Insiders ranked by realized 90-day signed return on their open-market trades at Phinia Inc.. Minimum 3 scored trades. Returns are signed - a sale followed by a rally counts against the insider.
Real-time Form 4 intelligence. Smarter insider tracking.
YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.05pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-0.07pp
Flat
Net-tone change vs last year's 10-K.
MD&A
-0.03pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
adversely+4
adverse+4
claims+3
alleged+2
vulnerabilities+2
Positive rising
opportunities+2
successful+2
resolve+2
able+1
superior+1
Risk Factors (Item 1A)
10,103 words
Item 1A. Risk Factors
Our business is subject to various risks and uncertainties. While we believe we have identified and discussed below the key risk factors affecting our business, there may be additional risks and uncertainties not presently known to PHINIA or that PHINIA currently deems immaterial that may materially adversely affect us in future periods. Any of the risks and uncertainties described below could have a material adverse effect on our business, financial condition, or results of operations, including causing PHINIA’s actual results to differ materially from those projected in any forward-looking statements. Although the risks are organized by heading, and each risk is described separately, many of the risks are interrelated.
Risks Related to Our Industry and Strategy
Adverse changes in general business and economic conditions, including recessions, adverse market conditions or downturns and other factors, including geopolitical tensions and related trade restrictions, impacting the transportation and industrial equipment industries, have in the past and may in the future adversely affect our business, financial condition, and results of operations.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
restructuring+2
claims+2
against+2
impairment+1
shortages+1
Positive rising
gains+2
benefit+1
improved+1
despite+1
resolve+1
MD&A (Item 7)
7,548 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
INTRODUCTION
PHINIA is a leader in the development, design and manufacture of integrated components and systems that are designed to optimize performance, enhanceefficiency and reduce emissions in combustion and hybrid propulsion systems for commercial vehicles and industrial applications (medium-duty and heavy-duty trucks, buses and other off-highway construction, marine, agricultural and aerospace and defense), light commercial vehicles (vans and trucks) and light passenger vehicles (passenger cars, mini-vans, cross-overs and sport-utility vehicles). We are a global supplier to most major OEMs seeking to meet or exceed evolving and increasingly stringent global regulatory requirements and satisfy consumer demands for an enhanced user experience. Additionally, we offer a wide range of OES solutions and remanufactured products as well as an expanded range of products for the independent (non-OEM) aftermarket.
Transition to Standalone Company
On July 3, 2023, PHINIA became an independent publicly traded company as a result of the legal and structural separation of the Fuel Systems and Aftermarket businesses from BorgWarner Inc. (BorgWarner or Former Parent). The separation was completed in the form of a distribution of the outstanding common stock of PHINIA to holders of record of common stock of BorgWarner on a pro rata basis (the Spin-Off). In connection with the Spin-Off, we entered into an agreement with the Former Parent which governs the Company’s and the Former Parent’s respective rights, responsibilities and obligations after the distribution with respect to taxes for any tax period ending on or before the distribution date, as well as tax periods beginning before and ending after the distribution date (Tax Matters Agreement).
Our business, financial condition and results of operations are sensitive to global and regional business and economic conditions, particularly those specific to the global automotive and industrial equipment industries. Commercial vehicle, light commercial vehicle, light passenger vehicle, and industrial application production and sales are cyclical and sensitive to general economic conditions and other factors, including geopolitical tensions, inflation (including related to the cost of labor and the price of commodities), interest rates, consumer credit, and consumer spending and preferences. Economic declines resulting in significant reductions in commercial vehicle, light commercial vehicle and light passenger vehicle production have in the past adversely affected our business, financial condition and results of operations, including our sales to OEMs, and could have similar effects in the future. Many global economies have experienced elevated levels of inflation more generally, which has led to an increase in other input costs. As a result, the Company has experienced, and may continue to experience, higher costs. In addition, geopolitical tensions and related trade restrictions, including export controls, and tariff increases could have a material impact on our business, financial condition and results of operations, including increasing our input costs and decreasing demand in the commercial vehicle and light vehicle markets, although the nature of those trade restrictions and tariffs remains unclear. These new trade restrictions and tariffs increase the risk for further elevated inflation more generally, which may drive an increase in other input costs. Although the Company has offset higher costs through a combination of productivity and customer recoveries in the past, there can be no guarantee that the Company will continue to be successful in doing so in the future should inflation remain at elevated levels or further increase.
If we do not deliver new products, services and technologies in response to changing consumer preferences and evolving exhaust emissions- regulations, or if the market for electric vehicles grows faster than expected and the market for alternative fuel technologies, including for use in internal combustion engines, develops slower than expected, our business, financial condition, and results of operations could be adversely impacted.
The global transportation industry has been, and is largely expected to continue to be, focused on increased fuel efficiency and reduced emissions, including the development of hybrid electric and alternative fuel vehicles, primarily as a result of changing consumer preferences and increasingly stringent regulatory requirements in certain jurisdictions related to the impacts of climate change. In past years, electric vehicle use has increased, with some cities limiting access to, and a number of countries and jurisdictions implementing regulations that require a reduction or phase-out of sales of, certain commercial and light combustion-powered vehicles, accelerating toward 2030 and beyond. While growth rates of electric vehicle adoption and production have slowed in recent years compared to earlier expectations due to several factors, particularly lower than anticipated consumer acceptance and infrastructure challenges, the regulatory landscape remains challenging. If reductions or phase outs are ultimately required, that would have an impact on production at OEMs and, in turn, sales of our products. The ongoing energy transition away from fossil fuels in certain jurisdictions and the adoption of electrified powertrains in some markets (notably the passenger car segment, and to some degree in the light and medium duty commercial vehicle segments) has resulted, and could continue to result, in lower demand for certain of our products. We will continue to consider these trends and related shifts in the global transportation and other industries in which we operate, including in the context of our product line, growth and innovation and development strategies.
Through our products and solutions, we are focused on enhancing fuel efficiency and driving growth through our ability to capitalize on other strategies for lower carbon mobility, such as the transition to alternative fuels (e.g., hydrogen, ammonia, ethanol, methanol, compressed natural gas, bio-fuels and other zero- and lower-carbon fuel
Table of Contents
types) for combustion-powered vehicles, industrial machinery and other applications. Given the early stages of development of some of these products and solutions and the infrastructure challenges that accompany certain alternative fuel adoption, there can be no guarantee of future market acceptance, regulatory acceptance and investment returns with respect to our planned products and solutions.
If we do not continue to develop or acquire new and compelling products that gain acceptance with our customers, if we do not focus innovation activities on practical, efficient solutions, or if we do not expand our offerings of combustion-agnostic products and solutions and realize the anticipated benefits of our investments in alternative fuel technologies, our competitive position and business, financial condition and results of operations could be adversely impacted. In addition, if the market adoption for electric vehicles (particularly light and medium duty commercial vehicles) grows faster than expected, or if authorities implement additional, more stringent or new limits or phase-outs for combustion-powered vehicles, other modes of transportation or industrial equipment on a broad basis, our competitive position and business, financial condition and results of operations could be adversely impacted.
We face strong competition.
We compete globally with a number of manufacturers and distributors that produce and sell products and solutions that are similar to ours. Price, quality, speed of delivery, technological innovation, supply chain resilience, sourcing strategies, engineering development, scope of product technology system solutions, and program launch support are primary elements of competition. Our competitors include a large number of independent domestic and international suppliers, primarily in the global transportation and industrial equipment industries. A number of our competitors are larger than us and have more diverse product portfolios, and some competitors have greater financial and other resources than we do. Our customers, faced with intense international competition, have continued to expand their global sourcing of components. As a result, we have experienced increased competition from suppliers in other parts of the world, including suppliers that may enjoy economic advantages, such as lower labor costs, lower healthcare costs, lower tax rates and, in some cases, export or raw material subsidies. In addition, the global transportation industry is experiencing a period of technological change, including related to advances in artificial intelligence (AI) technologies. We expect AI, including machine learning and neural network capabilities, to play an increasing role in our design, manufacturing, sourcing and other activities, which will generate both opportunities and risks for our business.
Any of our competitors may foresee the course of market development more accurately than we do, enter new segments (or expand in segments that are newer to our business) earlier and more effectively than we do, develop products and solutions that are superior to our offerings, adopt or utilize AI capabilities in their design, manufacturing, sourcing and other activities more effectively than we do, produce similar products at a cost that is lower than our production cost, or adapt more quickly than we do to new technologies or evolving consumer preferences and customer and regulatory requirements. As a result, our products and solutions may not be able to compete successfully with those of our competitors, and we may not be able to meet the growing demands of our customers. These trends could adversely affect our competitive position, business, financial condition and results of operations, including our sales and the profit margins on our products and solutions.
The failure to identify, consummate, effectively integrate or realize the expected benefits from acquisitions, partnerships or other strategic investments could adversely affect our growth and our business, financial condition, and results of operations.
We periodically evaluate selective acquisitions, partnerships, and other strategic investments in connection with our growth strategy. The success of our growth strategy is dependent, in part, on our ability to identify suitable acquisition or partnership candidates, prevail against competing potential acquirers or partners and negotiate and consummate acquisitions or partnerships on terms attractive to us. It is also dependent on our ability to effectively integrate and realize the expected benefits from acquisitions or partnerships. On August 1, 2025, we completed our first acquisition as an independent publicly traded company, acquiring 100% of SEM, a prominent provider of advanced natural gas, hydrogen and other alternative fuel ignition systems, injector stators, and linear position sensors, and our integration efforts are ongoing.
To realize the anticipated benefits of acquisitions or partnerships, including the SEM acquisition, the combination must be successful. The combination of independent businesses is a complex, costly, and time-consuming process that requires significant management attention and resources. It is possible that the integration process could result in: the loss of key employees; the disruption of our operations; the inability to maintain or increase our competitive presence; inconsistencies in standards, controls, procedures and policies; difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the acquisition; the diversion of
Table of Contents
management’s attention to integration matters; difficulties in the assimilation of operations, employees and corporate cultures; and/or the realization of unknown or inestimable liabilities relating to the acquired business or inaccurate assessment of undisclosed, contingent, or other liabilities or complexities. Any or all of these factors could adversely affect our ability to maintain relationships with customers, suppliers, and employees, or achieve the anticipated benefits of the acquisition on the timeline expected, and could have an adverse effect on the combined company. In addition, many of these factors are outside of our control, and any one of these factors could result in additional or unforeseen costs, decreases in the amount of expected revenues and additional diversion of management’s time and energy, which could adversely impact our business, financial condition, and results of operations.
The success of our growth strategy is also dependent, in part, on our ability to identify and realize the expected benefits of other strategic investments and opportunities for growth, such as through diversifying or expanding our current offerings, and successfully launching programs in segments that are newer to our business, such as aerospace and defense. If we are not successful in our efforts to diversify or expand our current offerings, grow our business in newer segments, or identify and realize the expected benefits of other strategic investments, our competitive position and business, financial condition and results of operations could be adversely impacted.
Risks Related to Our Business and Operations
A failure of or disruption in our technology infrastructure, including a disruption related to cybersecurity, could adversely impact our business, financial condition, and results of operations.
We rely on the capacity, reliability, and security of our technology systems and infrastructure, including operational technology and industrial control systems that support our global manufacturing, testing, and quality assurance processes. We also depend on third ‑ party service providers, software suppliers (including providers of enterprise resource planning applications), and manufacturing partners. These systems are vulnerable to disruptions (including those resulting from cybersecurity attacks), failures or vulnerabilities in third-party provided products and services (including relating to certain end-of-life or unsupported systems or hardware), and natural disasters or adverse weather events. Although we employ due diligence, ongoing monitoring, risk assessments, system and hardware modernization initiatives and other protective measures, vulnerabilities or failures (including previously unknown vulnerabilities) of these systems could result in production delays, increased costs, or other adverse impacts that we may not be able to prevent or fully mitigate. In addition, the rapid evolution and increased adoption of AI technologies may intensify our cybersecurity risks, including risks of model manipulation, data leakage, the introduction of insecure code and social engineering using AI-generated content. Disruptions in, attacks on, and the integrity of our technology systems and infrastructure, or on the information systems, products, or services of third parties with which we engage, pose a risk to the security of our systems and data, including the data of our employees, customers, and suppliers. Some cybersecurity attacks or incidents result from human error or manipulation(including phishing, business email compromise, or other schemes or attacks that use social engineering) to gain access to systems, carry out disbursement of funds, or other frauds, or involve ransomware, malware, and other advanced persistentthreats that increase the risks and costs associated with protecting against such attacks. Threat actors increasingly deploy phishing attacks and business email compromise schemes aimed at disrupting operations, extorting payments, or redirecting funds. Such attacks could encrypt or corruptcritical systems or data, impede access to design or manufacturing systems, or result in fraudulent disbursements, any of which could materially increase costs and adversely affect our business or results of operations. To date, risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially affected or are not reasonably likely to materially affect the Company or our business, results of operations or financial condition.
We have implemented cybersecurity and data protection policies, processes, and strategies that are informed by regulatory and business requirements, our prior experience addressing cybersecurity attacks and incidents (including with our former affiliates), and industry practices and standards. Despite these efforts, we have experienced targeted and non-targeted cybersecurity attacks and incidents in the past that have resulted in unauthorized persons gaining access to our information and systems, and we could in the future experience similar attacks. Such events could trigger obligations under data breach notification and consumer privacy laws, governmental investigations, claims, and remediation costs, and could result in contractual liability to customers or suppliers.
We continue to monitor, assess, and protect against these risks, as future cybersecurity attacks or incidents on the Company could cause the inappropriate disclosure of confidential information (including our intellectual property or employee, customer, or supplier data), improper use of our systems and networks, access to and manipulation and destruction of our third-party data, production downtimes or delays, lost revenues, inappropriate disbursement of
Table of Contents
funds, and both internal and external supply shortages. The consequences of a cybersecurity attack or incident could cause significant damage to our reputation, affect our relationships with our employees, customers, suppliers, and other business partners, impair the operation of our financial systems and internal controls over financial reporting, delay our ability to timely close our books, require disclosure under the federal securities laws, or lead to governmental investigations or claimsagainst us, and ultimately, adversely affect our business, financial condition and results of operations. We have incurred, and expect to continue to incur, significant costs to protect againstdamage that may be caused by cybersecurity attacks or incidents in the future.
Additional information about our cybersecurity risk management, policies, processes, strategies and governance is included under Item 1C, “Cybersecurity,” which should be read together with these Risk Factors.
We are under substantial pressure from our customers to reduce the prices of our products.
There is substantial and continuing pressure from our customers to reduce costs. Our customers often expect annual price reductions in our business. To maintain our profit margins, we seek periodic price reductions from our suppliers in response to this expectation, to improve production processes to increase manufacturing efficiency, and to streamline product designs to reduce costs. In recent years, however, many of our suppliers have sought to increase prices in order to offset inflationary and other costs and surcharges, including the impact of tariffs. Although we seek to recover inflationary and other costs and surcharges, including relating to tariffs, from our customers and have had some success in the past in recovering a portion of these costs and surcharges, our ability to pass through increased costs to our customers can be limited (with any cost recovery sometimes less than 100% and on a delayed basis) and there can be no assurance that such recoveries will continue in the future. Our inability to reduce costs (in an amount equal to or less than) annual price reductions, increases in tariffs, increases in raw material costs, increases in employee wages and benefits and other inflationary headwinds could have an adverse effect on our business, financial condition and results of operations.
We continue to face volatile costs of commodities used in the production of our products and elevated levels of inflation.
We use a variety of commodities (including aluminum, copper, nickel, plastic resins, steel, certain alloy elements, semiconductor chips, and energy) and materials purchased in various forms (including castings, powder metal, forgings, stampings and bar stock) in the production of our products. In recent years, prices for many of these commodities have increased. We have sought to alleviate the impact of increasing costs by including a material pass-through provision in our customer contracts wherever possible and by selectively hedging certain commodity exposures. Customers frequently challenge these contractual provisions and rarely pay the full cost of any increases in the cost of materials. The discontinuation or lessening of our ability to pass through or hedge increasing commodity costs could adversely affect our business, financial condition and results of operations.
From time to time, commodity prices may also fall rapidly. If this happens, suppliers may withdraw capacity from the market until prices improve, which may cause periodic supply interruptions. The same may be true of transportation carriers and energy providers. If these supply interruptions occur, it could adversely affect our business, financial condition and results of operations.
Prices for commodities remain volatile, and since the beginning of 2024, the Company has experienced price increases for energy and base metals (such as steel, aluminum and copper). In addition, since 2023, many global economies, including the United States, have experienced elevated levels of inflation and trade restrictions, which has led to an increase in other input costs. We have pricing-related agreements with various customers, but these agreements do not enable us to recover 100% of our increased costs, and as a result, our operating margins could be negatively impacted. While we will continue to negotiate the pass through and recovery of higher costs with our customers, perpetuation of this trend could adversely affect our business, financial condition and results of operations.
Our profitability and results of operations may be adversely affected by program launch difficulties.
The launch of a new machine, engine or vehicle program for a customer is a complex process, the success of which depends on a wide range of factors, including the production readiness of our manufacturing facilities and processes and those of our suppliers and customers, as well as factors related to tooling, equipment, employees, initial product quality and other factors. Our failure to successfully launch new programs, or our inability to accurately estimate costs to design, develop and launch new machine, engine or vehicle programs, could have an adverse effect on our business, financial condition and results of operations.
Table of Contents
To the extent we are not able to successfully launch a new program, our customer’s vehicle production could be significantly delayed or shut down. Such situations could result in significant financial penalties to us, or a diversion of employees and financial resources to improving launches, rather than investing in continuous process improvement or other growth initiatives, and could result in our customers shifting work away from us to a competitor. Any of the foregoing could result in loss of revenue or loss of market share and could have an adverse effect on our business, financial condition and results of operations.
Changes in U.S. and foreign administrative policy, including increases in tariffs, changes to existing trade agreements and import or export licensing requirements and exchange controls, and any resulting changes in international trade relations, have in the past and may in the future adversely affect our business, financial condition and results of operations.
We manufacture, sell and service products globally and rely upon a global supply chain to deliver the raw materials, components, systems and parts that we need to manufacture and service our products. Changes in laws, regulations and government policies on foreign trade and investment can affect the production, pricing, and demand relating to our products and solutions, cause customers to shift preferences towards domestically manufactured or branded products, and impact the competitive position of our products or prevent us from being able to sell or manufacture products in certain countries.
Our business benefits from free trade agreements, such as the United States-Mexico-Canada Agreement. Efforts to withdraw from, or substantially modify, such agreements or arrangements, or actions taken in contravention of such agreements or arrangements, or the implementation of more restrictive trade policies, such as higher tariffs relevant to our operations (particularly in Mexico and China), import or export licensing requirements and exchange controls or new barriers to entry, could adversely impact our business. Such potential adverse impacts include: limiting our ability to capitalize on current and future growth opportunities in international markets impairing our ability to expand the business by offering new technologies, products and services; increases to our input and production costs and decreases in customer demand (particularly in the commercial vehicle (CV), light commercial vehicle (LCV), and light passenger vehicle (LPV) markets); and impairing our competitiveness and our relationships with customers and suppliers. Furthermore, there is uncertainty regarding the application, scope, duration, and timing for implementation of certain new trade restrictions (including export controls on rare earth metals and semiconductors) and increases in tariffs (including related offsets) announced in 2025 that are applicable to our business. There is also uncertainty regarding any additional tariffs or other measures that may be announced or implemented by the United States and other governments in the future, and the potential related market impacts. Such actions can be announced with little or no advance notice, and we may not be able to effectively mitigate all adverse impacts from such measures.
Although new trade restrictions and increases in tariffs did not have a material adverse impact on our business in 2025, any of these trade restrictions and tariff increases, any others announced or implemented in the future (including due to administrative changes in the United States, Mexico or other jurisdictions and any resulting volatility) and any related enforcement or market impacts may result in higher costs, particularly with respect to products imported from certain regions subject to significant tariff increases (including Mexico and China), and have a material adverse effect on our business, financial condition and results of operations.
Our inability to identify, attract, retain, and develop a qualified global workforce could adversely impact our business, financial condition and results of operations and impair our ability to meet our strategic objectives and the needs of our customers.
Our continued success depends in part on our ability to identify, attract, and onboard qualified candidates with the requisite education, background, skills, and experience. It also depends on our ability to retain, develop, and engage employees across our business, including our sales, manufacturing, research and development, information technology, corporate, and other operations and functions. To the extent we are unable to remain competitive with our total rewards programs (which includes compensation and benefits programs and practices), human capital management strategies and objectives, or inclusive workplace culture, or if qualified candidates or employees become more difficult to attract or retain under reasonable terms, we may experience higher labor-related costs and significant employee turnover, and may be unable to attract and retain a qualified global workforce, including members of management, other senior leaders, and employees with key engineering and technical skills, in numbers sufficient for our needs. These factors could adversely affect our business, financial condition and results of operations, and impair our ability to maintain our competitive position, drive our strategic objectives, and meet the needs of our customers.
Table of Contents
If we are unable to protect our intellectual property or if a third party makes assertionsagainst us or our customers relating to intellectual property rights, our business, financial condition and results of operations could be adversely affected.
We own important intellectual property, including patents, trademarks, copyrights, and trade secrets, and are involved in numerous licensing arrangements. Our intellectual property plays an important role in maintaining our competitive position in a number of the segments that we serve. Our competitors may develop technologies that are similar or superior to our proprietary technologies or design alternatives to our patented or licensed technologies. Additionally, our customers may seek ownership or exclusivity rights over intellectual property that arises in connection with products and solutions that we develop for them. Further, as we expand our operations in jurisdictions where the enforcement of intellectual property rights is less robust, the risk of others duplicating our proprietary technologies or supplying counterfeit goods at lower prices under confusingly similar or identical trademarks, increases, despite the efforts we undertake to protect our intellectual property. Our inability to protect, enforce or further develop our intellectual property rights, or claims that we are infringing on the intellectual property rights of others, could adversely affect our competitive position, as well as our business, financial condition and results of operations.
Our execution of restructuring and other actions in an effort to improve future profitability and competitiveness, optimize our product portfolio and operations and execute our strategy has caused us and could cause us in the future to incur restructuring charges, and we may not achieve the anticipated savings and benefits from these actions.
We have initiated, and may continue to initiate, restructuring and other actions that are designed to execute our strategy and enhance our business. Through these actions we may seek to improve the competitiveness of our business and sustain our margin profile, optimize our product portfolio, technical capability and operations, consolidate and take advantage of available capacity and resources, create an optimal legal entity structure, or reduce existing structural costs. During 2025, the Company implemented actions as part of a strategic effort to align its legacy infrastructure with current business needs and reduce costs in response to ongoing industry headwinds. We may not realize the anticipated annual savings from these actions, or future savings or benefits from future actions, in full or in part or within the time periods anticipated. We are also subject to the risks of labor unrest, negative publicity and business disruption in connection with our actions. Failure to realize anticipated savings or benefits from our actions could have an adverse effect on our business, financial condition and results of operations.
The occurrence or threat of extraordinary events, including natural disasters or extreme weather events, political disruptions, terrorist attacks, pandemics or other public health crises, and acts of war, have in the past and could in the future disrupt production or impact consumer spending or the demand for our products and solutions.
Extraordinary events, including natural disasters or extreme weather events (including those that may result from the impacts of climate change), fires or similar catastrophic events, political disruptions, terrorist attacks, pandemics or other public health crises, such as the COVID-19 pandemic, and acts of war have in the past and may in the future disrupt our business or operations, impact our supply chain and access to necessary raw materials, or adversely affect the global economy generally, resulting in a loss of sales and customers and an increase in costs. Any of these disruptions or other extraordinary events outside of our control that impact our operations or the operations of our suppliers or customers could have a future adverse effect on our business, financial condition and results of operations. In addition, these types of events could negatively impact consumer spending or result in changes in the demand for certain of our products and solutions in the impacted regions or globally, which could have an adverse effect on our business, financial condition and results of operations.
We are subject to risks related to our international operations.
Nearly all of our manufacturing facilities are outside the United States, including other regions in the Americas, Europe and Asia. Consequently, our results have been and may continue to be adversely affected by fluctuations in foreign currency exchange rates and higher tariffs, and by other trade restrictions or prohibitions, import tariffs or other charges or taxes, changes in trade, monetary and fiscal policies, limitations on the repatriation of funds, changing economic conditions, higher labor costs, unreliable intellectual property protection and legal systems, insufficient infrastructures, social unrest, political and geopolitical instability and disputes, international terrorism, acts of war and other factors that may be discrete to a particular country or geography. Compliance with multiple and potentially conflicting laws and regulations of various countries is challenging, burdensome, and expensive.
Table of Contents
The financial statements of foreign subsidiaries are translated to U.S. Dollars using the period-end exchange rate for assets and liabilities and an average exchange rate for each period for revenues, expenses and capital expenditures. The local currency is typically the functional currency for our foreign subsidiaries. While we did not experience significant adverse foreign currency impacts during 2025, significant foreign currency fluctuations and the associated translation of those foreign currencies could adversely affect our business. Additionally, significant changes in currency exchange rates, particularly the Euro, Chinese Renminbi, British Pound, Brazilian Real and Indian Rupee could cause fluctuations in the reported results of our businesses’ operations that could negatively affect our business, financial condition and results of operations.
Because we are a U.S. holding company, one significant source of our funds is distributions from our non-U.S. subsidiaries. Certain countries in which we operate have adopted or could institute currency exchange controls that limit or prohibit our local subsidiaries’ ability to convert local currency into U.S. Dollars or to make payments outside the country. This could subject us to the risks of local currency devaluation and business disruption, which could negatively impact our business, financial condition and results of operations.
Our business in China is subject to aggressive competition and is sensitive to economic, geopolitical, social and market conditions.
Maintaining a strong position in the Chinese market is a key component of our global strategy. The transportation and industrial equipment supply markets in China are highly competitive, with competition from many of the largest global manufacturers and numerous smaller domestic manufacturers. As the Chinese market evolves, many market participants have acted aggressively to increase or maintain their market share. Increased competition has contributed to pricing pressure, reduced margins and limited our ability to gain or hold market share. Our business in China is also sensitive to economic, geopolitical, social and market conditions that drive sales volumes in China. If we are unable to maintain our position in the Chinese market or if vehicle or industrial equipment sales in China decrease, our business, financial condition and results of operations could be adversely affected. In addition, there continues to be significant uncertainty regarding the future relationship between the United States and China, including with respect to trade policies, treaties, government regulations, tariffs and rare earth-related controls and trade restrictions. While the impact of trade restrictions and tariffs implemented in 2025 has not had a material impact on our business, any increased trade barriers or restrictions on global trade, particularly trade with China, could adversely impact our competitiveness in the Chinese market and our business, financial condition and results of operations.
Risks Related to Our Customers and Suppliers
Disruptions in our supply chain have in the past, and could in the future, adversely affect our business, financial condition and results of operations.
We obtain components and other products and services from numerous suppliers and other vendors throughout the world. In an effort to manage and reduce the cost of purchased products and services, we have been rationalizing aspects of our supply base, which has resulted in our dependence on fewer supply sources for certain components used in the manufacture of our products. We select and maintain relationships with suppliers considering a variety of factors, including price, quality, technology, production capacities, reliability, customer requirements, environmental sustainability and other responsible business practices, financial condition and geographic location. We expect our suppliers to deliver components in accordance with our stated expectations.
In recent years, the global economy and entire industries have experienced global supply chain shortages and other disruptions, including due to natural disasters or extreme weather events, political disruptions, pandemics or other public health crises, terrorist attacks, acts of war, labor or social unrest, government actions (such as relating to trade laws, tariffs and import and export controls), cybersecurity attacks or incidents, manufacturing disasters (such as burn downs), financially distressed suppliers and other circumstances. For the global transportation industry in particular, although global supply chains have recovered from the disruption caused by the COVID-19 pandemic, other circumstances (such as the ongoing conflict between Russia and Ukraine, trade restrictions, terrorist attacks, natural disasters and extreme weather events) have caused supply constraints for certain components that have impacted, and some of which continue to impact, global industry production levels. These circumstances and other rapidly changing industry conditions (such as volatile production volumes, credit tightness, changes in foreign currencies, raw material, commodity, transportation and energy price escalation, drastic changes in consumer preferences and other factors) have resulted or could in the future result in significant supply disruptions, supplier financial instability, or distress, commercial disputes with suppliers and customers. In addition, new trade regulations, including export controls on rare earth metals and semiconductors, increases in tariffs, other changes in trade policy and relations and elevated levels of steel mill plant closures, could have a material, adverse impact on
Table of Contents
our business by increasing our input costs or limiting supplies, ultimately requiring more flexibility in our supply locations through near shoring and dual sourcing.
If we experience a prolongedshortage of critical components from any of our suppliers and cannot procure such components from other sources, we may be unable to meet the production schedules for some of our key products and customer delivery expectations. In certain instances, it would be difficult and expensive for us to change suppliers that are critical to our business. Such suppliers may perceive this reliance as greater leverage to seek higher prices from us at a time that we face substantial pressure from OEMs to reduce the prices of our products.
Further, we may provide financial support to distressed suppliers or take other measures to protect our supply lines. The circumstances and conditions described in this section have resulted, or could in the future result, in additional costs and adversely impact our relationships with customers or suppliers or our business, financial condition and results of operations.
We face credit, operational and sales concentration risks related to our customers.
We rely on sales to OEMs around the world of varying credit quality and manufacturing demands. Supply to several of these customers requires significant investment by us. We base our growth projections, in part, on commitments made by our customers. These commitments by OEMs generally renew yearly during a program life cycle. Among other things, the level of production orders we receive is dependent on the ability of our OEM customers to design and sell products that consumers desire to purchase. If actual production orders from our customers do not approximate such commitments due to a variety of factors including non-renewal of purchase orders, a customer’s financial hardship or other unforeseen reasons, it could adversely affect our business, financial condition and results of operations.
We have in the past, and likely will in the future, derive a significant portion of our net sales from a relatively limited number of OEM customers. For the year ended December 31, 2025, our top five customers accounted for approximately 37% of our net sales, with General Motors Company representing 18%. The loss of, or a significant decrease in business from, one or more of these customers could have a materially adverse impact on our business, financial condition and results of operations. In addition, any consolidation among our top customers may further increase our customer concentration risk.
Work stoppages, production shutdowns and similar events or conditions could significantly disrupt and adversely impact our business, financial condition and results of operations.
Because the transportation and industrial equipment industries rely heavily on just-in-time delivery of components during the assembly and manufacture of products, a work stoppage or production shutdown at one or more of our suppliers’ facilities, including as a result of a prolongeddispute with unionized employees at such facilities, could impact our ability to manufacture and assemble our products and solutions, or meet the needs of our customers, which could have significant adverse effects on our business, financial condition and results of operations. Similarly, if one or more of our customers were to experience a work stoppage or production shutdown, that customer would likely halt or limit purchases of our products, which could result in the shutdown of the related manufacturing facilities. Strikes against certain of our customers adversely impacted our results of operations during 2023, as automakers limited purchases of our products during the strikes due to the halt of their own production. Any future strikes that continue for a prolonged period could adversely affect our business, financial condition and results of operations.
In addition to our suppliers and customers, a work stoppage or production shutdown at one or more of our manufacturing and assembly facilities, including as a result of a prolongeddispute with unionized employees at certain of our international facilities, could adversely affect our business, financial condition and results of operations.
Risks Related to Regulatory, Legal and Similar Matters
We have liabilities related to product warranties, litigation and other claims.
We provide product warranties to our customers for some of our products. Under these product warranties, we may be required to bear costs and expenses, including for the repair or replacement of these products. As suppliers become more integrally involved in the design of vehicles and equipment and assume more of the assembly functions, OEMs are increasingly looking to their suppliers for contribution when faced with recalls and product warranty claims. A recall claim or product warranty claim brought against us could adversely impact our business, financial condition and results of operations. In addition, a recall claim could require us to review the relevant portion
Table of Contents
of our product portfolio to assess whether similar issues are present in other product lines, which could result in significant disruption to our business and could have an adverse impact on our financial condition and results of operations. Factors outside our control, including the quality of fuel in end-user markets or our products operating under conditions not originally included in our customer’s technical requirements specification, or contemplated by either our customers or ourselves, may increase our exposure for warranty or recallclaims. We may also incur costs and expenses to defendagainstallegedclaims whereby our products are ultimately determined not to be at fault. In addition, as we continue to develop and invest in products and solutions involving alternative fuels (e.g., hydrogen, ammonia, ethanol, methanol, compressed natural gas and other zero- and lower-carbon fuel types) designed to enhance fuel efficiency and reduce emissions, we may experience an increase in claims. Actual costs and expenses associated with these claims could be material or exceed any amounts accrued for such claims in our financial statements.
In addition, we are currently, and may in the future become, subject to other commercial or contractual disputes and legal proceedings. These claims typically arise in the normal course of business and may include commercial or contractual disputes with our customers and suppliers, intellectual property, personal injury, product liability, environmental and employment claims. These claims may also arise under the Separation and Distribution Agreement we entered into with the Former Parent in connection with the Spin-Off, which allocated responsibility to us for various legacy matters, including certain items that are otherwise unrelated to our business, or the Amended and Restated Tax Matters Agreement entered into with the Former Parent during 2025 to resolve a dispute relating to the Tax Matters Agreement entered into by the parties in connection with the Spin-Off.
It is possible that any such claims may have an adverse impact on our business that is greater than we anticipate. While we maintain insurance that provides protection against certain potential losses relating to such claims and other risks, including those resulting from cybersecurity threats and incidents, the amount and extent of such insurance may not be adequate to insure us against all claims, costs and liabilities related to these matters. The incurring of significant liabilities for which there is no, or insufficient, insurance coverage could adversely affect our business, financial condition and results of operations.
We are subject to extensive environmental, health and safety, human rights and other laws and regulations related to corporate sustainability that are subject to change, and may in the future be supplemented by additional such laws and regulations and may involve significant risks.
Our operations and products, and those of our customers, are subject to laws governing, among other things: emissions to air; discharges to waters; the generation, management, transportation and disposal of waste and other materials; packaging; the use of natural resources; health and safety; human rights; and other matters relating to corporate sustainability. Our global supply chain and the operation of automotive and industrial equipment parts manufacturing plants entails risks in these areas, and we may incur material costs or liabilities as a result. A number of our manufacturing facilities were acquired prior to the completion of the Spin-Off, and as a result, we may incur material costs and liabilities relating to activities that predate our ownership or the ownership of the Former Parent. In addition, potentially significant expenditures could be required to comply with new and evolving customer requirements and environmental, health and safety, human rights and other laws and regulations currently in effect or that are expected to be in effect in the near future (particularly new reporting requirements relevant to our operations and those of our customers in the United States, United Kingdom, Europe and Mexico), or additional new such laws and regulations that may be adopted (including due to ongoing concerns regarding the impacts of climate change). Failure to comply with such evolving and increasingly complex laws and regulations, or related customer requirements, could impact our competitive position, and costs and penalties associated with non-compliance could have an adverse effect on our business, financial condition and results of operations.
Changes in tax laws or tax rates taken by taxing authorities and tax audits or similar processes could adversely affect our business, financial condition and results of operations.
Changes in tax laws or tax rates, the resolution of tax assessments or audits or similar processes by various tax authorities, and the inability to fully utilize our tax loss carryforwards and tax credits could adversely affect our business, financial condition and results of operations. In addition, we may periodically restructure our legal entity organization. If taxing authorities were to disagree with our tax positions in connection with any such restructurings, our effective tax rate could be materially affected. Our tax filings for various periods are subject to audit by the tax authorities in most jurisdictions where we conduct business. We have received tax assessments from various taxing authorities and are currently at varying stages of appeals and/or litigation regarding these matters. These audits may result in assessment of additional taxes that are resolved with the authorities or through the courts. We believe these assessments may occasionally be based on erroneous and even arbitrary interpretations of local tax law. Although Mexico levies value added taxes and customs duties on temporary imports, in the course of the conduct of
Table of Contents
our manufacturing operations, we generally do not pay that tax due to a special certification, the availability of which depends upon our compliance with certain requirements and regulations (such as maintaining accurate records and providing periodic reports to authorities). Non-compliance (or alleged non-compliance due to enhanced enforcement efforts or otherwise) with these requirements and regulations could result in suspension of the certification, which could adversely affect our business, financial condition and results of operations. We are aware of instances in which we may not have complied with these requirements and regulations in the past, and as a result, pursued voluntary processes with the relevant authorities to reconstruct records that resulted in immaterial value added taxes being assessed and penalties imposed, which were ultimately the responsibility of the Former Parent pursuant to the Amended and Restated Tax Matters Agreement. Resolution of any tax matters involves uncertainties, and there are no assurances that the outcomes will be favorable in the future.
We are, and in the future may be, subject to governmental investigations and related proceedings regarding vehicle emissions standards.
In recent years within the vehicle industry, there have been governmental investigations and related proceedings relating to alleged or actual violations of vehicle emissions standards. Alleged or actual violations by us, or to our knowledge, our predecessor entities of emissions standards have in the past resulted in a government investigation and could in the future result in government investigations and other legal proceedings, including class actions and other private civil actions, the recall of one or more of our products, negotiated remedial actions, fines, disgorgement of profits, restricted product offerings, reputational harm or a combination of any of those items. Any of these actions or related costs that we incur could have a material adverse effect on our business, financial condition and results of operations. As previously reported, German authorities announced a diesel defeat device investigation in 2022, which we believe is focused on engines sold by two of our light vehicle OEM customers prior to 2020, when the Former Parent acquired Delphi Technologies PLC. PHINIA is the indirect parent of the Delphi Technologies entity that supplied engine control units, software and calibration services to these OEM customers, and German authorities searched two of our facilities seeking information relating to software supplied to the customers. Under the Separation and Distribution Agreement we entered into with the Former Parent in connection with the Spin-Off, we are generally allocated responsibility for any consequences arising out of the German investigation and any similar investigations. We are cooperating with the German investigation, which is ongoing and has resulted, and will continue to result in, us incurring significant costs and could ultimately lead to any of the consequences we outline above.
The impacts of climate change, regulations related to climate change, various stakeholders’ emphasis on reducing the impacts of climate change, and other related matters may adversely impact our business, financial condition and results of operations.
The impacts of climate change continue to raise significant concern and attention worldwide, which has led to swift and stringent legislative and regulatory efforts to limit greenhouse gas and other emissions to air in certain jurisdictions in which we operate. Our manufacturing plants use energy, including electricity and natural gas, and certain of our plants that emit greenhouse gases may in the future be affected by these legislative and regulatory efforts. Greenhouse gas emissions regulations could increase the price of the electricity we purchase, increase costs for use of natural gas, potentially restrict access to or the use of natural gas, require us to purchase allowances to offset our own emissions or result in an overall increase in costs of raw materials, any one of which could increase our costs, reduce competitiveness in a global economy, impact our reputation, or otherwise negatively affect our business, financial condition and results of operations. Many of our customers and suppliers face similar risks. Supply chain disruptions or constraints relating to such regulations could result in increased costs, jeopardize the continuity of production, and have an adverse effect on our business, financial condition and results of operations. The physical and transitional impacts of climate change could also disrupt our operations, including by impacting the availability and cost of materials within our supply chain, and could also increase insurance and other operating costs. These factors may also impact our decisions to construct new facilities in certain geographic locations.
From time to time, we establish strategies, expectations and targets related to the impacts of climate change and other environmental matters. Our ability to achieve any such strategies, expectations or targets is subject to numerous factors and conditions, many of which are outside of our control. Examples of such factors include: evolving legal, regulatory and other standards, processes, and assumptions; the pace of scientific and technological developments; increased costs; the availability of requisite financing; the availability of renewable energy sources; changes in carbon markets; government incentives and tax credits; and changes in general economic, financial and industry conditions. Failures or delays (whether actual or perceived) in achieving our strategies, expectations or targets related to climate change and other environmental matters could adversely affect our business, financial
Table of Contents
condition and results of operations, harm our reputation and competitive position, result in our inability to meet the expectations of our customers and other stakeholders, and increase the risk of litigation. Likewise, a failure to comply with any current or future climate, environmental and related reporting requirements, including those established by regulators in the United States and Europe, may result in loss of business, regulatory penalties, increased litigation risk and reputational damage.
Compliance with and changes in other laws and regulations impacting our operations could be costly and could affect our business, financial condition and results of operations.
We have internal policies and procedures and supplier policies and requirements relating to compliance with anti-corruption, sanctions, import and export control laws and exchange control laws, and we conduct periodic compliance training on such laws for our employees and provide a hotline for employees to report potential violations of such laws; however, there is a risk that such policies, procedures and requirements will not always protect us from the improper acts of employees, agents, suppliers, other business partners, joint venture partners, or representatives, particularly in the case of recently acquired operations that may not have significant training in applicable compliance policies and procedures. Compliance violations may result in criminalpenalties, sanctions or fines that could have an adverse effect on our business, financial condition, results of operations and reputation.
Changes that could impact the legal environment include new legislation, regulations, and policies, investigations and legal proceedings, and new interpretations of existing rules and regulations, in particular, changes in sanctions, import and export control laws or exchange control laws, and other changes in laws in countries where we operate or intend to operate.
Risks Related to Credit and Our Financials
Goodwill, indefinite-lived intangible assets and long-lived assets, which are subject to periodic impairment evaluations, represent a significant portion of our total assets. An impairment charge on these assets could have an adverse impact on our business, financial condition and results of operations.
We have recorded goodwill and indefinite-lived intangible assets related to acquisitions. We periodically assess these assets, along with long-lived assets, to determine if they are impaired. Significant negative industry or macroeconomic trends, disruptions to our business, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use of the assets, dispositions, and market capitalization declines may impair these assets.
We review goodwill, indefinite-lived intangible assets and long-lived assets for impairment either annually or whenever changes in circumstances indicate that the carrying value may not be recoverable. In conducting our goodwill impairment analysis, we compare the fair value of the segment to the related net book value. In conducting our impairment analysis of indefinite-lived intangible assets and long-lived assets, we compare the fair value of the assets to the related net book values if indicators of impairment are identified. The risk of impairment to goodwill and indefinite-lived intangible assets is higher during the early years following an acquisition. This is because the fair values of these assets align very closely with what was paid to acquire the reporting units to which these assets are assigned. As a result, the difference between the carrying value of the reporting unit and its fair value (typically referred to as “headroom”) is smaller at the time of acquisition. Until this headroom grows over time, due to business growth or lower carrying value of the reporting unit, a relatively small decrease in reporting unit fair value can trigger impairment charges. When impairment charges are triggered, they tend to be material due to the size of the assets involved. Future acquisitions could present similar risks. Any charges relating to such impairments could adversely affect our business, financial condition and results of operations in the periods recognized.
Changes in interest rates and asset returns could increase our pension funding obligations, which could reduce our profitability and cash flow and adversely impact our business, financial condition and results of operations.
In connection with the Spin-Off, the Former Parent transferred to us plan assets and obligations primarily associated with our active, retired, and other of the Former Parent’s former employees in certain jurisdictions, and we will provide the benefits directly from the plan assets. The actual assumed net benefit plan obligations and related expenses could change significantly from our estimates. In particular, the valuation of our future payment obligations under these pension plans and the related plan assets is subject to significant adverse changes if the credit and capital markets cause interest rates and projected rates of return to decline. Such declines could also require us to make significant additional contributions to our pension plans in the future. Additionally, a material deterioration in the funded status of the plans could significantly increase our pension expenses and reduce profitability in the future. Each of the foregoing risks could have an adverse effect on our business, financial condition and results of
Table of Contents
operations. For more information about our pension assets and liabilities, refer to Note 17, “Retirement Benefit Plans,” to the Consolidated Financial Statements.
We are subject to a number of restrictive covenants and requirements under our indebtedness, which could limit our financial and operating flexibility and subject us to other risks.
The agreements governing our current indebtedness include, and any debt we incur in the future may include, covenants limiting our ability to, among other things, pay cash dividends, redeem or repurchase stock, incur debt or liens, enter into transactions with affiliates, merge, dissolve, repay subordinated indebtedness, make investments and dispose of assets. We are also subject to total net leverage ratio and interest coverage ratio financial covenants under such agreements. In addition, our current debt agreements require, and any future debt may require, us to dedicate a significant portion of our cash flows from operations to paying amounts due under such agreements, thereby reducing funds available for other corporate purposes. Any of these restrictions on our ability to operate could adversely affect our business, financial condition and results of operations by, among other things, limiting our ability to adapt to changing economic, financial or industry conditions and to take advantage of corporate opportunities. Developments in our business or events beyond our control, including prevailing economic, financial, and industry conditions, could affect our ability to comply with the covenants and other requirements under our debt agreements. If we fail to comply with any covenants or other requirements, our lenders and bondholders may, among other things, terminate their obligation to make advances to us and declare any outstanding obligations immediately due and payable, as applicable, which could have a material adverse impact on our business, financial condition and results of operations.
Risks Related to the Spin-Off
If the Spin-Off were determined not to qualify as tax-free for U.S. federal income tax purposes, we could have an indemnification obligation to the Former Parent, which could adversely affect our business, financial condition and results of operations.
The Spin-Off was intended to qualify as a tax-free “reorganization” within the meaning of Sections 368(a)(1)(D) and 355 of the Internal Revenue Code of 1986, as amended (Code). In connection with the Spin-Off, the Former Parent received a written opinion from Ernst & Young, LLP to such effect. However, the opinion of Ernst & Young, LLP will not be binding on the Internal Revenue Service (IRS) or the courts, and there can be no assurance that the IRS or a court will not take a contrary position. Notwithstanding the opinion of Ernst & Young, LLP, the IRS could determine on audit that the Spin-Off or any of certain related transactions is taxable if it determines that any of these facts, assumptions, representations, or undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinion. If the conclusions expressed in the opinion of Ernst & Young, LLP are challenged by the IRS and the IRS prevails in such challenge, the tax consequences of the Spin-Off could be materially less favorable.
If, as a result of any of our representations being untrue or our covenants being breached, the Spin-Off were determined not to qualify for its intended tax-free treatment, we could be required by the Tax Matters Agreement and any amendments or restatements thereto to indemnify the Former Parent for the resulting taxes and related expenses. Those amounts could be material. Any such indemnification obligation could adversely affect our business, financial condition and results of operations.
We or the Former Parent may fail to perform under, or additional disputes may arise between the parties relating to, various transaction agreements that have been executed in connection with the separation.
In connection with the separation, and prior to the distribution, we and the Former Parent entered into various transaction agreements related to the Spin-Off, pursuant to which both we and the Former Parent have liabilities and performance obligations. Certain of these agreements and any amendments and restatements thereto continue to govern our relationship with the Former Parent following the Spin-Off. We rely on the Former Parent to satisfy its performance obligations under these agreements. If we or the Former Parent are unable to satisfy our or its respective obligations under these agreements, including indemnification obligations, our business, financial condition and results of operations could be adversely affected.
As previously disclosed, the Company entered into a settlement agreement (the Settlement Agreement) with the Former Parent to resolve previously disclosedclaims asserted by the Former Parent against the Company in Delaware Superior Court in September 2024, pursuant to which the Former Parent sought, among other things, a judicial declaration that the Company is obligated under the Tax Matters Agreement to remit to the Former Parent refunds obtained by the Company from tax authorities that relate to certain indirect tax payments made prior to the Spin-Off. The Settlement Agreement also resolved the Company’s counterclaims asserted against the Former Parent in Delaware Superior Court in December 2024. In connection with the Settlement Agreement, the Company
Table of Contents
and the Former Parent also entered into an amendment to the Tax Matters Agreement to provide for, among other things, clarification of the Former Parent’s responsibility for certain pre-Spin-Off tax liabilities and the Company’s ability to obtain and use the benefit of certain pre-Spin-Off credits and other offsets. If any additional disputes were to arise between the parties, such disputes could have a material adverse effect on our financial condition results of operations and cash flows. For more information regarding the Settlement Agreement, refer to Note 20, “Contingencies,” to the Consolidated Financial Statements.
We have only operated as an independent, publicly traded company since July 3, 2023, and our historical combined financial information for periods prior to such date is not necessarily representative of the results we would have achieved as an independent, publicly traded company and may not be a reliable indicator of our future results.
We derived the historical financial information prior to July 3, 2023 included in this Form 10-K from the Former Parent’s consolidated financial statements, and this information does not necessarily reflect the results of operations and financial condition we would have achieved as an independent, publicly traded company during the periods presented, or those that we will achieve in the future. For additional information about our past financial performance and the basis of presentation of our historical combined financial statements, see our historical financial statements and the notes thereto.
Table of Contents
Acquisition of Swedish Electromagnet Invest AB (SEM)
On August 1, 2025, PHINIA completed the acquisition of Swedish Electromagnet Invest AB (SEM), a provider of advanced natural gas, hydrogen and other alternative fuel ignition systems, injector stators and linear position sensors, for $47 million, comprised of $15 million of cash consideration and $32 million cash used to extinguish debt assumed through the acquisition. See Note 2, “Acquisition”, for further discussion.
Key Trends and Economic Factors
T he automotive industry is currently grappling with renewed semi-conductor shortages, supply chain disruptions, and economic and geopolitical tensions. These factors may affect production, pricing, and consumer demand. In addition, new trade restrictions, including export controls, and/or increases in tariffs could have a material impact on our business, financial condition, or results of operations, including increasing our input costs and decreasing demand in the commercial vehicle (CV) and light vehicle (LV) markets , although the nature of those trade restrictions and tariffs remains unclear. These new trade restrictions and tariffs increase the risk for elevated inflation more generally, which may drive an increase in other input costs.
Outlook
We expect improved earnings and cash generation in 2026, as we expect foreign currency, operational efficiencies, and share gains to more than offset a softening original equipment (OE) market. Continued economic and geopolitical uncertainty is expected to continue to impact LV and CV volumes. In our key markets for 2026, LV and CV volumes are expected to decline by mid-single and low-single digit percentages, respectively. Assuming constant foreign exchange rates and excluding sales from acquisitions, we expect a modest increase in sales. Additionally, we expect to continue to be impacted by other macroeconomic challenges in 2026, including but not limited to elevated inflation, supply chain constraints, market volatility, higher tariffs (particularly in Mexico and China), government shutdowns, and changes in international trade relations.
Despite the near-term uncertainties, the Company maintains a positive long-term outlook for its global business and is committed to new product development and strategic investments to support its product leadership and growth strategies. There are several trends that are driving the Company’s long-term growth that management expects to continue, including market share expansion in the CV market, growth in overall vehicle parc that supports aftermarket demand, increased consumer interest in hybrid and plug-in hybrid electric vehicles, adoption of additional product offerings enabling zero- and lower-carbon fuel solutions for combustion vehicles, and expansion in the aerospace and defense industry. In addition, we believe we are well positioned to continue to expand our differentiated offerings and capabilities across electronics, software and complete systems.
Use of Non-GAAP Financial Measures
This Form 10-K contains information about PHINIA’s financial results that is not presented in accordance with accounting principles generally accepted in the United States (GAAP). Such non-GAAP financial measures are reconciled to their most directly comparable GAAP financial measures in this Form 10-K. The reconciliations include all information reasonably available to the Company at the date of this Form 10-K and the adjustments that management can reasonably predict.
Management believes that these non-GAAP financial measures are useful to management, investors, and banking institutions in their analysis of the Company's business and operating performance. Management also uses this information for operational planning and decision-making purposes.
Non-GAAP financial measures are not and should not be considered a substitute for any GAAP measure. Additionally, because not all companies use identical calculations, the non-GAAP financial measures as presented by PHINIA may not be comparable to similarly titled measures reported by other companies.
RESULTS OF OPERATIONS
A detailed comparison of the Company’s 2024 operating results to its 2023 operating results can be found in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in the Company’s Annual Report on Form 10-K filed on February 13, 2025.
The following table presents a summary of the Company’s 2025 and 2024 operating results:
Table of Contents
Year Ended December 31,
(in millions, except per share data)
Net sales
% of net sales
% of net sales
Fuel Systems
Aftermarket
Inter-segment eliminations
Total net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Restructuring expense
Other operating expense, net
Operating income
Equity in affiliates’ earnings, net of tax
Interest expense
Interest income
Other postretirement expense
Earnings before income taxes
Provision for income taxes
Net earnings
Earnings per share — diluted
Net sales and Cost of sales
Net sales for the year ended December 31, 2025 totaled $3,483 million, an increase of $80 million, or 2.4%, from the year ended December 31, 2024. Cost of sales and cost of sales as a percentage of net sales were $2,721 million and 78.1%, respectively, during the year December 31, 2025, compared to $2,647 million and 77.8%, respectively, during the year ended December 31, 2024. The change in net sales, cost of sales, and gross profit for the year ended December 31, 2025 was primarily driven by the impacts below.
(in millions)
Net Sales
Cost of Sales
Gross Profit
Year Ended December 31, 2024
Volume and mix
Customer pricing
Supplier costs
Tariff cost and recovery
Employee costs
Contract manufacturing agreements
SEM acquisition
Foreign currency and other
Year Ended December 31, 2025
Selling, general and administrative expense (SG&A)
SG&A for the year ended December 31, 2025 was $445 million as compared to $442 million for the year ended December 31, 2024. SG&A as a percentage of net sales was 13% for the years ended December 31, 2025 and 2024.
Table of Contents
Year Ended December 31,
(in millions)
Change ($)
Employee costs
Research & development
Information technology
Amortization of acquisition-related intangibles
Other
Selling, general and administrative expenses
Restructuring expense
Restructuring expense was $17 million and $14 million for the year ended December 31, 2025 and 2024, respectively. See Note 4, “Restructuring”, for further discussion.
Other operating expense, net
Other operating expense, net w as $46 million and $41 million for the year ended December 31, 2025 and 2024, respectively. The change in Other operating expense, net was primarily driven by an increase in separation-related costs, primarily from a $39 million loss in connection with the settlement of separation-related claims with the Former Parent, partially offset by the non-recurrence of non-cash impairment expense related to the write down of property, plant and equipment associated with a Fuel Systems manufacturing plant in Europe. Other operating expense, net was comprised of the following:
Year Ended December 31,
(in millions)
Change ($)
Separation-related costs
Merger and acquisition costs
Gains for other one-time events
Asset impairment
Other operating income, net
Other operating expense, net
Equity in affiliates’ earnings, net of tax
Equity in affiliates’ earnings, net of tax was $15 million and $11 million in the years ended December 31, 2025 and 2024, respectively. This line item is driven by the results of the Company’s unconsolidated joint venture.
Interest income
Interest income was $14 million and $16 million in the years ended December 31, 2025 and 2024, respectively. The decrease was primarily due to decreased cash and cash equivalents balances, as well as lower interest rates on cash and cash equivalents balances.
Interest expense
Interest expense was $81 million and $99 million in the years ended December 31, 2025 and 2024, respectively. The decrease was primarily related to the loss on extinguishment as a result of the restructuring of the Company’s debt positions in 2024. See Note 14, “Notes Payable and Debt”, for further discussion.
Other postretirement expense
Other postretirement expense was $4 million and de minimus in the years ended December 31, 2025 and 2024, respectively. The increase in other postretirement expense for the year ended December 31, 2025 was primarily due to higher interest and inflationary costs in 2025.
Table of Contents
Provision for income taxes
Provision for income taxes was $68 million for the year ended December 31, 2025 resulting in an effective tax rate of 34%. This compared to $108 million or 58% for the year ended December 31, 2024.
In 2025, the Company recognized discrete tax benefits of $11 million related to unremitted earnings as a result of a favorable change in withholding tax rates and favorable provision to return adjustments of $21 million in various jurisdictions partially offset by an increase in pre-Spin-off and post-Spin-off uncertain tax positions of $21 million and $5 million, respectively.
In 2024, the Company recognized discrete tax expense of $21 million related to the establishment of a valuation allowance on its Polish operations as a result of the changes in judgment related to the recovery of its deferred tax assets. This expense was fully offset by a discrete tax benefit related to unremitted earnings as a result of change in structure and favorable provision to return adjustments in various jurisdictions.
For further details, see Note 7, “Income Taxes,” to the Consolidated Financial Statements in Item 8 of this Form10-K.
Net earnings per diluted share and adjusted net earnings per diluted share
The Company’s net earnings per diluted share was $3.24 and $1.76 for the years ended December 31, 2025 and 2024, respectively. The Company’s adjusted net earnings per diluted share was $4.96 and $3.86 for the years ended December 31, 2025 and 2024, respectively. The Company defines adjusted net earnings per diluted share, a non-GAAP measure, as net earnings per diluted share adjusted to exclude: (i) the impact of restructuring expense, separation-related costs, merger and acquisition costs, impairment charges and other gains, losses and tax effects and adjustments not reflective of the Company’s ongoing operations; and (ii) acquisition-related intangibles amortization expense because it pertains to non-cash expenses that the Company does not use to evaluate core operating performance. Management believes that adjusted net earnings per diluted share is useful to investors in assessing the Company’s ongoing financial performance, as it provides improved comparability between periods through the exclusion of certain items that management believes are not indicative of the Company’s core operating performance.
Year Ended December 31,
Net earnings per diluted share
Separation-related costs
Amortization of acquisition-related intangibles
Restructuring expense
Merger and acquisition costs
Asset impairments
Loss on debt extinguishment
Gains for other one-time events
Tax effects and adjustments
Adjusted net earnings per diluted share
Results by Reportable Segment
The Company’s business is comprised of two reportable segments: Fuel Systems and Aftermarket.
In the fourth quarter of 2025, the Company made a strategic decision to shift a significant portion of the OES business, previously reported in its Aftermarket segment, to the Fuel Systems segment, as distribution will now be handled by the Fuel Systems locations that manufacture the products. This is expected to streamline the sales structure to external customers while also reducing administrative efforts. The reporting segment disclosures have been updated accordingly which included recasting prior period information for the new reporting structure.
Segment Adjusted Operating Income (AOI) is the measure of segment income or loss used by the Company. Segment AOI is comprised of segment operating income adjusted for restructuring, separation-related costs, merger and acquisition costs, intangible asset amortization expense, impairment charges and other items not reflective of
Table of Contents
ongoing operating income or loss. The Company believes Segment AOI is most reflective of the operational profitability or loss of its reportable segments.
Segment AOI excludes certain corporate costs, which primarily represent corporate expenses not directly attributable to the individual segments. Corporate expenses not allocated to Segment AOI were $104 million and $92 million for the years ended December 31, 2025 and 2024, respectively. The increase in corporate expenses was primarily related to additional costs resulting from moving to a fully staffed standalone company and exiting the transition service agreements with the Former Parent and the addition of a second tranche of performance stock units under the Company's stock incentive plan.
The following table presents net sales and Segment AOI for the Company’s reportable segments:
Year Ended December 31, 2025
Year Ended December 31, 2024
(in millions)
Net sales to customers
Segment AOI
% margin
Net sales to customers
Segment AOI
% margin
Fuel Systems
Aftermarket
Totals
The following table presents the year-over-year change in net sales and Segment AOI for the Company’s reportable segments for the year ended:
Fuel Systems
Aftermarket
(in millions)
Net sales
Segment AOI
Net sales
Segment AOI
December 31, 2024
Volume and mix
Customer pricing
Supplier costs
Tariff cost and recovery
Contract manufacturing agreements
SEM acquisition
Research and development
Foreign currency and other
December 31, 2025
The Fuel Systems segment’s Segment Adjusted Operating margin was 11.2% for the year ended December 31, 2025, compared to 10.7% for the year ended December 31, 2024. The Segment Adjusted Operating margin increase was primarily due to R&D savings and overhead cost control measures, partially offset by unfavorable mix.
The Aftermarket segment’s Segment Adjusted Operating margin was 16.2% for the year ended December 31, 2025, compared to 16.5% for the year ended December 31, 2024. The Segment Adjusted Operating margin decreased primarily due to the dilutive impact of tariff recoveries.
LIQUIDITY AND CAPITAL RESOURCES
Borrowing Facilities and Long-Term Debt
Credit Agreement
On July 3, 2023, the Company entered into a $1.225 billion Credit Agreement (as amended, the Credit Agreement) consisting of a $500 million revolving credit facility (the Revolving Facility), a $300 million Term Loan A Facility (the Term Loan A Facility) and a $425 million Term Loan B Facility (the Term Loan B Facility; together with the Revolving Facility and the Term Loan A Facility, collectively, the Facilities) in connection with the Spin-Off that occurred on the same date, maturing on July 3, 2028. As of December 31, 2025, the Company had no outstanding borrowings under the Revolving Facility, and availability of $500 million. The Term Loan B Facility was fully repaid in connection with the issuance of the 6.75% Senior Secured Notes due 2029 on April 4, 2024, as discussed below. The Term Loan A
Table of Contents
Facility was fully repaid in connection with the issuance of the 6.625% Senior Notes due 2032 on September 17, 2024, as discussed below.
Senior Notes
On April 4, 2024, the Company issued $525 million aggregate principal amount of 6.75% Senior Secured Notes due 2029 (the 2029 Notes) pursuant to an indenture among the Company, as issuer, certain subsidiaries of the Company named as guarantors, and U.S. Bank Trust Company, National Association, as trustee and as collateral agent. The 2029 Notes were sold to investors at 100% plus accrued interest, if any, from April 4, 2024 in a private transaction exempt from the registration requirements of the Securities Act. The net proceeds of the offering of the 2029 Notes were used to repay all of the Company’s outstanding borrowings and accrued interest under the Term Loan B Facility and the Revolving Facility, and to pay fees and expenses in connection with the offering. During the second quarter of 2024, the Company recorded a non-cash pre-tax loss on extinguishment of $20 million related to the difference between the repayment amount and net carrying amount of the Term Loan B Facility, which is included in the Interest expense line item on the Condensed Consolidated Statements of Operations.
On September 17, 2024, the Company issued $450 million aggregate principal amount of 6.625% Senior Notes due 2032 (the 2032 Notes) pursuant to an indenture among the Company, as issuer, certain subsidiaries of the Company named as guarantors, and U.S. Bank Trust Company, National Association, as trustee. The 2032 Notes were sold to investors at 100% plus accrued interest, if any, from September 17, 2024 in a private transaction exempt from the registration requirements of the Securities Act. The net proceeds of the offering of the 2032 Notes were used to repay all of the Company’s outstanding borrowings under the Term Loan A Facility, to pay fees and expenses in connection with the offering, and for general corporate purposes. During the third quarter of 2024, the Company recorded a non-cash pre-tax loss on extinguishment of $2 million related to the difference between the repayment amount and net carrying amount of the Term Loan A Facility, which is included in the Interest expense line item on the Condensed Consolidated Statements of Operations.
Refer to Note 14. “Notes Payable and Debt” for further information on the Credit Agreement, the 2029 Notes and the 2032 Notes.
Other Sources of Liquidity and Capital
We utilize certain arrangements with various financial institutions to sell eligible trade receivables from certain customers in North America and Europe. We may terminate any or all of these arrangements at any time subject to prior written notice. While we do not depend on these arrangements for our liquidity, if we elected to terminate these arrangements, there would be a one-time unfavorable timing impact on the collection of the outstanding receivables. During the year ended December 31, 2025, the Company sold $162 million of receivables under these arrangements.
As of December 31, 2025 the Company had cash and cash equivalent balance of $359 million, of which $330 million was held by our subsidiaries outside of the United States. We believe our existing cash and cash flows generated from operations and the Revolving Facility will be responsive to the needs of our current and planned operations for at least the next 12 months and the foreseeable future thereafter.
On February 13, 2025, May 21, 2025, July 31, 2025 and October 30, 2025, the Company’s Board of Directors declared quarterly cash dividends of $0.27 per share of common stock. These dividends were paid on March 14, 2025, June 16, 2025, September 12, 2025 and December 12, 2025, respectively. On January 29, 2026, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.30 per share of common stock, payable on March 20, 2026.
The Company has a credit rating of BB+ from Standard & Poor's and Ba1 from Moody's. The current outlook from both Standard & Poor’s and Moody’s 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
Net cash provided by operating activities was $312 million for the year ended December 31, 2025, comparable with $308 million in the year ended December 31, 2024.
Table of Contents
Investing Activities
Net cash used in investing activities was $132 million and $101 million in the years ended December 31, 2025 and 2024, respectively, primarily related to capital expenditures and the SEM acquisition. As a percentage of sales, capital expenditures were 3.6% and 3.1% for the years ended December 31, 2025 and 2024, respectively.
Financing Activities
Net cash used in financing activities was $310 million and $96 million during the years ended December 31, 2025 and 2024, respectively. The increase is primarily related to the timing of issuance and repayment of debt.
Contractual Obligations
The Company’s significant cash requirements for contractual obligations as of December 31, 2025, primarily consisted of the principal and interest payments on its notes payable and long-term debt, non-cancelable lease obligations, and capital spending obligations. The principal amount of Revolving Facility, notes payable and long-term debt was $981 million as of December 31, 2025. The projected interest payments over the terms of that debt were $333 million as of December 31, 2025. Refer to Note 14, “Notes Payable and Debt,” to the Consolidated Financial Statements in Item 8 of this Form 10-K for more information.
As of December 31, 2025, non-cancelable lease obligations were $58 million. Refer to Note 21, “Leases and Commitments,” to the Consolidated Financial Statements in Item 8 of this Form 10-K for more information. Capital spending obligations were $37 million as of December 31, 2025.
Management believes that the combination of cash from operations, cash balances, and available credit facilities will be sufficient to satisfy the Company’s cash needs for its current level of operations and its planned operations for the foreseeable future. Management will continue to balance the Company’s needs for organic growth, inorganic growth, debt reduction, cash conservation and return of cash to shareholders.
Pension and Other Postretirement Employee Benefits
The Company’s policy is to fund its defined benefit pension plans in accordance with applicable government regulations and to make additional contributions when appropriate. At December 31, 2025, all legal funding requirements had been met. The Company contributed $8 million and $5 million to its defined benefit pension plans in the years ended December 31, 2025 and 2024, respectively.
The Company expects to contribute a total of $12 million to $14 million into its defined benefit pension plans during 2026.
The funded status of all pension plans was a net unfunded position of $142 million and $113 million at December 31, 2025 and 2024, respectively. The increase in the net unfunded position was a result of higher interest costs, partially offset by higher asset returns.
The Company believes it will be able to fund the requirements of these plans through cash generated from operations or other available sources of financing for the foreseeable future.
Refer to Note 17, “Retirement Benefit Plans,” to the Consolidated Financial Statements in Item 8 of this Form 10-K for more information regarding costs and assumptions for employee retirement benefits.
OTHER MATTERS
Contingencies
In the normal course of business, the Company is party to various commercial and legal claims, actions and complaints, including matters involving warranty claims, intellectual property claims, governmental investigations and related proceedings, including relating to alleged or actual violations of vehicle emissions standards, general liability and various other risks.
It is not possible to predict with certainty whether or not the Company will ultimately be successful in any of these commercial and legal matters or, if not, what the impact might be. The Company records accruals for outstanding legal matters when it believes it is probable that a loss will be incurred and the amount can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in commercial and legal matters that could affect the amount of any accrual and developments that would make a loss contingency both probable and
Table of Contents
reasonably estimable. If a loss contingency is not both probable and reasonably estimable, the Company does not establish an accrued liability. The Company’s management does not expect that an adverse outcome in any of these commercial and legal claims, actions and complaints that are currently pending will 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, financial position or cash flows.
BorgWarner Dispute
On October 15, 2025, the Company entered into a settlement agreement (the “Settlement Agreement”) with the Former Parent to resolve previously disclosedclaims asserted by the Former Parent against the Company, and counterclaims asserted by the Company against the Former Parent, in Delaware Superior Court related to payments and other obligations under the Tax Matters Agreement. The Settlement Agreement provides for, among other things, the Company to make payments to the Former Parent pursuant to the following schedule: an initial payment of $31 million, which was made in the fourth quarter of 2025, a second payment of $21 million, which was made in the first quarter of 2026, and a third and final payment of $26 million to be made over the course of 2026 as the Company receives refunds related to certain indirect tax payments prior to the Spin-Off from various tax authorities. The Company expects that a substantial portion of these payments will be funded through the refunds obtained by the Company from tax authorities that relate to the indirect tax payments made prior to the Spin-Off, with the remaining portion of the payments to be funded with available liquidity. The Company recorded a $39 million loss in the year ended December 31, 2025 in connection with the settlement, representing the aggregate amount of the payments to be made to the Former Parent less the amount the Company had previously recorded for the matter.
In addition, the Settlement Agreement required the Former Parent to pay to the Company approximately $7 million, which was received in the fourth quarter of 2025, related to the reimbursement of certain pre-Spin-Off corporate income taxes. The Settlement Agreement also provides for the release of certain other claims asserted by the Former Parent against the Company.
In connection with the Settlement Agreement, the Company and the Former Parent also entered into an amendment to the Tax Matters Agreement to provide for, among other things, clarification of the Former Parent’s responsibility for certain pre-Spin-Off tax liabilities and the Company’s ability to obtain and use the benefit of certain pre-Spin-Off credits and other offsets. Although the credits remain subject to completion of necessary filings and governmental approvals, the Company believes these credits can result in the Company receiving up to approximately $29 million in cash.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (GAAP). In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. Critical accounting policies are those that are most important to the portrayal of the Company’s financial condition and results of operations. Some of these policies require management's most difficult, subjective or complex judgments in the preparation of the financial statements and accompanying notes. Management makes estimates and assumptions about the effect of matters that are inherently uncertain, relating to the reporting of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. The Company’s most critical accounting policies are discussed below.
Impairment of long-lived assets, including definite-lived intangible assets The Company reviews the carrying value of its long-lived assets, whether held for use or disposal, including other amortizing intangible assets, when events and circumstances warrant such a review under Accounting Standards Codification (ASC) Topic 360. In assessing long-lived assets for an impairmentloss, assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. In assessing long-lived assets for impairment, management generally considers individual facilities to be the lowest level for which identifiable cash flows are largely independent. A recoverability review is performed using the undiscounted cash flows if there is a triggering event. If the undiscounted cash flow test for recoverability identifies a possible impairment, management will perform a fair value analysis. Management determines fair value under ASC Topic 820 using the appropriate valuation technique of market, income or cost approach. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value.
Table of Contents
Management believes that the estimates of future cash flows and fair value assumptions are reasonable; however, changes in assumptions underlying these estimates could affect the valuations. Significant judgments and estimates used by management when evaluating long-lived assets for impairment include (1) an assessment as to whether an adverse event or circumstance has triggered the need for an impairment review; (2) undiscounted future cash flows generated by the asset; and (3) fair valuation of the asset. Events and conditions that could result in impairment in the value of long-lived assets include changes in the industries in which the Company operates, particularly the impact of a downturn in the global economy, as well as competition and advances in technology, adverse changes in the regulatory environment, or other factors leading to reduction in expected long-term sales or profitability.
Goodwill and other indefinite-lived intangible assets The Company’s goodwill is tested for impairment annually in the fourth quarter for all reporting units, and more frequently if events or circumstances warrant such a review. The Company first assesses qualitative factors, such as macroeconomic conditions, industry and market conditions, cost factors, relevant events and financial trends, that may impact a reporting unit's fair value. Using this qualitative assessment, the Company determines whether it is more-likely-than-not the reporting unit's fair value exceeds its carrying value. If it is determined that it is not more-likely-than-not the reporting unit's fair value exceeds the carrying value, or upon consideration of other factors, including recent acquisition, restructuring or disposal activity or to refresh the fair values, the Company performs a quantitative goodwill impairment analysis. In addition, the Company may test goodwill in between annual test dates if an event occurs or circumstances change that could more-likely-than-not reduce the fair value of a reporting unit below its carrying value.
The Company also has intangible assets related to acquired trade names that are classified as indefinite-lived when there are no foreseeable limits on the periods of time over which they are expected to contribute cash flows. Costs to renew or extend the term of acquired intangible assets are recognized as expenses are incurred.
Similar to goodwill, the Company can elect to perform the impairment test for indefinite-lived intangibles other than goodwill (trade names) using a qualitative analysis, considering similar factors as outlined in the goodwill discussion in order to determine if it is more-likely-than-not that the fair value of the intangibles are less than the respective carrying values. If the Company elects to perform or is required to perform a quantitative analysis, the test consists of a comparison of the fair value of the indefinite-lived intangible asset to the carrying value of the asset as of the impairment testing date. The Company estimates the fair value of indefinite-lived intangibles using the relief-from-royalty method, which it believes is an appropriate and widely used valuation technique for such assets. The fair value derived from the relief-from-royalty method is measured as the discounted cash flow savings realized from owning such trade names and not being required to pay a royalty for their use.
Refer to Note 12, “Goodwill and Other Intangibles,” to the Consolidated Financial Statements in Item 8 of this Form 10-K for more information regarding goodwill.
Product warranties The Company provides warranties on some, but not all, of its products sold to OEMs. The warranty terms are typically from one to three years. Provisions for estimated expenses related to product warranty are made at the time products are sold. These estimates are established using historical information about the nature, frequency and average cost of warranty claim settlements as well as product manufacturing and industry developments and recoveries from third parties. Management actively studies trends of warranty claims and takes action to improve product quality and minimize warranty claims. Costs of product recalls, which may include the cost of the product being replaced as well as the customer’s cost of the recall, including labor to remove and replace the recalled part, are accrued as part of the Company’s warranty accrual at the time an obligation becomes probable and can be reasonably estimated. Management believes that the warranty accrual is appropriate; however, actual claims incurred could differ from the original estimates, requiring adjustments to the accrual:
Year Ended December 31,
(in millions)
Net sales
Warranty provision
Warranty provision as a percentage of net sales
The sensitivity to a 25 basis-point change (as a percentage of net sales) in the assumed warranty trend on the Company’s accrued warranty liability was approximately $9 million.
At December 31, 2025, the total accrued warranty liability was $74 million. The accrual is represented as $35 million in Other current liabilities and $39 million in Other non-current lia bilities on the Consolidated Balance Sheets.
Table of Contents
Refer to Note 13, “Product Warranty,” to the Consolidated Financial Statements in Item 8 of this Form 10-K for more information regarding product warranties.
Pension The Company provides pension benefits to a number of its current and former employees. The Company’s defined benefit pension plans are accounted for in accordance with ASC Topic 715. The determination of the Company’s obligation and expense for its pension is dependent on certain assumptions used by actuaries in calculating such amounts. Certain assumptions, including the expected long-term rate of return on plan assets, discount rate and rates of increase in compensation are described in Note 17, “Retirement Benefit Plans,” to the Consolidated Financial Statements in this Form 10-K. The effects of any modification to those assumptions, or actual results that differ from assumptions used, are either recognized immediately or amortized over future periods in accordance with GAAP.
The primary assumptions affecting the Company’s accounting for employee benefits under ASC Topic 715 as of December 31, 2025 are as follows:
• Expected long-term rate of return on plan assets The expected long-term rate of return is used in the calculation of net periodic benefit cost. The required use of the expected long-term rate of return on plan assets may result in recognized returns that are greater or less than the actual returns on those plan assets in any given year. Over time, however, the expected long-term rate of return on plan assets is designed to approximate actual earned long-term returns. The expected long-term rate of return for pension assets has been determined based on various inputs, including historical returns for the different asset classes held by the Company’s trusts and its asset allocation, as well as inputs from internal and external sources regarding expected capital market return, inflation and other variables. The Company also considers the impact of active management of the plans’ invested assets. In determining its pension expense for the year ended December 31, 2025, the Company used long-term rates of return on plan assets ranging from 2.5% to 8.0%.
Actual returns on U.K. pension assets were 3.7% and (6.2)% for the years ended December 31, 2025 and 2024, respectively, compared to the expected rate of return assumption of 5.75% and 5.25%, respectively, for the same years ended.
• Discount rate The discount rate is used to calculate pension obligations. In determining the discount rate, the Company utilizes a full-yield approach in the estimation of service and interest components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. For its significant plans, the Company used discount rates ranging from 2.45% to 23.5% to determine its pension obligations as of December 31, 2025, including weighted average discount rates of 5.8% (including 5.5% in the U.K.). The U.K. discount rate reflects the fact that the pension plan has been closed for new participants.
While the Company believes that these assumptions are appropriate, significant differences in actual experience or significant changes in these assumptions may materially affect the Company's pension and its future expense.
The sensitivity to a 25 basis-point change in the assumptions for expected return on assets related to 2026 pre-tax pension expense for Company sponsored pension plans is expected to be $2 million. The sensitivity to a 25 basis-point change in the assumptions for discount rate related to 2026 pre-tax pension expense for Company sponsored pension plans is expected to be negligible.
The following table illustrates the sensitivity to a change in the discount rate for Company sponsored pension plans on its pension obligations:
(in millions)
Impact on PBO
25 basis point decrease in discount rate
25 basis point increase in discount rate
Refer to Note 17, “Retirement Benefit Plans,” to the Consolidated Financial Statements in Item 8 of this Form 10-K for more information regarding the Company’s retirement benefit plans.
Income taxes The Company accounts for income taxes in accordance ASC Topic 740 (ASC 740). Income taxes as presented in the Company’s Consolidated Financial Statements have been allocated in a manner that is systematic, rational, and consistent with the broad principles of ASC 740. For periods ended on or prior to July 3, 2023, the Company’s operations have been included in the Former Parent’s U.S. federal consolidated tax return, certain foreign tax returns, and certain state tax returns. For the purposes of these financial statements, the Company’s
Table of Contents
income tax provision was computed as if the Company filed separate tax returns (i.e., as if the Company had not been included in the consolidated income tax return group with the Former Parent). The separate-return method applies ASC 740 to the Consolidated Financial Statements of each member of a consolidated tax group as if the group member were a separate taxpayer. As a result, actual tax transactions included in the consolidated financial statements of the Former Parent may not be included in these Consolidated Financial Statements. Further, the Company’s tax results as presented in the Consolidated Financial Statements may not be reflective of the results that the Company expects to generate in the future. Also, the tax treatment of certain items reflected in the Consolidated Financial Statements may not be reflected in the Consolidated Financial Statements and tax returns of the Former Parent. Items such as net operating losses, other deferred taxes, income taxes payable, liabilities for uncertain tax positions and valuation allowances may exist in the Consolidated Financial Statements that may or may not exist in the Former Parent’s Consolidated Financial Statements.
For periods subsequent to July 3, 2023, these items are reported based on tax filings and tax attributes of the Company’s legal entities. Indemnification assets and liabilities have been reported for amounts payable to or recoverable from the Former Parent under the Tax Matters Agreement for taxes associated with the period prior to the Spin-Off. The Tax Matters Agreement generally governs our and the Former Parent’s respective rights, responsibilities and obligations after the distribution with respect to taxes for any tax period ending on or before the distribution date, as well as tax periods beginning before and ending after the distribution date. Generally, the Former Parent is liable for all pre-distribution U.S. income taxes, foreign income taxes, certain non-income taxes attributable to our business, and liabilities for taxes that were incurred as a result of restructuring activities undertaken to effectuate the separation. The Company is generally liable for all other taxes attributable to its business.
In accordance with ASC 740, the Company’s income tax expense is calculated based on expected income and statutory tax rates in the various jurisdictions in which the Company operates and requires the use of management’s estimates and judgments. Accounting for income taxes is complex, in part because the Company conducts business globally and, therefore, files income tax returns in numerous tax jurisdictions. Management judgment is required in determining the Company’s worldwide provision for income taxes and recording the related assets and liabilities, including accruals for unrecognized tax benefits and assessing the need for valuation allowances.
The determination of accruals for unrecognized tax benefits includes the application of complex tax laws in a multitude of jurisdictions across the Company’s global operations. Management judgment is required in determining the gross unrecognized tax benefits’ related liabilities. In the ordinary course of the Company’s business, there are many transactions and calculations where the ultimate tax determination is less than certain. Accruals for unrecognized tax benefits are established when, despite the belief that tax positions are supportable, there remain certain positions that do not meet the minimum probability threshold, which is a tax position that is more-likely-than-not to be sustained upon examination by the applicable taxing authority. The Company has certain U.S. state income tax returns and certain non-U.S. income tax returns that are currently under various stages of audit by applicable tax authorities. At December 31, 2025, the Company had a liability for tax positions the Company estimates are not more-likely-than-not to be sustained based on the technical merits, which is included in other non-current liabilities. Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The Company records valuation allowances to reduce the carrying value of deferred tax assets to amounts that it expects are more-likely-than-not to be realized. The Company assesses existing deferred tax assets, net operating losses, and tax credits by jurisdiction and expectations of its ability to utilize these tax attributes through a review of past, current and estimated future taxable income and tax planning strategies.
Estimates of future taxable income, including income generated from prudent and feasible tax planning strategies resulting from actual or planned business and operational developments, could change in the near term, perhaps materially, which may require the Company to consider any potential impact to the assessment of the recoverability of the related deferred tax asset. Such potential impact could be material to the Company’s consolidated financial condition or results of operations for an individual reporting period.
Table of Contents
The Organization for Economic Co-operation and Development (OECD) has a framework to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as Pillar 2), with certain aspects of Pillar 2 effective January 1, 2024 and other aspects effective January 1, 2025. While it is uncertain whether the U.S. will enact legislation to adopt Pillar 2, certain countries in which the Company operates have adopted legislation, and other countries are in the process of introducing legislation to implement Pillar 2. Pillar 2 does not have a material impact to the Company’s effective tax rate or consolidated results of operation, financial position or cash flows.
Refer to Note 7, “Income Taxes,” to the Consolidated Financial Statements in Item 8 of this Form 10-K for more information regarding income taxes.
New Accounting Pronouncements
Refer to Note 1, “Summary of Significant Accounting Policies,” to the Consolidated Financial Statements in Item 8 of this Form 10-K for more information regarding new applicable accounting pronouncements.
