ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion and analysis of financial condition and results of operations (“MD&A”) of Ralliant for the fiscal years ended December 31, 2025 and 2024 should be read in conjunction with the Company’s consolidated and combined financial statements and accompanying notes included in Part II, Item 8 of this Annual Report. This MD&A generally discusses results for the years ended December 31, 2025 and 2024 and includes year-to-year comparisons between such years. Information regarding results for the year ended December 31, 2023 and year-over-year comparisons between the years ended December 31, 2024 and 2023 may be found in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Information Statement filed with the U.S. Securities and Exchange Commission (“SEC”) as an exhibit to the Company’s Form 10-12B/A on May 28, 2025, other than with respect to research and development expense by segment, which is set forth in Operating Expenses within the Results of Operations section below.
This MD&A is designed to provide a reader of the financial statements with a narrative from the perspective of management. This MD&A is divided into seven sections:
• Basis of Presentation
• Overview
• Results of Operations
• Financial Instruments and Risk Management
• Liquidity and Capital Resources
• Critical Accounting Estimates
• New Accounting Standards
BASIS OF PRESENTATION
The accompanying financial results present the historical financial position, results of operations, changes in equity, and cash flows of the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”). On May 27, 2025, the Board of Directors of Fortive Corporation (“Fortive” or the “Former Parent”) approved the separation of Fortive’s Precision Technologies (“PT”) operating segment through the pro rata distribution of all of the issued and outstanding common stock of Ralliant to Fortive's stockholders (the “Separation”), which was completed on June 28, 2025. Prior to the Separation, the Company operated as Fortive’s Precision Technologies segment and not as a standalone company. The combined financial statements as of June 27, 2025 or earlier have been derived from Fortive’s consolidated financial statements and accounting records and prepared in accordance with GAAP for the preparation of carved-out combined financial statements. Through the date of the Separation, all revenues and costs, as well as assets and liabilities, directly associated with the business activity of the Company are included as a component of the combined financial statements. Prior to the Separation, the combined financial statements also included allocations of certain general, administrative, and sales and marketing expenses from Fortive’s corporate office and from other Fortive businesses to the Company. The allocations were determined on a reasonable basis for the applicable periods; however, the amounts were not necessarily representative of the amounts that would have been reflected in the financial statements had the Company been an entity that operated independently of Fortive. Related party allocations prior to the Separation, including the method for such allocation, are discussed further in Note 18 to the consolidated and combined financial statements included in this Annual Report. In the fourth quarter of 2025, the Company made an to its reporting process related to sales by geography to align sales to the end customer. Prior year information has been recast to conform to current year presentation.
These financial results may not be indicative of Ralliant’s financial performance had it been a separate standalone entity throughout the periods presented, nor are the results stated herein indicative of what its financial position, results of operations, and cash flows may be in the future.
OVERVIEW
General
Ralliant is a global technology company with businesses that design, develop, manufacture, and service precision instruments and highly engineered products. The Company empowers engineers with precision technologies essential for breakthrough innovation in an electrified and digital world, enabling its customers to bring advanced technologies to market faster and more efficiently. Its strategic segments – Test and Measurement and Sensors and Safety Systems – include well-known brands with prominent positions across a range of attractive end markets. The Company is headquartered in Raleigh, North Carolina, and has a global team of approximately 7,000 employees with solutions which are used in more than 90 countries by over 90,000 customers.
Ralliant is a multinational business with global operations, where sales derived from customers outside the United States were 48.7% and 49.5% for the years ended December 31, 2025 and December 31, 2024, respectively.
As a company with global operations, Ralliant’s businesses are affected by worldwide, regional, and industry-specific economic and political factors. Its geographic and industry diversity, as well as broad product and service offerings, typically limits the impact of any single industry or the economy of any single country (except for the United States) on its operating results. Given the broad range of its offerings and the geographies served, the Company does not use any indices other than general economic trends to predict the overall outlook for the Company. The Company monitors key competitors and customers, including their sales to the extent possible, to gauge relative performance and the outlook for the markets within which it competes.
Ralliant operates in a highly competitive business environment and its long-term growth and profitability will depend, in particular, on its ability to execute across geographies and end markets, develop innovative and differentiated new product offerings, continue to reduce costs, improve operating efficiency, and attract, retain, and develop an empowered workforce. The Company makes, and expects to continue to make, investments in research and development, customer-facing resources, its workforce and its manufacturing capabilities and capacity to meet the needs of its customers.
Recent and ongoing changes to U.S. tariff policy have resulted in broad-based increases in tariff rates, and several countries, including China, have imposed or threatened to impose retaliatory measures on imports from the U.S. The U.S. government has announced various modifications to its tariff policy, and further changes may be made in the future. Changes to trade policies, retaliatory measures, and sustained uncertainty in global trade relationships have negatively impacted, and are expected to continue to negatively impact, the Company’s operations and financial results, including through resulting supply chain disruptions, increased input costs, delayed shipments, and increased operational complexities and costs. Additionally, these developments have contributed in the past and may in the future contribute to adverse macroeconomic conditions and increased economic nationalism, which could further reduce demand for the Company’s products and negatively impact its business.
The Company continues to evaluate the evolving impact of these tariffs, as the application and imposition of these tariffs remain unpredictable. The Company continues to deploy the Ralliant Business System (“RBS”), including tools and processes to leverage existing sourcing strategies and optimize production and logistics, to actively manage these challenges and utilize pricing, cost, and productivity actions and other countermeasures to offset the aforementioned dynamics.
Non-GAAP Measures
In this Annual Report, references to sales from existing businesses (“organic revenue”) refer to sales from operations calculated according to GAAP but exclude (1) the impact from acquired and divested businesses and (2) the impact of foreign currency translation. The portion of sales attributable to acquisitions or acquired businesses refers to sales from acquisitions or acquired businesses prior to the first anniversary of the acquisition date, less the amount of sales attributable to certain businesses or product lines that, at the time of reporting, have been divested or are pending divestiture, but are not, and will not be, considered discontinued operations, prior to the first anniversary of the divestiture. The portion of sales attributable to the impact of foreign currency translation is calculated as the difference between (a) the period-to-period change in sales (excluding sales impact from acquired businesses) and (b) the period-to-period change in sales (excluding sales impact from acquired businesses) after applying the current period foreign exchange rates to the prior year period. Organic revenue should be considered in addition to, and not as a replacement for or superior to, sales from operations, and may not be comparable to similarly titled measures reported by other companies.
Management believes that reporting the non-GAAP financial measure of organic revenue, which excludes the effects of acquisitions and divestitures and foreign currency translation, provides useful information to investors by helping identify underlying growth trends in the Company’s business and facilitating comparisons of its sales performance with its performance in prior and future periods and to its peers. The Company excludes the effect of acquisition- and divestiture-related sales because the nature, size, and number of such transactions can vary dramatically from period to period and between the Company and the Company’s peers. The Company excludes the effect of foreign currency translation from organic revenue because the impact of foreign currency translation is not under management’s control and is subject to volatility.
Acquisitions
EA Elektro-Automatik Holding GmbH (“EA”), a leading supplier of high-power electronic test solutions for energy storage, mobility, hydrogen, and renewable energy applications, was acquired in January 2024. The acquisition of EA bolsters Ralliant’s innovative portfolio of products and services for engineers with complementary test and measurement solutions enabling the global energy transition. The total consideration paid was approximately $1.72 billion, net of acquired cash. Ralliant recorded approximately $1.18 billion of goodwill within its Test and Measurement segment related to the EA acquisition, which was not tax deductible. The Company anticipates future tax benefits as a result of the transaction.
Divestitures
In June 2024, Invetech, excluding the Dover Motion Business, was divested to Invetech’s management team (the “Invetech Divestiture”). As a result of the Invetech Divestiture, in the year ended December 31, 2024, a net realized loss of $25.6 million was recorded, which is identified as Loss from divestiture in the Consolidated and Combined Statements of (Loss) Earnings. The Invetech Divestiture did not represent a strategic shift with a major effect on the Ralliant’s operations and financial results, and therefore the divested businesses are not reported as discontinued operations.
Other Matters
In the third quarter of 2025, the Company announced a Cost Savings program, targeting $9 million to $11 million of annualized cost savings, which is expected to be completed by December 31, 2026. The nature of the activities is focused on spin-related dis-synergies within the Test & Measurement segment. In the fourth quarter of 2024, Ralliant initiated a discrete restructuring plan that was completed as of December 31, 2025. The nature of the activities in the plan was related to the separation from the Former Parent and consisted primarily of targeted workforce reductions to realign the cost structure. Ralliant incurred restructuring charges of $13.1 million and $8.5 million during the years ended December 31, 2025 and 2024, respectively. These charges are recorded within Cost of sales and Selling, general, and administrative expenses in the Consolidated and Combined Statements of (Loss) Earnings.
RESULTS OF OPERATIONS
Selected Financial Data
Year Ended December 31,
($ in millions)
Sales
Operating (loss) profit
Depreciation
Amortization
Operating (loss) profit as a % of sales
Depreciation as a % of sales
Amortization as a % of sales
Components of Sales Growth
Total revenue growth (GAAP)
Impact of:
Acquisitions and divestitures
Currency exchange rates
Organic revenue growth (Non-GAAP)
Sales
Sales decreased by 4.0% in 2025 compared with 2024, primarily driven by 4.1% decrease from organic revenue and a 0.5% decrease from the Invetech Divestiture, partially offset by 0.6% increase from favorable foreign currency exchange rates. The decrease in organic revenue year-over-year included volume declines of 7.3%, partially offset by favorable pricing of 3.2%.
Geographically, the sales decrease of 4.0% year-over-year was driven by a 12.2% decline in Western Europe, 2.6% decline in North America, and 7.3% decline in China, partially offset by 1.4% growth in the rest of the world.
See the Test and Measurement and Sensors and Safety Systems sections below for further discussion of year-over-year sales analysis.
Operating (Loss) Profit Margins
Operating loss margin was 57.2% for 2025, resulting primarily from the Test and Measurement goodwill impairment charge of $1.44 billion in 2025, primarily driven by revised expectations for the EA Elektro-Automatik business, reflecting slower-than-anticipated progression and recent reduction in industry forecasts of future electric vehicle (“EV”) adoption, compared with operating profit margin of 21.3% for 2024. Additional drivers of the change in operating margin primarily included the following:
• The year-over-year decrease in results from existing businesses — unfavorable 550 basis points, primarily driven by:
◦ -315 basis points from other employee costs related to higher compensation, benefits, and contract dis-synergies, allocated to the segments; -280 basis points driven by volume reduction; -170 basis points from standalone public company costs; partially offset by 180 basis points from price increases to offset the impact from tariff headwinds.
◦ As a separate public company, Ralliant incurred incremental spin-related expenses including other employee costs and incremental standalone public company costs such as corporate governance costs, including audit and other professional services fees, consulting, legal fees, and stock exchange listing fees that are reported as unallocated corporate costs.
• The year-over-year effect of the gain on sale of land and certain office buildings in 2024 — unfavorable 290 basis points.
• The stock-based compensation modification expense resulting from the conversion of Fortive equity awards in the third quarter as a result of the Separation — unfavorable 100 basis points.
• The year-over-year net effect of acquisition- and divestiture-related transaction costs incurred in 2024, primarily related to the EA acquisition — favorable 125 basis points.
Business Segments and Geographic Area Results
Sales by business segment and geographic area were as follows:
Year Ended December 31,
($ in millions)
Segments
Test and Measurement
Sensors and Safety Systems
Total
Geographic area
United States
China
All other
Total
TEST AND MEASUREMENT
The Company’s Test and Measurement segment provides precision test and measurement instruments, systems, software, and services. Through its portfolio of industry leading solutions, including oscilloscopes, probes, source measuring units, semiconductor test systems, high-power bi-directional power supplies, and measurement analysis software packages, the Test and Measurement segment empowers scientists, engineers, and technicians to create and realize technological advances with ever greater efficiency, speed, and accuracy.
Test and Measurement Selected Financial Data
Year Ended December 31,
($ in millions)
Sales
Operating (loss) profit
Depreciation
Amortization
Operating (loss) profit as a % of sales
Depreciation as a % of sales
Amortization as a % of sales
Components of Sales Growth
Total revenue growth (GAAP)
Impact of:
Currency exchange rates
Organic revenue growth (Non-GAAP)
The sales result for 2025 was primarily driven by decreases in organic revenue of 15.3%, partially offset by the favorable impact from foreign currency exchange rates.
The decrease in organic revenue was primarily attributable to declines in sales volumes of 17.4%, primarily in product lines for oscilloscopes and related accessories and high-power solutions which were driven by demand weakness across end markets, partially offset by year-over-year price increases of 2.1%.
Geographically, the sales decrease of 14.5% year-over-year was driven by 15.0% decline in North America, 23.6% decline in Western Europe, 17.3% decline in China, and 2.5% decline in the rest of the world.
Operating loss margin was 182.8% for 2025, resulting primarily from the goodwill impairment charge of $1.44 billion, compared with operating profit margin of 13.1% for 2024. Additional drivers of the change in operating margin primarily included the following:
• The year-over-year decrease in results from existing businesses — unfavorable 1,000 basis points, primarily driven by:
◦ -750 basis points driven by volume declines due to demand weakness in end markets, primarily diversified electronics, net of price increases; and -280 basis points primarily from other employee costs related to higher compensation, benefits, and contract dis-synergies, allocated from corporate.
• The year-over-year effect of the gain on sale of land and certain office buildings in 2024 — unfavorable 675 basis points.
• The year-over-year effect of acquisition-related transaction costs incurred in 2024 related to the EA acquisition — favorable 300 basis points.
SENSORS AND SAFETY SYSTEMS
The Company’s Sensors and Safety Systems segment provides leading power grid monitoring solutions, safety systems for mission critical defense and space applications, and sensing solutions for critical environments where uptime, precision, and reliability are essential. The Sensors and Safety Systems segment provides advanced monitoring, protection, and diagnostic solutions for high-voltage electrical assets in power generation, transmission, and distribution. The segment’s energetic materials, ignition safety systems, and precision pyrotechnic devices are used in mission-critical applications such as satellite deployment, rocket propulsion initiation, aerial vehicle safety systems, and military defense systems. The Sensors and Safety Systems segment also provides premium sensing products encompassing liquid level, flow, and pressure sensors, motion sensors and components, and hygienic sensors.
Sensors and Safety Systems Selected Financial Data
Year Ended December 31,
($ in millions)
Sales
Operating profit
Depreciation
Amortization
Operating profit as a % of sales
Depreciation as a % of sales
Amortization as a % of sales
Components of Sales Growth
Total revenue growth (GAAP)
Impact of:
Acquisitions and divestitures
Currency exchange rates
Organic revenue growth (Non-GAAP)
The sales result for 2025 was driven by price and volume increases of 4.6%, partially offset by the 0.9% unfavorable impact from the Invetech Divestiture.
Year-over-year price increases in the Sensors and Safety Systems segment contributed 4.1% to sales growth in 2025 compared with 2024 and is reflected as a component of the change in organic revenue. The net volume increase year-over-year resulted primarily from increases in utilities, partially offset by declines in automation and control applications and liquid and air sensors.
Geographically, the sales increase of 4.1% year-over-year was driven by 2.9% growth in North America, 12.7% growth in China, 5.7% growth in the rest of the world, and 2.3% growth in Western Europe.
Operating profit margin was 26.9% for 2025, a decrease of 80 basis points compared with 27.7% for 2024, primarily driven by -315 basis points from other employee costs related to higher compensation, benefits, and contract dis-synergies, allocated from corporate; 145 net basis points from price increases, partially offset by unfavorable product mix and 90 basis points favorable impact from the Invetech Divestiture.
COST OF SALES AND GROSS PROFIT
Year Ended December 31,
($ in millions)
Sales
Cost of sales
Gross profit
Gross profit margin
The year-over-year decrease in gross profit during 2025 compared with 2024 was primarily due to net volume declines, higher employee compensation costs, and tariffs, partially offset by year-over-year increases in price.
OPERATING EXPENSES
Year Ended December 31,
($ in millions)
Sales
Selling, general, and administrative (“SG&A”) expenses
Research and development (“R&D”) expenses
Goodwill Impairment
SG&A as a % of sales
R&D as a % of sales
SG&A expenses increased during 2025 compared with 2024 primarily due to spin-related expenses including other employee costs related to higher compensation, benefits, and contract dis-synergies, which were all allocated to the segments, standalone public company costs to establish a separate corporate function, and the stock-based compensation modification expense resulting from the conversion of Fortive equity awards upon the Separation; partially offset by lower year-over-year transaction expenses related to the EA acquisition in 2024 and benefits from productivity measures through RBS initiatives.
R&D expenses, consisting principally of internal and contract engineering personnel costs, remained consistent in total and at the segment level during 2025 compared with 2024 and 2023. For the years ended December 31, 2025, 2024, and 2023, R&D expenses were $128.8 million, $129.6 million, and $127.9 million, respectively, for the Test and Measurement segment and were $36.2 million, $33.9 million, and $33.6 million, respectively, for the Sensors and Safety Systems segment.
The Test and Measurement goodwill impairment charge of $1.44 billion, recorded in fiscal year ended December 31, 2025, was primarily driven by revised expectations for the EA Elektro-Automatik business, reflecting slower-than-anticipated progression and recent reduction in industry forecasts of future EV adoption.
NON-OPERATING INCOME (EXPENSE), NET
During the year ended December 31, 2025, the Company recognized interest expense of $32.3 million resulting from the Company’s debt. There was no interest expense in 2024. For a discussion of the Company’s long-term debt, refer to Note 9 to the consolidated and combined financial statements included in this Annual Report. During the year ended December 31, 2024, the Company recognized a net loss of $25.6 million related to the Invetech Divestiture. For further discussion of this transaction, refer to Note 1 and Note 3 to the consolidated and combined financial statements included in this Annual Report.
INCOME TAXES
General
Income tax expense and deferred tax assets and liabilities reflect management’s assessment of future taxes expected to be paid on items reflected in the Company’s consolidated and combined financial statements. The Company records the tax effect of discrete items and items that are reported net of their tax effects in the period in which they occur.
Ralliant’s effective tax rate can be affected by, among other things, changes in the mix of earnings in countries with differing statutory tax rates (including as a result of business acquisitions and dispositions), changes in the valuation of deferred tax assets and liabilities, accruals related to contingent tax liabilities and period-to-period changes in such accruals, the results of audits and examinations of previously filed tax returns (as discussed below), the expiration of statutes of limitations, the implementation of tax planning strategies, tax rulings, court decisions, settlements with tax authorities, and changes in tax laws.
Ralliant is subject to income, transaction, and other taxes in the United States and in multiple foreign jurisdictions. The Company’s future income tax provision, cash taxes paid, and effective tax rates could be volatile and difficult to predict due to changes in: business profit by jurisdiction, the amount and recognition of deferred tax assets and liabilities, the structure of legal entities, intercompany arrangements, foreign functional currency exchange rates, or applicable tax laws or policies, including interpretations or retroactive applications thereof, tax regulations, or accounting principles. For example, the Organization for Economic Co-operation and Development (“OECD”) continues to advance proposals for modernizing international tax rules, including the introduction of global minimum tax standards. The Company closely monitors changes to tax laws, regulations, accounting principles, and global tax standards, and at the time of a change, the related expense or benefit recorded may be material to the quarter and year of change. Furthermore, certain tax laws are inherently ambiguous requiring subjective interpretation on the application thereof. The Company’s interpretation and the corresponding amount of taxes it pays is, and may in the future continue to be, subject to audits by U.S. federal, state, and local tax authorities and by non-U.S. tax authorities. If these audits result in payments or assessments different from the Company’s reserves, its future results may include adjustments to its tax liabilities and the Company’s financial statements could be affected.
The Company is routinely examined by various domestic and international taxing authorities. In connection with the Separation, the Company entered into certain agreements with Fortive, including a tax matters agreement (the “Tax Matters Agreement”). The Tax Matters Agreement distinguishes between the treatment of tax matters for “Joint” filings compared to “Separate” filings prior to the Separation. “Joint” filings involve legal entities, such as those in the United States, that include operations from both Fortive and the Company. By contrast, “Separate” filings involve certain entities (primarily outside of the United States) that exclusively include either Fortive’s or the Company’s operations. In accordance with the Tax Matters Agreement, Fortive is liable for and has indemnified the Company
against all income tax liabilities involving “Joint” filings for periods prior to the Separation. The Company remains liable for certain pre-Separation income tax liabilities including those related to the Company’s “Separate” filings.
The amount of income taxes the Company pays is subject to ongoing audits by federal, state, and foreign tax authorities, which often result in proposed assessments. Management performs a comprehensive review of the Company’s global tax positions on a quarterly basis. Based on these reviews, the results of discussions and resolutions of matters with certain tax authorities, tax audit assessments, tax rulings and court decisions, and the expiration of statutes of limitations, reserves for contingent tax liabilities are accrued or adjusted as necessary.
Furthermore, changes in multilateral agreements and the tax laws of foreign jurisdictions could arise as a result of the base erosion and profit shifting project undertaken by the OECD and could significantly increase the Company’s tax provision, cash taxes paid, and effective tax rate in future years. The OECD has issued significant global tax policy changes that include both expanded reporting as well as technical global tax policy changes. During 2021, an agreed framework and model rules for a global minimum corporate tax rate of fifteen percent (15%) was released by the OECD. Many countries in which the Company operates have implemented legislation to align with model rules and with effective dates spanning from 2024 through 2025. The impact of the OECD framework for a “Pillar Two” global minimum corporate income tax rate of 15% has been included within the provision for income taxes. In January 2026, the OECD issued additional administrative guidance related to Pillar Two. The Company is evaluating the impact of this guidance on its global minimum tax exposure. Based on current information, the Company does not expect a material impact on its consolidated and condensed financial statements.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, including, but not limited to, the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act (“TCJA”), modifications to the international tax framework and the restoration of favorable tax treatment for certain business investments. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The OBBBA is expected to provide significant cash tax benefits to the Company in 2025 through 2027. In addition, as a result of the retroactive treatment for research and experimental expenditures enacted under OBBBA, Ralliant was notified of Fortive’s intent to accelerate the amortization of previously capitalized research and experimental expenditures. Accordingly, Ralliant reduced its deferred tax assets by approximately $57.0 million in 2025.
For a discussion of risks related to these and other tax matters, please refer to “Item 1A. Risk Factors” in this Annual Report.
Effective Tax Rate
The following table summarizes the Company’s effective tax rate:
Year Ended December 31,
Effective tax rate
Ralliant’s effective tax rate for 2025 differs from the U.S. federal statutory rate of 21% due primarily to non-deductible goodwill impairment, the enacted reduction in the German corporate tax rate on deferred tax balances, and the positive effects of the TCJA.
Ralliant’s effective tax rate for 2024 differs from the U.S. federal statutory rate of 21% due primarily to the impacts of credits and deductions provided by law, including those associated with state income taxes, and changes in the Company’s uncertain tax position reserves.
COMPREHENSIVE INCOME
Comprehensive income decreased by $1.19 billion in 2025 compared with 2024 due to a decrease in net income of $1.58 billion, primarily driven by the Goodwill impairment of $1.44 billion, partially offset by favorable changes in foreign currency translation of $380.8 million.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Ralliant is exposed to market risk from changes in interest rates, foreign currency exchange rates, credit risk, and commodity prices, each of which could impact the Company’s financial results. The Company generally addresses its exposure to these risks through the Company’s normal operating and financing activities.
Interest Rate Risk
As of December 31, 2025, Ralliant’s outstanding debt consisted solely of variable rate, USD denominated term loans. The average effective rate for these loans was 5.5% in 2025, with interest expense of $32.7 million. Since drawing the term loans on June 27, 2025, the Company has made two interest elections, one for a period of six months and one for a period of three months. At the end of each interest period, the Company can choose a new period, with the resulting term being as short as a single day or as long as six months. To date, the Company has not used derivative financial instruments to manage the risk inherent within these floating rate instruments. As a result, each time a new interest period is elected, the Company is exposed to the then current market rates. Both positive and negative movements in interest rates will therefore affect the Company’s interest expense reported in the consolidated and combined statements of earnings. A hypothetical 100 basis point increase in interest rates would have resulted in approximately $6.0 million of additional interest expense in 2025. For further discussion of risks relating to interest rates, refer to “Item 1A. Risk Factors” in this Annual Report.
Foreign Currency Exchange Rate Risk
The Company faces transactional exchange rate risk from transactions with customers in countries outside of the United States and from intercompany transactions between affiliates. Transactional exchange rate risk arises from the purchase and sale of goods and services in currencies other than the Company’s functional currency or the functional currency of an applicable subsidiary. The Company also is exposed to translational exchange rate risk related to the translation of financial statements of the Company’s foreign operations into U.S. dollars, its functional currency. Costs incurred and sales recorded by subsidiaries operating outside of the United States are translated into U.S. dollars using exchange rates effective during the respective period. As a result, the Company is exposed to movements in the exchange rates of various currencies against the U.S. dollar. The effect of a change in currency exchange rates on the Company’s net investment in international subsidiaries is reflected in the Accumulated other comprehensive loss component of equity. A 10% depreciation in major currencies relative to the U.S. dollar as of December 31, 2025 would have resulted in a reduction of foreign currency denominated net assets and equity of approximately $234 million.
Currency exchange rates favorably impacted 2025 reported sales by 0.6% compared with 2024, as the U.S. dollar was, on average, weaker against most major currencies during 2025 compared with exchange rate levels during 2024. If the exchange rates in effect as of December 31, 2025 were to prevail throughout 2026, currency exchange rates would positively impact 2026 estimated sales by approximately 0.7% relative to the Company’s performance in 2025. In general, additional weakening of the U.S. dollar against other major currencies would further positively impact the Company’s sales and results of operations on an overall basis.
The Company has generally accepted the exposure to exchange rate movements without using derivative financial instruments to manage this risk. Both positive and negative movements in currency exchange rates against the U.S. dollar will therefore continue to affect the reported amount of sales, profit, and assets and liabilities in the Company’s consolidated and combined financial statements.
Credit Risk
Ralliant is exposed to potential credit losses from customer insolvency. The Company believes this risk is limited due to customer diversity across industry, geography, and product. The Company’s businesses perform customer credit evaluations as appropriate and take action to limit potential losses when risks are identified. The Company places cash and cash equivalents with multiple high-quality financial institutions to limit risk at any one institution.
Commodity Price Risk
The Company’s manufacturing and other operations employ a wide variety of components, raw materials, and other commodities, exposing its business to commodity price risk. The Company manages commodity price risk through diversification, strategic procurement, and continuous monitoring. The Company diversifies its commodity and spend portfolios to limit exposure to any single commodity or producer or manufacturer, reducing the potential impact of price fluctuations on the overall business performance. Ralliant’s procurement teams negotiate supplier contracts that include favorable pricing mechanisms where possible, allowing the Company to adapt to changing market conditions and reduce the risk of price escalations. The Company tracks commodity markets to assess potential risks and develop strategies to manage them effectively. For further discussion of risks relating to commodity prices, refer to “Item 1A. Risk Factors” in this Annual Report.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Separation, Ralliant was dependent upon Fortive for all funding needs. For the six months ended June 27, 2025, only cash, cash equivalents, and borrowings clearly associated with Ralliant (including the financing transactions described below) have been included in the consolidated and combined financial statements in this Annual Report. Financial transactions relating to business operations prior to the Separation were accounted for through the Net Former Parent investment account of the Company.
Following the Separation, management independently assesses the Company’s ability to generate cash to fund operating and investing activities. The Company believes operating cash flow and other sources of liquidity, will, after giving effect to any dividend payments and debt servicing obligations, be sufficient to fund the Company’s existing businesses, consummate strategic acquisitions, fulfill its contractual obligations, and manage its capital structure on a short- and long-term basis.
On May 15, 2025 (the “Closing Date”), the Company en tered into a credit agreement (the “Credit Agreement”), with a syndicate of banks. This included an eighteen month, $600.0 million senior unsecured delayed-draw term loan facility (the “Eighteen-Month Term Loan”), a three-year, $700.0 million senior unsecured delayed-draw term loan facility (the “Three-Year Term Loan”, and together with the Eighteen-Month Term Loan, the “Term Loans”) and a five-year $750.0 million senior unsecured multi-currency revolving credit facility, including a $25.0 million sublimit for swingline loans and a $75.0 million sublimit for the issuance of letters of credit (the “Revolving Credit Facility” and, together with the Term Loans, the “Credit Facilities”). The Credit Agreement contains an option to request increases of the Credit Facilities (in any combination thereof) of up to an aggregate amount of $500.0 million, subject to lender agreement, and upon the satisfaction of certain conditions.
On June 27, 2025, $1.15 billion was drawn pro rata under the Term Loans. Proceeds were used to pay Fortive for the contribution of assets to Ralliant by Fortive in connection with the Separation. Refer to Note 5 to the consolidated and combined financial statements included in this Annual Report for more information related to the Company’s long-term indebtedness.
Borrowings under the Credit Agreement are prepayable at any time in whole or in part without premium or penalty. Term Loans may not be reborrowed once repaid. Amounts borrowed under the Revolving Credit Facility may be repaid and reborrowed prior to the maturity date.
Ralliant must maintain a Consolidated Net Leverage Ratio, as defined by the Credit Agreement, of 3.50 to 1.00 or less; provided that, not more than two times after the Closing Date of the Credit Agreement, the maximum Consolidated Net Leverage Ratio may be increased to 4.00 to 1.00 in connection with any permitted acquisition by Ralliant occurring after the Closing Date with aggregate consideration (including, without duplication, the assumption or incurrence of indebtedness in connection with such acquisition) equal to or in excess of $100.0 million, which such increase shall be applicable for the fiscal quarter in which such acquisition is consummated and the three consecutive quarters thereafter; provided that, there shall be at least one full fiscal quarter following the cessation of each such increase during which no such increase shall then be in effect. The Consolidated Net Leverage Ratio is calculated at the end of each fiscal quarter and commenced in the fiscal quarter ending September 26, 2025.
On November 24, 2025, Ralliant, entered into Amendment No. 1 to the Credit Agreement (the “Amendment”). The Amendment (i) removes the credit spread adjustment and thereby reduces the Term SOFR interest rate applicable to the Company’s revolving credit facility and term loans by 0.10%, (ii) eliminates the ratings-based pricing grid that previously applied to the Company’s revolving credit facility and term loans upon receipt of a debt rating, and (iii) permanently reduces the outstanding undrawn commitments by the applicable lenders under the Three-Year Term Loan and the Eighteen-Month Term Loan to $0, thereby eliminating the 0.125% ticking fee on undrawn term loan commitments. All other material terms of the Credit Agreement remain in full force and effect as originally executed.
The Term Loans contain customary covenants. None of these covenants are considered restrictive to Ralliant’s operations. As of December 31, 2025, Ralliant was in compliance with all of the covenants under the Credit Agreement and the Amendment.
The Company cannot assure that its net cash provided by operating activities, cash and equivalents, or cash available under its Credit Facilities will be sufficient to meet its future needs. If the Company is unable to generate sufficient cash flows from operations and if availability under its Credit Facilities is not sufficient, the Company may have to obtain additional financing. If additional capital is obtained by issuing equity, the interests of existing stockholders will be diluted. If the Company incurs additional indebtedness, that indebtedness may contain financial and other covenants which significantly restrict its operations. The Company cannot assure that it could obtain refinancing or additional financing on favorable terms or at all.
On June 28, 2025, the Company's Board of Directors approved a share repurchase authorization of up to $200.0 million of the Company’s common stock. The timing and amount of share repurchases will be determined by the Company based on its evaluation of market conditions and other factors. The share repurchase authorization has no expiration date, does not obligate the Company to acquire any particular amount of shares, and may be suspended or discontinued at any time. The share repurchase authorization is consistent with the Company's capital allocation strategy to prioritize returning capital to shareholders. No share repurchases have occurred as of December 31, 2025. Subsequent to December 31, 2025, the Company repurchased 1.2 million shares at an average price of $42.40 for a total cost of $50.0 million, leaving $150.0 million remaining under the share repurchase authorization.
On January 29, 2026, the Board declared a quarterly common stock dividend of $0.05 per share, which is payable on March 23, 2026 to stockholders of record as of the close of business on March 9, 2026.
Overview of Cash Flows and Liquidity
Following is an overview of the Company’s cash flows and liquidity:
Year Ended December 31,
($ in millions)
Net cash provided by operating activities
Purchases of property, plant and equipment
Proceeds from sale of property
Cash paid for acquisitions, net of cash received
Cash infusion into divestiture
All other investing activities
Net cash used in investing activities
Proceeds from borrowings
Consideration paid to Former Parent in connection with Separation
Net transfers (to) from Former Parent
Dividends paid
All other financing activities
Net cash (used in) provided by financing activities
Operating Activities
Net cash provided by operating activities can fluctuate significantly from period-to-period as working capital needs and the timing of payments for income taxes, interest, pension funding, and other items impact reported cash flows.
Net cash provided by operating activities was $397.6 million in 2025, representing a decrease of $56.9 million compared with 2024. The year-over-year change in net cash provided by operating activities was primarily attributable to the following factors:
• A year-over-year decrease of $63.7 million in Net (loss) earnings, net of non-cash items (Goodwill impairment, Amortization, Depreciation, Stock-based compensation, Gain on sale of property, net of Loss from divestiture).
• The aggregate changes in Accounts receivable, Inventories, net, and Trade accounts payable generated $5.8 million of cash during 2025 compared with generating $48.2 million during 2024. The amount of cash flow generated from or used by the aggregate of trade accounts receivable, inventories, net, and trade accounts payable depends upon how effectively the cash conversion cycle is managed, which generally represents the number of days that elapse from the day the Company pays for the purchase of raw materials and components to the collection of cash from its customers, and can be significantly impacted by the timing of collections and payments in a period. The higher cash provided by operating activities in 2024 was primarily driven by lower inventory levels and the negotiation of extended payment terms of the Company’s supplier contracts.
• The aggregate changes in Prepaid expenses and other current assets, Accrued expenses and other liabilities, and deferred income taxes generated $0.9 million of cash during 2025 compared with using $48.3 million of cash in the comparable period of 2024. The year-over-year changes were dependent upon how effectively the Company managed the cash conversion cycle and driven by timing differences related to contract assets, contract liabilities, payments of employee compensation, income taxes, and interest.
Investing Activities
Net cash used in investing activities decreased by $1.67 billion during 2025 compared with 2024, primarily due to acquisition-related activity in the prior year.
Capital expenditures are made primarily for increasing production capacity, replacing aged equipment, supporting product development initiatives for product offerings, and improving information technology systems. Capital expenditures totaled $39.2 million in 2025 and $34.3 million in 2024.
Financing Activities
Net cash provided by financing activities reflects Proceeds from borrowings, net of issuance costs, of $1.15 billion, offset by the Consideration paid to Former Parent in connection with the Separation of $1.15 billion. Other financing activity includes net cash transferred to Former Parent during 2025 of $43.0 million, primarily related to the cash adjustment paid to Fortive in accordance with the Separation and Distribution Agreement and the payments made in the period related to the Tax Matters Agreement.
Cash and Cash Requirements
Cash
The Company held $318.8 million of Cash and equivalents as of December 31, 2025 and no Cash and equivalents as of December 31, 2024.
The Company requires cash to fund working capital, capital expenditures and acquisitions, pay interest and service debt, pay taxes and any related interest or penalties, fund pension plans as required, pay dividends to shareholders, and support other business needs or objectives. The Company generally intends to use available cash and internally generated funds to meet these cash requirements, but in the event that additional liquidity is required, particularly in connection with acquisitions and repayment of maturing debt, the Company may also borrow under its
Credit Facilities or enter into new credit facilities to borrow directly thereunder. It also may access the capital markets, including to take advantage of favorable interest rate environments or other market conditions.
Foreign cumulative earnings remain subject to foreign remittance taxes. The Company has made an election regarding the amount of earnings that it does not intend to repatriate due to local working capital needs, local law restrictions, high foreign remittance costs, previous investments in physical assets and acquisitions, or future growth needs. For most of its foreign operations, the Company makes an assertion regarding the amount of earnings in excess of intended repatriation that are expected to be held for indefinite reinvestment. No provisions for foreign remittance taxes have been made with respect to earnings that are planned to be reinvested indefinitely. The amount of foreign remittance taxes that may be applicable to such earnings is not readily determinable given local law restrictions that may apply to a portion of such earnings, unknown changes in foreign tax law that may occur during the applicable restriction periods caused by applicable local corporate law for cash repatriation, and the various tax planning alternatives it could employ if the Company repatriated these earnings.
Cash Requirements
The following table sets forth a summary of Ralliant’s short-term and long-term cash requirements as of December 31, 2025 under (1) long-term debt principal and interest obligations, (2) leases, and (3) purchase obligations. The table below does not reflect any other such obligations, as the timing and amounts of any such payments are uncertain.
Total
Due within one year of December 31, 2025
Due later than one year from December 31, 2025
Commitments:
Long-term debt principal payments (a)
Interest payments on long-term debt (b)
Operating lease obligations (c)
Purchase obligations (d)
Total
(a) The amount due within one year of December 31, 2025 is related to the Eighteen-Month Term Loan due December 2026. Refer to Note 9 to the consolidated and combined financial statements included in this Annual Report for additional information regarding the Company’s indebtedness as of December 31, 2025.
(b) Interest payments on long-term debt are projected for future periods using the interest rates in effect as of December 31, 2025. Certain of these projected interest payments may differ in the future based on changes in market interest rates.
(c) Includes future lease payments for operating leases having initial noncancelable lease terms in excess of one year.
(d) Consist of agreements to purchase goods or services that are enforceable and legally binding on Ralliant and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum, or variable price provisions, and the approximate timing of the transaction.
Other liabilities reflected on the balance sheet under GAAP includes $190.3 million due within one year of December 31, 2025 and $235.6 million due later than one year from December 31, 2025. The other liabilities primarily consisted of $260.5 million of compensation obligations, post-retirement benefits, pension benefit obligations, estimated environmental remediation costs, and self-insurance and litigation claims and $165.4 million net income tax liabilities. The timing of cash flows associated with these obligations was based upon management’s estimates over the terms of these arrangements and was largely based upon historical experience.
During 2025, Ralliant contributed $4.9 million to its non-U.S. defined benefit pension plans. During 2026, the Company’s cash contribution requirements for its non-U.S. defined benefit pension plans are expected to be approximately $5.7 million. Ralliant’s contributions to its U.S. defined benefit pension plans were immaterial in 2025 and are expected to be immaterial in 2026. The ultimate amounts the Company will contribute depends upon, among other things, legal requirements, underlying asset returns, the plan’s funded status, the anticipated tax deductibility of the contribution, local practices, market conditions, interest rates, and other factors.
Pursuant to the terms of the Tax Matters Agreement, Ralliant is required to reimburse Fortive or pay taxing authorities directly for an amount contractually agreed with Fortive of approximately $51.0 million. Of the approximately $51.0 million of tax transaction costs, $50.0 million was paid during 2025 and $1.1 million was accrued as a payable due to Fortive as of December 31, 2025. The total tax transaction costs of $51.0 million were recognized in the third quarter and were recorded as an offset to additional paid-in capital as the items represent a settlement with the Former Parent in accordance with the Tax Matters Agreement.
Borrowings under the Credit Facilities bear interest as described in Note 9 to the consolidated and combined financial statements included in this Annual Report. At facility close, Ralliant made an interest election of six-month Secured Overnight Financing Rate (“SOFR”). The first related interest payment of $16.4 million was paid on September 29, 2025 and the second payment of $15.8 million was paid on December 29, 2025, at which time a new three-month SOFR interest election was made.
As of December 31, 2025, the Company believes it has sufficient liquidity to satisfy its cash needs for the next 12 months and foreseeable future. Management expects to refinance its Eighteen-Month Term Loan prior to its maturity in December 2026.
CRITICAL ACCOUNTING ESTIMATES
Management’s discussion and analysis of Ralliant’s financial condition and results of operations is based upon the Company’s consolidated and combined financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company bases these estimates and judgments on historical experience, the current economic environment, and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ materially from these estimates and judgments.
The Company believes the following accounting estimates are most critical to an understanding of its financial statements. Estimates are considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions about material matters that are uncertain at the time the estimate is made, and (2) material changes in the estimate are reasonably likely from period to period. For a detailed discussion on the application of these and other accounting estimates, refer to Note 2 to the consolidated and combined financial statements included in this Annual Report.
Business Combinations
The Company accounts for business combinations using the acquisition method of accounting. Under the acquisition method, the consolidated and combined financial statements reflect the operations of an acquired business starting from the closing date of the acquisition. All assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. Business combinations typically result in the recognition of goodwill, developed technology, and other intangible assets, which affect the amount of future period amortization expense and possible impairment charges that the Company may incur. The fair value of acquired intangible assets is determined using information available near the acquisition date based on estimates and assumptions that are deemed reasonable by the Company but are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Significant judgment is required in estimating the fair value of assets acquired and liabilities assumed and in assigning useful lives to certain definite-lived intangible and tangible assets. Significant assumptions include the discount rates and certain assumptions that form the basis of the forecasted cash flows of the acquired business including earnings before interest, taxes, depreciation, and amortization (“EBITDA”), revenue, revenue growth rates, royalty rates, customer attrition rates, and technology obsolescence rates. These assumptions are forward looking and could be affected by future economic and market conditions. If the actual results differ from the estimates and judgments used, the amounts of intangible assets and goodwill recorded in the consolidated and combined financial statements may be subject to , as discussed in the "Goodwill and Other Indefinite-Lived Intangible Assets" section below. The Company engages third-party valuation specialists who review the Company’s assumptions and calculations of the fair value of acquired intangible assets in connection with material acquisitions. In connection with the EA acquisition in the first quarter of 2024, the Company recorded approximately $1.18 billion of goodwill and approximately $681.2 million of intangible assets. Refer to Note 2, Note 3, and Note 5 to the consolidated and combined financial statements included in this Annual Report for a description of the Company’s policies and disclosures relating to goodwill, acquired intangibles, and acquisitions.
Goodwill and Other Indefinite-Lived Intangible Assets
The Company evaluates goodwill and other indefinite-lived intangible assets for possible impairment as of the beginning of the fourth quarter of each fiscal year, or whenever events or changes in circumstances indicate that the fair value of such assets may be below their carrying amount. As part of its annual impairment testing, the Company may elect to assess qualitative factors as a basis for determining whether it is necessary to perform quantitative impairment testing. If management’s assessment of these qualitative factors indicates that it is more likely than not that the fair value of the intangible asset or reporting unit is more than its carrying value, then no further testing is required. Otherwise, the indefinite-lived intangible asset other than goodwill or reporting unit is quantitatively tested for impairment.
Indefinite-lived intangible assets other than goodwill are quantitatively tested for impairment by estimating the fair value of the asset based on an income approach using the relief-from-royalty method. Under this method, forecasted revenues for products sold with the trademark are assigned a royalty rate that would be charged to license the trademark, and the estimated fair value is calculated as the present value of those forecasted royalties avoided by owning the trademark. These analyses require management to make significant judgments and estimates about future revenues, expenses, market conditions, royalty rates, and discount rates related to these assets.For quantitative goodwill impairment testing, the Company estimates the fair value of a reporting unit using both income-based and market-based valuation methods. Based on the range of estimated fair values developed from the income- and market-based methods, the Company determines the estimated fair value for the reporting unit as compared to the carrying value.
The income-based approach is based on the reporting unit’s forecasted future cash flows that are discounted to present value using the reporting unit’s weighted average cost of capital (“WACC”). The discounted cash flow model requires significant judgmental assumptions about projected revenue growth, future operating margins, discount rates, and terminal values. There are inherent uncertainties related to these assumptions and management’s judgment in applying them to the analysis of goodwill impairment.
The estimated fair value of a reporting unit calculated using the income approach is sensitive to changes in the underlying assumptions. In developing these assumptions, the Company relies on various factors including operating results, business plans, economic projections, anticipated future cash flows, and other market data. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying judgments and factors and ultimately impact the estimated fair value determinations may include such items as a prolonged downturn in the business environment, changes in economic conditions that significantly differ from the Company’s assumptions in timing or degree, volatility in equity and debt markets resulting in higher discount rates, and unexpected regulatory changes. As a result, there are inherent uncertainties related to these judgments and factors that may ultimately impact the estimated fair value determinations.
For the market-based approach, management uses the guideline public company method. The guideline public company method analyzes market multiples of EBITDA for a group of comparable public companies. In evaluating the estimates derived by the market-based approach, management makes judgments about the relevance and reliability of the multiples by considering factors unique to the Company’s reporting units, including operating results, business plans, economic projections, anticipated future cash flows, and transactions and marketplace data as well as judgments in determining the group of comparable public companies selected.
Qualitative Annual Assessment
In the fourth quarter of 2025, the Company performed a qualitative analysis for all reporting units and indefinite-lived intangible assets. Under ASC 350, the Company has an option to perform a qualitative assessment of its reporting units and other indefinite-lived intangible assets to determine whether further impairment testing is necessary. In this qualitative assessment, the Company considered the following items for each of the reporting units and other indefinite-lived intangible assets: macroeconomic conditions, industry and market conditions, overall financial performance, and other entity specific events. Based on the results of the qualitative assessment, the Company concluded it was more likely than not that the Test and Measurement reporting unit and Tektronix indefinite-lived trade name carrying values exceeded their fair values and a quantitative assessment was performed, as discussed further below. The carrying values of the remaining reporting units’ goodwill and other indefinite-lived intangible assets at the annual impairment testing date of September 27, 2025, were $770.5 million and $17.5 million, respectively. The Company concluded it was more likely than not that the fair values exceeded the carrying values of these assets.
Quantitative Assessment
The Company completed the quantitative assessments for the Tektronix indefinite-lived trade name and Test and Measurement reporting unit using the income- and market-based valuation methods as described above. The Company’s revenue and profitability forecasts considered recent and historical performance, strategic initiatives, and industry trends. Assumptions used in the valuations were similar to those that would be used by market participants performing independent valuations of the business.
Key assumptions developed by management and used in the quantitative analysis of the Tektronix indefinite-lived trade name included:
• Financial projections and future cash flows associated with the trade name, including revenue growth rates, throughout the forecast period reflect the approved operating budget and strategic plan, as well as current industry trends and growth expectations;
• Terminal growth rates based on the expected long-term growth rate of the business;
• Royalty rates based on market data as well as historical royalty rates; and
• Market-based discount rates.
Key assumptions developed by management and used in the quantitative analysis of the Test and Measurement reporting unit included:
• Financial projections and future cash flows, including a base year that considered recent actual results lower than previous internal forecasts and lower than original projections included in the EA acquisition model, revenue growth rates and profitability margin improvement throughout the forecast period that reflects the long-term strategy for the business as well as revised industry outlook and expectations, specifically within the EV market;
• Terminal growth rates based on the expected long-term growth rate of the business; and
• Market-based discount rates.
The valuation models used by management in the impairment testing assume revenue growth, margin improvement, and execution of its long-term growth strategy. If the reporting unit is unable to achieve the financial projections, including recovery from the current policy and macroeconomic environment, an additional impairment of the Test and Measurement reporting unit goodwill or the Tektronix indefinite-lived trade name could occur in the future.
The discount rate was based on the reporting unit’s WACC that considered market participant assumptions and was adjusted, as appropriate, to factor in the risk of the reporting unit or intangible asset. The royalty rate was selected based on consideration of historical royalty rates and royalty rates received by market participants in comparable industries.
As a result of the quantitative assessment for the Tektronix indefinite-lived trade name, the Company concluded the fair value exceeds the carrying value by approximately 20% and no impairment was recorded.
As a result of the quantitative assessment for the Test and Measurement reporting unit, the Company concluded the fair value did not exceed the carrying value, primarily driven by revised expectations for the EA Elektro-Automatik business, reflecting slower-than-anticipated progression and recent reduction in industry forecasts of future EV adoption, and recorded an impairment charge to the Test and Measurement reporting unit goodwill of $1.44 billion in the Consolidated and Combined Statement of Earnings for the year ended December 31, 2025. The remaining carrying value of the Test and Measurement reporting unit goodwill after the impairment charge was $901.3 million.
Income Taxes
For a description of the Company’s income tax accounting policies and disclosures, refer to Note 2 and Note 13 to the consolidated and combined financial statements included in this Annual Report.
Ralliant accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, using enacted tax rates expected to apply in the periods in which those differences reverse.
The realization of deferred tax assets depends on the generation of sufficient future taxable income within applicable carryforward periods. The Company records valuation allowances when it is more likely than not that some or all deferred tax assets will not be realized. This determination requires significant judgment, including estimates of future taxable income, the timing and reversal of temporary differences, and the feasibility of tax planning strategies. Changes in these estimates could materially affect the Company’s income tax provision and effective tax rate.
Ralliant recognizes unrecognized tax benefits for uncertain tax positions when, based on their technical merits, it is more likely than not that the position will not be sustained upon examination. These assessments require judgment in interpreting tax laws and evaluating relevant facts and circumstances. The Company reassess uncertain tax positions on an ongoing basis and adjust unrecognized tax benefits as appropriate for changes in law, audit outcomes, judicial rulings, or the expiration of statutes of limitations. Interest and penalties related to unrecognized tax benefits are recognized in income tax expense.
NEW ACCOUNTING STANDARDS
For a discussion of new accounting standards relevant to the Company, refer to Note 2 to the consolidated and combined financial statements included in this Annual Report.
