed to prior to the Spin-Off. As of March 31, 2025, the Company had an asset related to these VAT refunds of approximately $120 million, which is included in Receivables, net on the Condensed Consolidated Balance Sheet. Because the Company is unable to predict the timing of collection of these VAT refunds from PHINIA or the applicable governmental agencies, the Company has not included these amounts in its 2025 free cash flow guidance.

Portfolio Actions

In February 2025, the Company made the decision to exit its charging business within the Battery & Charging Systems reportable segment. The exit is expected to be substantially completed 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 is expected to create a more focused portfolio and eliminate approximately $30 million of annualized adjusted operating losses by 2026. Refer to Note 3, “Acquisitions and Dispositions,” to the Condensed Consolidated Financial Statements for more information.

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

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 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 and sales are cyclical and sensitive to general economic conditions and other factors, including interest rates, consumer credit and consumer spending and preferences. Government policies, such as the imposition, termination or other changes in tariffs (including retaliatory tariffs), 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 our sales. During the three months ended March 31, 2025, the Company recorded $6 million of tariff expense incurred but not recovered. The weighted average market production, as estimated by the Company for the three months ended March 31, 2025, was down approximately 4% from the three months ended March 31, 2024. Weighted average market production reflects light and commercial vehicle production as reported by S&P Global, weighted for the Company’s geographic exposure, as estimated by the Company.

Commodities and Other Inflationary Impacts. During 2024, prices for commodities showed a lower level of volatility in comparison to what the Company had experienced from the beginning of 2021. At the same time, many economies, including the United States, are still experiencing elevated levels of inflation, which continues to put pressure on other input costs (e.g., labor, energy, other materials). The Company expects commodities and other costs to be relatively flat in 2025. However, the Company expects greater uncertainty and volatility in commodities and other costs as a result of the imposition of tariffs and retaliatory tariffs by the United States and other countries in 2025, which could cause actual costs to be materially higher than expected.

Outlook

The Company expects global industry production to decrease year-over-year in 2025. However, the Company expects net new business-related sales growth and cost recovery actions to mitigate the impact of the change in industry production outlook. As a result, the Company expects sales to be flat to down modestly in 2025, excluding the impact of foreign currencies. While the outlook incorporates tariffs known as of the date of this filing, to the extent current tariffs and retaliatory tariffs by the United States and other countries change, industry production and demand for the Company’s products could decrease, which could adversely impact the Company’s 2025 sales outlook.

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.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2025 vs. Three Months Ended March 31, 2024

The following table presents a summary of our operating results:

(in millions, except per share data)

Net sales

Net sales for the three months ended March 31, 2025 totaled $3,515 million, a decrease of $80 million, or 2%, compared to the three months ended March 31, 2024. The change in net sales for the three months ended March 31, 2025 was primarily driven by the following:

• Fluctuations in foreign currencies resulted in a year-over-year decrease in sales of approximately $85 million, primarily due to the weakening of the Euro, Korean Won and Brazilian Real, in each case relative to the U.S. Dollar.
• Favorable volume, mix and net new business increased sales by approximately $5 million primarily due to higher eProduct sales. The weighted average market production as estimated by the Company was down approximately 4% from the three months ended March 31, 2024.

Cost of sales and gross profit

Cost of sales and cost of sales as a percentage of net sales were $2,876 million and 81.8%, respectively, during the three months ended March 31, 2025, compared to $2,951 million and 82.1%, respectively, during the three months ended March 31, 2024. The change in cost of sales for the three months ended March 31, 2025 was primarily driven by the following:

• Fluctuations in foreign currencies resulted in a year-over-year decrease in cost of sales of approximately $69 million, primarily due to the weakening of the Euro, Korean Won and Brazilian Real, in each case relative to the U.S. Dollar.
• Purchasing savings, partially offset by higher sales volume, mix and net new business, decreased cost of sales by approximately $13 million.
• Tariff expense incurred but not recovered increased cost of sales by approximately $6 million.

Gross profit and gross margin were $639 million and 18.2%, respectively, during the three months ended March 31, 2025, compared to $644 million and 17.9%, respectively, during the three months ended March 31, 2024. 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 March 31, 2025 was $315 million as compared to $329 million for the three months ended March 31, 2024. SG&A as a percentage of net sales was 9.0% and 9.2% for the three months ended March 31, 2025 and 2024, respectively. The change in SG&A was primarily attributable to:

• Employee-related costs decreased by $16 million primarily related to incentive compensation.
• Research and Development (“R&D”) costs decreased by $5 million. R&D costs, net of customer reimbursements, were 5.2% of net sales for the three months ended March 31, 2025 and 2024.

Restructuring expense was $31 million and $19 million for the three months ended March 31, 2025 and 2024, respectively, primarily related to employee termination benefits. Refer to Note 5, “Restructuring,” to the Condensed Consolidated Financial Statements in Item 1 of this report for more information.

In 2023, the Company announced a $130 million to $150 million restructuring plan to address structural costs primarily in its Foundational products businesses. During the three months ended March 31, 2025 and 2024, the Company recorded $8 million and $19 million, respectively, of restructuring costs related to this plan. The resulting gross savings related to this plan are expected to be in the range of at least $80 million to $90 million annually by 2027 and are being utilized to sustain overall operating margin profile and cost competitiveness.

In June 2024, the Company announced a $75 million restructuring plan to address the cost structure in its PowerDrive Systems segment due to increased market volatility, which could include realignment of the segment’s manufacturing footprint. During the three months ended March 31, 2025, the Company recorded $16 million of restructuring charges related to this plan. The resulting annual cost savings related to this plan are expected to be approximately $100 million by 2026.

During the three months ended March 31, 2025, the Company recorded $7 million of restructuring costs for individually approved restructuring actions that primarily related to the consolidation of the North American battery systems business footprint and the exit of its charging business as more fully described in Note 3, “Acquisitions and Dispositions.”

Nearly all of the restructuring charges are expected to be cash expenditures, funded by cash on hand.

Other operating expense, net was expense of $17 million and $1 million for the three months ended March 31, 2025 and 2024, respectively. During the three months ended March 31, 2025, the Company recorded charges of $19 million related to the planned exit of its charging business within the Battery & Charging Systems reportable segment. Refer to Note 3, “Acquisitions and Dispositions,” to the Condensed Consolidated Financial Statements in Item 1 of this report for more information.

Other operating expense, net is primarily comprised of items included within the subtitle “Non-comparable items impacting the Company’s earnings per diluted share and net earnings” below.

Impairment charges was $39 million for the three months ended March 31, 2025. The Company recorded impairments of intangible assets, goodwill and fixed assets related to the planned exit of its charging business within the Battery & Charging Systems reportable segment. Refer to Note 3, “Acquisitions and Dispositions,” to the Condensed Consolidated Financial Statements in Item 1 of this report for more information.

Equity in affiliates’ earnings, net of tax was $10 million and $5 million for the three months ended March 31, 2025 and 2024, respectively. This line item is driven by the results of the Company’s unconsolidated joint ventures.

Unrealized loss on equity and debt securities was $2 million for the three months ended March 31, 2024, respectively. This line item reflects the net unrealized gains or losses recognized due to valuing the Company’s investments at fair value.

Interest expense, net was $12 million and $5 million for the three months ended March 31, 2025 and 2024, respectively. This increase was primarily due to higher debt levels following the Company’s $1 billion notes issuance in August 2024.

Provision for income taxes was $61 million for the three months ended March 31, 2025, resulting in an effective rate of 26%. This is compared to $62 million, or an effective rate of 21%, for the three months ended March 31, 2024. During the three months ended March 31, 2025, the Company recorded a discrete tax expense of $4 million related to net changes to valuation allowances, a discrete tax benefit of $3 million related to the exit of the charging business and a discrete tax expense of $2 million related to various changes in filing positions for prior years. During the three months ended March 31, 2024, the Company recorded a discrete tax benefit of $1 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 $0.72 and $0.93 for the three months ended March 31, 2025 and 2024, respectively. The non-comparable items presented below are calculated after tax using the corresponding effective tax rate discrete to each item and the weighted average number of diluted shares for each of the periods then ended. The Company believes the following table is useful in highlighting non-comparable items that impacted its earnings per diluted share:

Results by Reportable Segment

The Company discloses segment information under four reportable segments, consistent with the way operating results are evaluated by management: Turbos & Thermal Technologies, Drivetrain & Morse Systems, PowerDrive Systems and Battery & Charging Systems. These segments are strategic business groups that are managed separately as each represents a specific grouping of related automotive components and systems. In the third quarter of 2024, the Company implemented a new business unit and management structure designed to further enhance the execution of the Company’s strategy. Prior period reportable segment disclosures have been updated accordingly, including recasting prior period information for the new reporting structure.

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 March 31, 2025 vs. Three Months Ended March 31, 2024

(in millions)

The Turbos & Thermal Technologies segment’s net sales decreased $120 million, or 8%, and Segment Adjusted Operating Income increased $7 million from the three months ended March 31, 2024. The decrease in net sales was primarily due to a $76 million decline in weighted average market production and $44 million due to a weakening in the Euro, Brazilian Real and Korean Won, in each case relative to the U.S. Dollar, partially offset by high voltage heater growth in Europe. Segment Adjusted Operating Margin was 16.2% for the three months ended March 31, 2025, compared to 14.5% during the three months ended March 31, 2024. The Segment Adjusted Operating Income increased primarily due to supply chain savings, manufacturing efficiencies and restructuring savings.

The Drivetrain & Morse Systems segment’s net sales decreased $58 million, or 4%, and Segment Adjusted Operating Income decreased $10 million from the three months ended March 31, 2024. The decrease in net sales was primarily due to a $33 million decline in weighted average market production and $25 million due to a weakening in the Korean Won and Euro, in each case relative to the U.S. Dollar. Segment Adjusted Operating Margin was 17.9% for the three months ended March 31, 2025, compared to 17.8% during the three months ended March 31, 2024. The Segment Adjusted Operating Income decreased primarily due to lower sales and reduced customer recoveries, partially offset by supply chain savings and manufacturing efficiencies.

The PowerDrive Systems segment’s net sales increased $125 million, or 29%, and Segment Adjusted Operating Loss decreased $19 million from the three months ended March 31, 2024. The increase in net sales was primarily due to a $137 million increase driven by strong eProducts growth across all regions and offset by a $12 million decrease due to a weakening in the Korean Won and Euro, in each case relative to the U.S. Dollar. Segment Adjusted Operating Margin was (7.7)% for the three months ended March 31, 2025, compared to (14.2)% during the three months ended March 31, 2024. The Segment Adjusted Operating Loss decreased primarily due to higher sales, supply chain and restructuring savings.

The Battery & Charging Systems segment’s net sales decreased $27 million, or 15%, and Segment Adjusted Operating Loss increased $7 million from the three months ended March 31, 2024. The decrease in net sales was primarily due to a $14 million decrease driven by lower battery cell prices and $4 million due to a weakening in the Euro relative to the U.S. Dollar. Additionally, normal customer commodity pass-through arrangements decreased net sales by $9 million. Segment Adjusted Operating Margin was (14.7)% for the three months ended March 31, 2025, compared to (8.5)% during the three months ended March 31, 2024. The Segment Adjusted Operating Loss increased primarily due to lower sales and higher depreciation costs.

FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY

The Company maintains various liquidity sources, including cash and cash equivalents and the unused portion of its multi-currency revolving credit agreement. As of March 31, 2025, the Company had liquidity of $3,707 million, comprised of cash, cash equivalent and restricted cash balances of $1,707 million and an undrawn multi-currency revolving credit facility of $2,000 million.

The Company was in full compliance with its covenants under the revolving credit facility and had full access to 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 through at least the next 12 months.

As of March 31, 2025, cash balances of $987 million were held by the Company’s subsidiaries outside the United States. Cash and cash equivalents held by these subsidiaries are used to fund foreign operational activities and future investments, including acquisitions. The majority of cash and cash equivalents held outside the United States is available for repatriation. The Company uses its U.S. liquidity primarily for various corporate purposes, including but not limited to debt service, share repurchases, dividend distributions, acquisitions and other corporate expenses.

The Company’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 March 31, 2025. At March 31, 2025 and December 31, 2024, the Company had no outstanding borrowings under this facility.

The Company’s commercial paper program allows the Company to issue up to $2.0 billion of short-term, unsecured commercial paper notes under the limits of its multi-currency revolving credit facility. Under this program, the Company may issue notes from time to time and use the proceeds for general corporate purposes. The Company had no outstanding borrowings under this program as of March 31, 2025 and December 31, 2024.

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

In addition to the revolving credit facility, the Company’s universal shelf registration statement filed with the U.S. Securities and Exchange Commission provides the Company with the ability to issue various debt and equity securities subject to market conditions.

On February 6, 2025 and April 30, 2025, the Company’s Board of Directors declared quarterly cash dividends of $0.11 per share of common stock, respectively. The dividend declared in the first quarter was paid on March 17, 2025, and the dividend declared in the second quarter will be paid on June 16, 2025.

From a credit quality perspective, the Company has a credit rating of BBB from Standard & Poor’s, Baa1 from Moody’s and BBB+ from Fitch Ratings. The current outlook from each of Standard & Poor’s, Moody’s and Fitch is stable. None of the Company's debt agreements requires accelerated repayment in the event of a downgrade in credit ratings.

Cash Flows

Operating Activities

(in millions)

Net cash provided by operating activities was $82 million for the three months ended March 31, 2025 compared to net cash used in operating activities of $118 million for the three months ended March 31, 2024. The increase for the three months ended March 31, 2025 compared with the three months ended March 31, 2024 was primarily due to higher net earnings adjusted for non-cash charges and changes in working capital.

Investing Activities

(in millions)

Net cash used in investing activities was $94 million during the first three months of 2025 compared to $175 million during the first three months of 2024. As a percentage of sales, capital expenditures were 3.4% and 5.3% for the three months ended March 31, 2025 and 2024, respectively. The year-over-year reduction in capital expenditures was primarily due to lower eProduct investments.

Financing Activities

(in millions)

Net cash used in financing activities was $397 million during the first three months of 2025 compared to net cash used in financing activities of $183 million during the first three months of 2024. Net cash used in financing activities during the three months ended March 31, 2025 was primarily related to $346 million of debt repayments associated with the maturity of the Company’s 3.375% senior notes on March 15, 2025, and $24 million in dividends paid to the Company’s stockholders.

CONTINGENCIES

In the normal course of business, the Company is party to various commercial and legal claims, actions and complaints, including matters involving warranty claims, intellectual property claims, governmental investigations and related proceedings, general liability and other risks. It is not possible to predict with certainty whether the Company will ultimately be successful in any of these commercial and legal matters or what the impact might be. The Company does not believe that adverse outcomes in any of these commercial and legal claims, actions and complaints are reasonably likely to have a material adverse effect on the Company’s results of operations, financial position or cash flows. An adverse outcome could, nonetheless, be material to the results of operations or cash flows as the ultimate resolutions of these matters are inherently unpredictable.

Lawsuit Against PHINIA

On September 19, 2024, the Company commenced a lawsuit against PHINIA, seeking to recover from PHINIA approximately $120 million of value added tax (“VAT”) refunds that PHINIA has received or expects to receive from governmental agencies as well as damages and interest, which PHINIA has refused to pay to the Company. These refunds consist of VAT paid by the Company in periods prior to or directly related to the Spin-Off through which the Company established PHINIA as an independent company. Prior to the initiation of the lawsuit, PHINIA had paid certain VAT refund amounts to the Company. The Company asserts PHINIA’s obligation to pay the Company these VAT refunds and related amounts is plainly set forth in a binding tax matters agreement between the Company and PHINIA, which the parties agreed to prior to the Spin-Off. As of March 31, 2025, the Company had an asset related to these VAT refunds of approximately $120 million, which is included in Receivables, net on the Condensed Consolidated Balance Sheet.

Environmental

The Company and certain of its current and former direct and indirect corporate predecessors, subsidiaries and divisions have been identified by the United States Environmental Protection Agency and certain state environmental agencies and private parties as potentially responsible parties (“PRPs”) at various hazardous waste disposal sites under the Comprehensive Environmental Response, Compensation and Liability Act (“Superfund”) and equivalent state or local laws and, as such, may have been liable for the cost of clean-up and other remedial activities at 16 and 17 such sites as of March 31, 2025 and December 31, 2024, respectively. Responsibility for clean-up and other remedial activities at a Superfund site is typically shared among PRPs based on an allocation formula.

The Company believes that none of these matters, individually or in the aggregate, will have a material adverse effect on its results of operations, financial position or cash flows. Generally, this is because either the estimates of the maximum potential liability at a site are not material or the liability will be shared with other PRPs, although no assurance can be given with respect to the ultimate outcome of any such matter.

Refer to Note 20, “Contingencies,” to the Condensed Consolidated Financial Statements in Item 1 of this report for further details and information respecting to the Company’s environmental liability.

New Accounting Pronouncements

Refer to Note 2, “New Accounting Pronouncements,” to the Condensed Consolidated Financial Statements in Item 1 of this report for a detailed description of new applicable accounting pronouncements.

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.

Foreign currency exchange rate risk is the risk that the Company will incur economic losses due to adverse changes in foreign currency exchange rates. Currently, the Company’s most significant currency exposures relate to the Brazilian Real, British Pound, Chinese Renminbi, Euro, Japanese Yen, Korean Won, Mexican Peso, Swiss Franc and Thai Baht. The Company mitigates its foreign currency exchange rate risk by establishing local production facilities and related supply chain participants in the markets it serves, by invoicing customers in the same currency as the source of the products and by funding some of its investments in foreign markets through local currency loans. The Company also monitors its foreign currency exposure in each country and implements strategies to respond to changing economic and political environments. In addition, the Company regularly enters into forward currency contracts, cross-currency swaps and foreign currency-denominated debt designated as net investment hedges to reduce exposure to translation exchange rate risk. As of March 31, 2025 and December 31, 2024, the Company recorded a deferred gain of $153 million and $245 million, respectively, both before taxes, for designated cash flow and net investment hedges within accumulated other comprehensive income (loss).

The significant foreign currency translation adjustments, including the impact of the cash flow and net investment hedges discussed above, during the three months ended March 31, 2025 and 2024 are shown in the following table, which provides the percentage change in U.S. Dollars against the respective currencies and the approximate impacts of these changes recorded within other comprehensive income (loss) for the respective periods.

(in millions, except for percentages)

44

(in millions, except for percentages)

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective.

Changes in Internal Control over Financial Reporting

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.

During the three months ended March 31, 2025, there have been no material changes from the risk factors disclosed in the Company’s Annual Report on the Form 10-K for the year ended December 31, 2024, except as described below:

Risks related to our business

The risk factor disclosed in the Company's Annual Report on the Form 10-K for the year ended December 31, 2024 titled “Changes in U.S. administrative policy, including the imposition of or increases in tariffs, changes to existing trade agreements and any resulting changes in international trade relations, may have an adverse effect on us.” is replaced with the following risk factor:

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

In 2025, the U.S. announced significant tariffs on imports from a broad range of countries, including the European Union, Canada, Mexico and China. To the extent the tariffs announced to date or announced in the future become effective and are maintained, these tariffs would likely increase the cost of raw materials and components we purchase. The imposition of tariffs by the U.S. has resulted in retaliatory tariffs from other countries, including China, which would increase the cost of products we sell. Additionally, ongoing changes in U.S. and foreign government trade policies, including potential modifications to existing trade agreements and further restrictions on free trade, could introduce additional uncertainty with respect to trade policies and government regulations affecting international trade. Tariffs or retaliatory tariffs announced to date or announced in the future, current trade tensions, any escalation of trade tensions, additional tariffs, retaliatory measures by foreign governments, shifts in U.S. or international trade policies or related uncertainties affecting the conduct of business and consumer spending could adversely impact our supply chain, increase costs of components and materials and reduce demand for our products, directly or indirectly due to negative effects on our customers, the U.S. economy, the economies of other countries in which we operate or the global economy, any or all of which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Further, the duration and scope of these potential effects are unknown. Although there are steps that we may take that could mitigate these effects to some extent, there is no assurance that we will succeed in implementing them.

In 2024, the Company imported approximately $875 million in value to the U.S. Approximately 55% of that value originated in Mexico, approximately 10% originated in Canada, approximately 10% originated in South Korea and approximately 5% originated in each of Malaysia, Germany and China.