PHIN 10-Q
Phinia Inc. (PHIN)
10-Q
2025-07-24
For: 2025-06-30
View Original
Added on
April 10, 2026
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
For the quarterly period ended June 30, 2025
OR
| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
For the transition period from to
Commission file number 001-41708
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of Principal Executive Offices) | (Zip Code) | |||||||
Registrant's telephone number, including area code (248) 732-1900
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☑ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of July 18, 2025, the registrant had 38,904,475 shares of voting common stock outstanding.
PHINIA INC.
FORM 10-Q
THREE AND SIX MONTHS ENDED JUNE 30, 2025
INDEX
| Page No. | |||||
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PHINIA INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| (in millions) | June 30, 2025 | December 31, 2024 | |||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Receivables, net | |||||||||||
| Inventories | |||||||||||
| Prepayments and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Investments and long-term receivables | |||||||||||
| Goodwill | |||||||||||
| Other intangible assets, net | |||||||||||
| Other non-current assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Short-term borrowings and current portion of long-term debt | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Retirement-related liabilities | |||||||||||
| Other non-current liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 17) | |||||||||||
| Common stock | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Treasury stock | ( | ( | |||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
1
PHINIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in millions, except per share amounts) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Other operating (income) expense, net | ( | ( | |||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Equity in affiliates’ earnings, net of tax | ( | ( | ( | ( | |||||||||||||||||||
| Interest income | ( | ( | ( | ( | |||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Other postretirement expense, net | |||||||||||||||||||||||
| Earnings before income taxes | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net earnings | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per share — basic | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per share— diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
2
PHINIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in millions) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| Net earnings | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss) | |||||||||||||||||||||||
Foreign currency translation adjustments(1) | ( | ( | |||||||||||||||||||||
Defined benefit pension plans(1) | ( | ( | ( | ( | |||||||||||||||||||
Hedge instruments(1) | |||||||||||||||||||||||
| Total other comprehensive income (loss) | ( | ( | |||||||||||||||||||||
| Comprehensive income (loss) | $ | $ | ( | $ | $ | ||||||||||||||||||
_____________
(1) Net of income taxes.
See accompanying Notes to Condensed Consolidated Financial Statements.
3
PHINIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Six Months Ended June 30, | |||||||||||
| (in millions) | 2025 | 2024 | |||||||||
| OPERATING | |||||||||||
| Net cash provided by operating activities (see Note 20) | $ | $ | |||||||||
| INVESTING | |||||||||||
| Capital expenditures, including tooling outlays | ( | ( | |||||||||
| Proceeds from asset disposals and other, net | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| FINANCING | |||||||||||
| Net decrease in notes payable | ( | ||||||||||
| Proceeds from issuance of long-term debt, net of discount | |||||||||||
| Payments for debt issuance costs | ( | ||||||||||
| Repayments of debt, including current portion | ( | ||||||||||
| Dividends paid to PHINIA stockholders | ( | ( | |||||||||
| Payments for purchase of treasury stock, including excise tax | ( | ( | |||||||||
| Payments for stock-based compensation items | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash | |||||||||||
| Net decrease in cash and cash equivalents | ( | ( | |||||||||
| Cash and cash equivalents at beginning of year | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
INTRODUCTION
The accompanying Condensed Consolidated Financial Statements and notes present the condensed consolidated statements of operations, balance sheets, and cash flows of PHINIA Inc. (PHINIA or the Company). PHINIA is a leader in the development, design and manufacture of integrated components and systems that are designed to optimize performance, increase efficiency and reduce emissions for 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). The Company is a global supplier to most major original equipment manufacturers (OEMs) seeking to meet evolving and increasingly stringent global regulatory requirements and satisfy consumer demands for an enhanced user experience. Additionally, the Company offers a wide range of original equipment service (OES) solutions and remanufactured products as well as an expanded range of products for the independent (non-OEM) aftermarket.
Transition to Standalone Company
NOTE 1 BASIS OF PRESENTATION
The Company's Condensed Consolidated Financial Statements were prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial information. Certain information and footnote disclosures normally included in annual financial statements were condensed or omitted as permitted by such rules and regulations. In the opinion of management, all normal recurring adjustments necessary for a fair statement of results have been included. Operating results for the three and six months ended June 30, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025. The balance sheet as of December 31, 2024 was derived from the audited financial statements as of that date. Certain amounts for the prior periods presented were reclassified to conform to the current period presentation.
Management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and accompanying notes, as well as amounts of revenues and expenses reported during the periods covered by those financial statements and accompanying notes. The Condensed Consolidated Financial Statements may not be indicative of the Company’s future performance.
New Accounting Pronouncements
Recently Adopted Accounting Standards
Accounting Standards Update (ASU) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This update is intended to improve disclosures about a public entity’s reportable segments and addresses requests from investors and other allocators of capital for additional, more detailed information about a reportable segment’s expenses. This guidance was effective for annual reporting periods beginning after December 15, 2023 and interim reporting periods beginning after
5
December 15, 2024. The Company has adopted this guidance; refer to Note 19, “Reportable Segments and Related Information” to the Condensed Consolidated Financial Statements for more information.
Accounting Standards Not Yet Adopted
In December 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This guidance requires entities to disaggregate information related to the effective tax rate reconciliation and income taxes paid. This guidance is effective for annual reporting periods beginning after December 15, 2024. The Company will provide the incremental disclosures in its Annual Report on Form 10-K for the year ended December 31, 2025.
In November 2024, the FASB issued ASU 2024-03 and ASU 2025-01, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40).” This guidance requires entities to disclose disaggregated information about certain income statement expense line items in the notes to the financial statements. This guidance is effective for annual reporting periods beginning after December 15, 2026. These ASUs will result in additional disclosures but will not have a material impact on the Company's Consolidated Financial Statements.
NOTE 2 REVENUE FROM CONTRACTS WITH CUSTOMERS
The Company manufactures and sells products and solutions, primarily to OEMs of commercial vehicle, industrial applications and light vehicles, to certain Tier One vehicle systems suppliers and into the aftermarket. The Company’s payment terms are based on customary business practices and vary by customer type and products offered. The Company has evaluated the terms of its arrangements and determined that they do not contain significant financing components.
In limited instances, certain customers have provided payments in advance of receiving related products, typically at the onset of an arrangement prior to the beginning of production. As of June 30, 2025, the balance of contract liabilities was $14 million, of which $5 million was reflected in Other current liabilities and $9 million was reflected in Other non-current liabilities. As of December 31, 2024, the balance of contract liabilities was $7 million, of which $3 million was reflected in Other current liabilities and $4 million was reflected as Other non-current liabilities. These amounts are reflected as revenue over the term of the arrangement (typically to seven years ) as the underlying products are shipped and represent the Company’s remaining performance obligations as of the end of the period.
The following table represents a disaggregation of revenue from contracts with customers by reportable segment and region for the three and six months ended June 30, 2025 and 2024. Refer to Note 19, “Reportable Segments and Related Information” to the Condensed Consolidated Financial Statements, for more information.
6
| Three Months Ended June 30, 2025 | |||||||||||||||||
| (In millions) | Fuel Systems | Aftermarket | Total | ||||||||||||||
| Americas | $ | $ | $ | ||||||||||||||
| Europe | |||||||||||||||||
| Asia | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
| Three Months Ended June 30, 2024 | |||||||||||||||||
| (In millions) | Fuel Systems | Aftermarket | Total | ||||||||||||||
| Americas | $ | $ | $ | ||||||||||||||
| Europe | |||||||||||||||||
| Asia | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
| Six Months Ended June 30, 2025 | |||||||||||||||||
| (In millions) | Fuel Systems | Aftermarket | Total | ||||||||||||||
| Americas | $ | $ | $ | ||||||||||||||
| Europe | |||||||||||||||||
| Asia | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
| Six Months Ended June 30, 2024 | |||||||||||||||||
| (In millions) | Fuel Systems | Aftermarket | Total | ||||||||||||||
| Americas | $ | $ | $ | ||||||||||||||
| Europe | |||||||||||||||||
| Asia | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
NOTE 3 RESEARCH AND DEVELOPMENT COSTS
The Company’s net Research & Development (R&D) costs are primarily included in Selling, general and administrative expenses of the Condensed Consolidated Statements of Operations. Customer reimbursements are netted against gross R&D costs as they are considered a recovery of cost. Customer reimbursements for prototypes are recorded net of prototype costs based on customer contracts, typically either when the prototype is shipped or when it is accepted by the customer. Customer reimbursements for engineering services are recorded when performance obligations are satisfied in accordance with the contract. Financial risks and rewards transfer upon shipment, acceptance of a prototype component by the customer or upon completion of the performance obligation as stated in the respective customer agreement. The Company has various customer arrangements relating to R&D activities that it performs at its various R&D locations.
7
The following table presents the Company’s gross and net costs on R&D activities:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in millions) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| Gross R&D costs | $ | $ | $ | $ | |||||||||||||||||||
| Customer reimbursements | ( | ( | ( | ( | |||||||||||||||||||
| Net R&D costs | $ | $ | $ | $ | |||||||||||||||||||
Net R&D costs as a percentage of net sales were 3.4 3.5 % and 3.3 % for the three and six months ended June 30, 2024, respectively.
NOTE 4 OTHER OPERATING (INCOME) EXPENSE, NET
Items included in Other operating (income) expense, net consist of:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in millions) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| Restructuring | $ | $ | |||||||||||||||||||||
| Transaction-related (benefits) costs | ( | $ | ( | $ | |||||||||||||||||||
| Other operating income, net | ( | ( | ( | ( | |||||||||||||||||||
| Other operating (income) expense, net | $ | ( | $ | $ | ( | $ | |||||||||||||||||
Transaction-related (benefits) costs: The Company classifies certain expenses and benefits related to the Spin-Off, acquisitions and divestitures as transaction-related (benefits) costs. Spin-Off costs and adjustments include professional fees and other costs associated with the separation of the Company, including the adjustment of certain historical liabilities allocated to the Company in connection with the Spin-Off, and indemnities related to the Tax Matters Agreement between the Company and Former Parent.
During the three and six months ended June 30, 2025, the Company recorded transaction-related benefits of $4 million and $5 million, respectively, which includes an $11 million and $18 million benefit related to indemnities under the Tax Matters Agreement during the three and six months ended June 30, 2025, respectively; $5 million and $8 million of costs related to the Spin-Off during the three and six months ended June 30, 2025, respectively; and $2 million and $5 million of costs related to the evaluation of strategic acquisition initiatives during the three and six months ended June 30, 2025, respectively, as further discussed below. During the three and six months ended June 30, 2024, the Company recorded transaction-related costs of $3 million and $20 million, respectively, which primarily related to Spin-Off costs.
On June 10, 2025, the Company announced that it entered into a definitive agreement to acquire all of the issued and outstanding shares of Swedish Electromagnet Invest AB (SEM), a prominent provider of advanced natural gas, hydrogen and other alternative fuel ignition systems, injector stators and linear position sensors for approximately $47 million. The transaction is expected to close in the third quarter of 2025.
Restructuring: The Company recorded $2 million and $7 million in the three and six months ended June 30, 2025, respectively, and $3 million and $5 million in the three and six months ended June 30, 2024, respectively, of restructuring costs for individually approved restructuring actions that primarily related to reductions in headcount in the Fuel Systems segment.
8
NOTE 5 INCOME TAXES
The Company’s provision for income taxes is based upon an estimated annual effective tax rate for the year applied to domestic and foreign income. On a quarterly basis, the annual effective tax rate is adjusted, as appropriate, based upon changed facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and each interim period thereafter.
The Company’s effective tax rate for the three months ended June 30, 2025 and 2024 was 39 % and 62 %, respectively. The effective tax rate for the three months ended June 30, 2025 decreased as compared to the prior year as a result of a change in the jurisdictional mix of pre-tax earnings, most notably a decrease in pre-tax losses where no benefit is recognized, partially offset by an increase in uncertain tax position reserves of $11 million related to the periods prior to the Spin-Off.
The Company’s effective tax rate for the six months ended June 30, 2025 and 2024 was 42 % and 54 %, respectively. The effective tax rate for the six months ended June 30, 2025 decreased as compared to the prior year as a result of a change in the jurisdictional mix of pre-tax earnings, most notably a decrease in pre-tax losses where no benefit is recognized, partially offset by an increase in uncertain tax position reserves of $18 million related to periods prior to the Spin-Off.
The annual effective tax rates differ from the U.S. statutory rate primarily due to foreign tax rates that vary from those in the U.S., jurisdictions with pretax losses for which no tax benefit could be realized, U.S. taxes on foreign earnings, and permanent differences between book and tax treatment for certain items including enhanced deduction of research and development expenses in certain jurisdictions.
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. For the three and six months ended June 30, 2025 the Company has provisionally calculated additional top-up tax under the Pillar 2 Framework in certain jurisdictions where the effective tax rate fell below the minimum threshold of 15%. This amount is not significant to the total 2025 income tax provision for the Company.
On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the 2017 Tax Cuts and Jobs Act, modifications to the international tax framework, and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The Company is currently assessing its impact on the consolidated financial statements.
9
NOTE 6 RECEIVABLES, NET
The table below provides details of Receivables, net as of June 30, 2025 and December 31, 2024:
(in millions) | June 30, 2025 | December 31, 2024 | |||||||||
| Receivables, net: | |||||||||||
| Customers | $ | $ | |||||||||
| Indirect taxes | |||||||||||
| Due from Former Parent | |||||||||||
| Other | |||||||||||
| Gross receivables | |||||||||||
| Allowance for credit losses | ( | ( | |||||||||
| Total receivables, net | $ | $ | |||||||||
NOTE 7 INVENTORIES
A summary of Inventories is presented below:
(in millions) | June 30, 2025 | December 31, 2024 | |||||||||
| Raw material and supplies | $ | $ | |||||||||
| Work-in-progress | |||||||||||
| Finished goods | |||||||||||
| Inventories | $ | $ | |||||||||
10
NOTE 8 OTHER CURRENT AND NON-CURRENT ASSETS
| (in millions) | June 30, 2025 | December 31, 2024 | |||||||||
| Prepayments and other current assets: | |||||||||||
| Prepaid taxes | $ | $ | |||||||||
| Prepaid customer tooling | |||||||||||
| Prepaid engineering | |||||||||||
| Prepaid software | |||||||||||
| Customer return assets | |||||||||||
| Derivative instruments | |||||||||||
| Prepaid insurance | |||||||||||
| Other | |||||||||||
| Total prepayments and other current assets | $ | $ | |||||||||
| Investments and long-term receivables: | |||||||||||
| Long-term receivables | $ | $ | |||||||||
| Investment in equity affiliates | |||||||||||
| Investment in equity securities | |||||||||||
| Due from Former Parent | |||||||||||
| Total investments and long-term receivables | $ | $ | |||||||||
| Other non-current assets: | |||||||||||
| Operating leases | $ | $ | |||||||||
| Deferred income taxes | |||||||||||
| Customer incentive payments | |||||||||||
| Other | |||||||||||
| Total other non-current assets | $ | $ | |||||||||
NOTE 9 GOODWILL AND OTHER INTANGIBLES
During the fourth quarter of each year, the Company assesses its goodwill and indefinite-lived intangibles assigned to each of its reporting units for impairment by either performing a qualitative assessment or a quantitative analysis. No events or circumstances were noted in the first six months of 2025 requiring additional assessment or testing.
A summary of the components in the carrying amount of goodwill as of June 30, 2025 and December 31, 2024 is as follows:
| (in millions) | Fuel Systems | Aftermarket | Total | ||||||||||||||
| Gross goodwill balance, December 31, 2024 | $ | $ | $ | ||||||||||||||
| Accumulated impairment losses | ( | ( | |||||||||||||||
| Net goodwill balance, December 31, 2024 | $ | $ | $ | ||||||||||||||
| Goodwill during the period: | |||||||||||||||||
| Translation adjustment | |||||||||||||||||
| Net goodwill balance, June 30, 2025 | $ | $ | $ | ||||||||||||||
11
The Company’s other intangible assets from acquisitions consist of the following:
| June 30, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||
| (in millions) | Estimated useful lives (years) | Gross carrying amount | Accumulated amortization | Net carrying amount | Gross carrying amount | Accumulated amortization | Net carrying amount | ||||||||||||||||||||||||||||||||||
| Amortized intangible assets: | |||||||||||||||||||||||||||||||||||||||||
| Patented and unpatented technology | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Customer relationships | |||||||||||||||||||||||||||||||||||||||||
| Total amortized intangible assets | |||||||||||||||||||||||||||||||||||||||||
| Unamortized trade names | — | — | |||||||||||||||||||||||||||||||||||||||
| Total other intangible assets | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
NOTE 10 PRODUCT WARRANTY
The Company provides warranties on some, but not all, of its products. 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 the Company believes it is probable that a loss will be incurred and the amount can be reasonably estimated. See Note 17, “Contingencies”, for further discussion on the Company’s quarterly process for accruals relating to commercial and legal matters. Management believes that the warranty accrual is appropriate; however, in certain cases, initial customer claims exceed the amount accrued. Facts may become known related to these claims that may result in additional losses that could be material to the Company’s results of operations or cash flows. The Company’s warranty provisions are primarily included in Cost of sales in the Condensed Consolidated Statements of Operations. The product warranty accrual is allocated to current and non-current liabilities in the Condensed Consolidated Balance Sheets.
The following table summarizes the activity in the product warranty accrual accounts:
| (in millions) | 2025 | 2024 | |||||||||
| Beginning balance, January 1 | $ | $ | |||||||||
| Provisions for current period sales | |||||||||||
| Payments | ( | ( | |||||||||
| Other, primarily translation adjustment | ( | ||||||||||
| Ending balance, June 30 | $ | $ | |||||||||
12
The product warranty liability is classified in the Condensed Consolidated Balance Sheets as follows:
| (in millions) | June 30, 2025 | December 31, 2024 | |||||||||
| Other current liabilities | $ | $ | |||||||||
| Other non-current liabilities | |||||||||||
| Total product warranty liability | $ | $ | |||||||||
NOTE 11 NOTES PAYABLE AND DEBT
As of June 30, 2025 and December 31, 2024, the Company had debt outstanding as follows:
| (in millions) | June 30, 2025 | December 31, 2024 | |||||||||
| $ | $ | ||||||||||
| Finance leases | |||||||||||
| Total long-term debt | $ | $ | |||||||||
| Less: current portion | |||||||||||
| Long-term debt, net of current portion | $ | $ | |||||||||
The Company’s long-term debt includes various covenants, none of which are expected to restrict future operations. The Company was in compliance with all covenants as of June 30, 2025.
As of June 30, 2025, the estimated fair values of the Company’s long-term debt totaled $1,023 million, which is $36 million higher than carrying value for the same period. As of December 31, 2024, the estimated fair value of the Company’s long-term debt totaled $1,007 million, which is $21 million higher than carrying value for the same period. Fair market values of the long-term debt are developed using observable values for similar debt instruments, which are considered Level 2 inputs as defined by ASC Topic 820. The carrying values of the Company’s finance leases approximate fair value. The fair value estimates do not necessarily reflect the values the Company could realize in the current markets.
The Company has a $500 million revolving credit facility (the Revolving Facility) which matures in July 2028. The Revolving Facility contains customary events of default and various financial covenants including debt to EBITDA and interest coverage ratio. The Company was in compliance with the financial covenants as of June 30, 2025. As of June 30, 2025 and December 31, 2024, the Company had no 499
13
NOTE 12 OTHER CURRENT AND NON-CURRENT LIABILITIES
Additional detail related to liabilities is presented in the table below:
| (in millions) | June 30, 2025 | December 31, 2024 | |||||||||
| Other current liabilities: | |||||||||||
| Payroll and employee related | $ | $ | |||||||||
| Customer related | |||||||||||
| Product warranties (Note 10) | |||||||||||
| Income taxes payable | |||||||||||
| Operating leases | |||||||||||
| Accrued freight | |||||||||||
| Uncertain tax positions | |||||||||||
| Accrued interest | |||||||||||
| Supplier related | |||||||||||
| Refundable customer deposits | |||||||||||
| Deferred engineering | |||||||||||
| Other non-income taxes | |||||||||||
| Legal and professional fees | |||||||||||
| Deferred income | |||||||||||
| Employee termination benefits | |||||||||||
| Other | |||||||||||
| Total other current liabilities | $ | $ | |||||||||
| Other non-current liabilities: | |||||||||||
| Deferred income taxes | $ | $ | |||||||||
| Operating leases | |||||||||||
| Product warranties (Note 10) | |||||||||||
| Uncertain tax positions | |||||||||||
| Deferred income | |||||||||||
| Other | |||||||||||
| Total other non-current liabilities | $ | $ | |||||||||
NOTE 13 FINANCIAL INSTRUMENTS
The Company’s financial instruments may include long-term debt, interest rate and cross-currency swaps, commodity derivative contracts and foreign currency derivative contracts. All derivative contracts are placed with counterparties that have a Standard and Poor’s (S&P), or equivalent, investment grade credit rating at the time of the contracts’ placement. An adjustment for non-performance risk is considered in the estimate of fair value in derivative assets based on the counterparty credit default swap (CDS) rate. When the Company is in a net derivative liability position, the non-performance risk adjustment is based on its CDS rate. At June 30, 2025 and December 31, 2024, the Company had no derivative contracts that contained credit-risk-related contingent features.
14
The Company is exposed to certain market risks relating to our ongoing business operations, including foreign currency exchange rate risk, commodity price risk and interest rate risk. The Company, at times, may use certain financial instruments, primarily derivative contracts, to protect against these risks. The Company uses financial instruments to manage foreign currency exchange rate risk related to forecasted cash flows, including capital expenditures, purchases, operating expenses or sales transactions, and the remeasurement of monetary assets and liabilities denominated in currencies other than the functional currency of the operating unit, and the foreign currency risk exposure associated with our net investment in certain foreign operations.
At June 30, 2025 and December 31, 2024, the USD equivalent notional values of outstanding currency derivative instruments used for foreign currency cash flow hedging were $97 million and $85 million, respectively. These amounts were primarily related to Euro denominated forward contracts at British Pound functional currency locations.
Derivative instruments designated as foreign currency cash flow hedges, as defined by ASC Topic 815, “Derivatives and Hedging,” had a $1 million gain recognized in Accumulated other comprehensive loss (AOCI) at June 30, 2025, and a gain of $1
(in millions) | Assets | Liabilities | ||||||||||||||||||||||||||||||||||||
| Derivatives designated as hedging instruments Under Topic 815: | Balance Sheet Location | June 30, 2025 | December 31, 2024 | Balance Sheet Location | June 30, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||||||
| Foreign currency | $ | $ | Other current liabilities | $ | $ | |||||||||||||||||||||||||||||||||
The table below shows deferred gains (losses) reported in AOCI as well as the amount expected to be reclassified to income in one year or less for designated net investment hedges.
| (in millions) | Deferred gain (loss) in AOCI at | Gain (loss) expected to be reclassified to income in one year or less | ||||||||||||||||||
| Net investment hedge | June 30, 2025 | December 31, 2024 | ||||||||||||||||||
| Foreign currency | $ | ( | $ | ( | $ | |||||||||||||||
The gains and losses attributable to the financial instrument designated as a net investment hedge were recognized in other comprehensive income (loss) during the periods presented below.
(in millions) | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||
| Net investment hedge | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
| Foreign currency | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
15
The Company utilizes foreign currency derivatives not designated as hedging instruments to mitigate the variability of the remeasurement of monetary assets and liabilities denominated in currencies other than the operating units' functional currency. In February 2025, the Company entered into a $100 million notional value Chinese Yuan (CNY), United States Dollar (USD) fixed rate cross currency swap intended to mitigate the remeasurement of an intercompany loan. The cross-currency swap derivative resulted in a gain of $2 million and $1 million for the three and six months ended June 30, 2025, respectively, and is included in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. At June 30, 2025, the $2 million fair value of the cross currency swap was recorded in Prepayments and other current assets in the Condensed Consolidated Balance Sheets.
NOTE 14 RETIREMENT BENEFIT PLANS
The Company sponsors various defined contribution savings plans, primarily in the U.S., that allow employees to contribute a portion of their pre-tax and/or after-tax income in accordance with plan specified guidelines. The Company also has a number of defined benefit pension plans. Under specified conditions, the Company will make contributions to the plans and/or match a percentage of the employee contributions up to certain limits. The estimated contributions to the defined benefit pension plans for 2025 range from $5 million to $9 million, of which $2 million has been contributed through the first six months of the year.
The components of net periodic benefit income recorded in the Condensed Consolidated Statements of Operations are as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in millions) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| Service cost | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of unrecognized loss | ( | ||||||||||||||||||||||
| Net periodic benefit cost | $ | $ | $ | $ | |||||||||||||||||||
The components of net periodic benefit cost other than the service cost component are included in Other postretirement expense, net in the Condensed Consolidated Statements of Operations.
NOTE 15 STOCKHOLDERS' EQUITY
The changes of the Stockholders’ Equity items during the three and six months ended June 30, 2025 and 2024, are as follows:
16
| (in millions) | Issued common stock | Additional paid-in-capital | Treasury stock | Retained earnings | Accumulated other comprehensive income (loss) | Total equity | |||||||||||||||||||||||||||||
| Balance, March 31, 2025 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
Dividends declared ($ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Purchase of treasury stock | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Net earnings | — | 46 | — | ||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 90 | |||||||||||||||||||||||||||||||
| Balance, June 30, 2025 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
| (in millions) | Issued common stock | Additional paid-in-capital | Treasury stock | Retained earnings | Accumulated other comprehensive income (loss) | Total equity | |||||||||||||||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
Dividends declared ($ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Purchase of treasury stock | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Net issuance of executive stock plan | — | ( | — | — | |||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Spin-Off related adjustments | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
17
| (in millions) | Issued common stock | Additional paid-in-capital | Treasury stock | Retained earnings | Accumulated other comprehensive income (loss) | Total equity | |||||||||||||||||||||||||||||
| Balance, December 31, 2024 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
Dividends declared ( | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Purchase of treasury stock | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Excise tax on purchase of treasury stock | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Net issuance of executive stock plan | — | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance, June 30, 2025 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
| (in millions) | Issued common stock | Additional paid-in-capital | Treasury stock | Retained earnings | Accumulated other comprehensive income (loss) | Total equity | |||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
Dividends declared ($ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Purchase of treasury stock | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Net issuance of executive stock plan | — | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Spin-Off related adjustments | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
18
NOTE 16 ACCUMULATED OTHER COMPREHENSIVE LOSS
The following tables summarize the activity within accumulated other comprehensive loss during the three and six months ended June 30, 2025 and 2024:
| (in millions) | Foreign currency translation adjustments | Defined benefit pension plans | Hedge instruments | Total | |||||||||||||||||||
| Beginning balance, March 31, 2025 | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
Comprehensive income (loss) before reclassifications | ( | ||||||||||||||||||||||
Income taxes associated with comprehensive income | ( | ( | |||||||||||||||||||||
| Reclassification from accumulated other comprehensive loss | |||||||||||||||||||||||
| Ending Balance, June 30, 2025 | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
| (in millions) | Foreign currency translation adjustments | Defined benefit pension plans | Hedge instruments | Total | |||||||||||||||||||
| Beginning balance, March 31, 2024 | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
| Comprehensive loss before reclassifications | ( | ( | ( | ||||||||||||||||||||
| Ending Balance, June 30, 2024 | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
| (in millions) | Foreign currency translation adjustments | Defined benefit pension plans | Hedge instruments | Total | |||||||||||||||||||
| Beginning Balance, December 31, 2024 | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
Comprehensive income (loss) before reclassifications | ( | ||||||||||||||||||||||
Income taxes associated with comprehensive income | ( | ( | |||||||||||||||||||||
| Reclassification from accumulated other comprehensive loss | |||||||||||||||||||||||
| Ending Balance, June 30, 2025 | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
| (in millions) | Foreign currency translation adjustments | Defined benefit pension plans | Hedge instruments | Total | |||||||||||||||||||
| Beginning Balance, December 31, 2023 | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
| Comprehensive loss | ( | ( | ( | ||||||||||||||||||||
| Reclassification from accumulated other comprehensive loss | |||||||||||||||||||||||
| Ending Balance, June 30, 2024 | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
NOTE 17 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
19
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 reasonably estimable. If a loss contingency is not both probable and reasonably estimable, the Company does not establish an accrued liability. Except as set forth below, 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
In September 2024, the Former Parent filed a claim against the Company in Delaware Superior Court seeking, inter alia, a judicial declaration that the Company is obligated under the Tax Matters Agreement entered into by the Company and the Former Parent in connection with the Spin-Off to remit to the Former Parent monies refunded, or to be refunded, to the Company from tax authorities that relate to certain indirect tax payments made prior to the Spin-Off. In November 2024, the Company filed, in Delaware Superior Court, a response to the Former Parent’s claim and asserted a number of counterclaims and, in December 2024, the Former Parent filed a motion to dismiss the Company’s counterclaims, which the Company opposed. On April 10, 2025, the Delaware Superior Court denied the Former Parent’s motion to dismiss the counterclaims. The Company believes it has meritorious arguments in response to the Former Parent’s claim and with respect to its own claims, however, the Company is unable to determine the ultimate outcome of this matter or determine an estimate of potential losses. It is reasonably possible, but not probable, that the resolution of this matter could have a material adverse effect on the Company’s financial position, results of operations and/or cash flows.
NOTE 18 EARNINGS PER SHARE
The Company presents both basic and diluted earnings per share of common stock (EPS) amounts. Basic EPS is calculated by dividing net earnings by the weighted average shares of common stock outstanding during the reporting period. Diluted EPS is calculated by dividing net earnings by the weighted average shares of common stock and common stock equivalents outstanding during the reporting period.
The dilutive impact of stock-based compensation is calculated using the treasury stock method. The treasury stock method assumes that the Company uses the assumed proceeds from the exercise of awards to repurchase common stock at the average market price during the period. The assumed proceeds under the treasury stock method include the purchase price that the grantee will pay in the future and compensation cost for future service that the Company has not yet recognized.
20
The following table reconciles the numerators and denominators used to calculate basic and diluted earnings per share of common stock:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
(in millions, except per share amounts) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| Basic earnings per share: | |||||||||||||||||||||||
| Net earnings | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average shares of common stock outstanding | |||||||||||||||||||||||
| Basic earnings per share of common stock | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings per share: | |||||||||||||||||||||||
| Net earnings | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average shares of common stock outstanding | |||||||||||||||||||||||
| Effect of stock-based compensation | |||||||||||||||||||||||
| Weighted average shares of common stock outstanding including dilutive shares | |||||||||||||||||||||||
| Diluted earnings per share of common stock | $ | $ | $ | $ | |||||||||||||||||||
| Anti-dilutive stock-based awards excluded from the calculation of diluted earnings per share | |||||||||||||||||||||||
NOTE 19 REPORTABLE SEGMENTS AND RELATED INFORMATION
The Company’s business is comprised of two reportable segments, which are further described below. These segments are strategic business groups, which are managed separately as each represents a specific grouping of related automotive components and systems.
•Fuel Systems. This segment provides advanced fuel injection systems, fuel delivery modules, canisters, sensors, electronic control modules and associated software. Our highly engineered fuel injection systems portfolio includes pumps, injectors, fuel rail assemblies, engine control modules, and complete systems, including software and calibration services, that reduce emissions and improve fuel economy for traditional and hybrid applications.
•Aftermarket. Through this segment, the Company sells products to independent aftermarket customers and OES customers. Its product portfolio includes a wide range of products as well as maintenance, test equipment and vehicle diagnostics solutions. The Aftermarket segment also includes sales of starters and alternators to OEMs.
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, transaction-related costs, impairment charges and other items not reflective of ongoing operating income or loss, and 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 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.
The Company’s chief operating decision maker (CODM) is the chief executive officer.
The CODM uses Segment AOI for the financial planning and review process. The CODM considers
21
actual-to-forecast and actual-to-actual variances on a quarterly basis for Segment AOI when making decisions about the allocation of operating and capital resources to each segment. The CODM also uses Segment AOI for evaluating pricing strategy and to assess the performance of each segment by comparing the results of each segment with one another and in determining the compensation of certain employees.
The following tables show segment revenues and significant expenses for the Company’s reportable segments:
| Three Months Ended June 30, 2025 | |||||||||||||||||||||||
| Fuel Systems | Aftermarket | Inter-segment Eliminations | Consolidated | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Net sales to external customers | $ | $ | $ | $ | |||||||||||||||||||
| Inter-segment eliminations | $ | $ | $ | ( | $ | ||||||||||||||||||
| Net Sales | $ | $ | $ | ( | $ | ||||||||||||||||||
| Less: | |||||||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
Selling, general and administrative expenses (excluding Net R&D costs shown separately below)1 | |||||||||||||||||||||||
| Net R&D costs | |||||||||||||||||||||||
Other segment items2 | ( | ||||||||||||||||||||||
| Segment AOI | $ | $ | |||||||||||||||||||||
| Three Months Ended June 30, 2024 | |||||||||||||||||||||||
| Fuel Systems | Aftermarket | Inter-segment Eliminations | Consolidated | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Net sales to external customers | $ | $ | $ | $ | |||||||||||||||||||
| Inter-segment eliminations | $ | $ | $ | ( | $ | ||||||||||||||||||
| Net Sales | $ | $ | $ | ( | $ | ||||||||||||||||||
| Less: | |||||||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
Selling, general and administrative expenses (excluding Net R&D costs shown separately below)1 | |||||||||||||||||||||||
| Net R&D costs | |||||||||||||||||||||||
Other segment items2 | |||||||||||||||||||||||
| Segment AOI | $ | $ | |||||||||||||||||||||
22
| Six Months Ended June 30, 2025 | |||||||||||||||||||||||
| Fuel Systems | Aftermarket | Inter-segment Eliminations | Consolidated | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Net sales to external customers | $ | $ | $ | $ | |||||||||||||||||||
| Inter-segment eliminations | $ | $ | $ | ( | $ | ||||||||||||||||||
| Net Sales | $ | $ | $ | ( | $ | ||||||||||||||||||
| Less: | |||||||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
Selling, general and administrative expenses (excluding Net R&D costs shown separately below)1 | |||||||||||||||||||||||
| Net R&D costs | |||||||||||||||||||||||
Other segment items2 | ( | ||||||||||||||||||||||
| Segment AOI | $ | $ | |||||||||||||||||||||
| Six Months Ended June 30, 2024 | |||||||||||||||||||||||
| Fuel Systems | Aftermarket | Inter-segment Eliminations | Consolidated | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Net sales to external customers | $ | $ | $ | ||||||||||||||||||||
| Inter-segment eliminations | $ | $ | $ | ( | $ | ||||||||||||||||||
| Net Sales | $ | $ | $ | ( | $ | ||||||||||||||||||
| Less: | |||||||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
Selling, general and administrative expenses (excluding Net R&D costs shown separately below)1 | |||||||||||||||||||||||
| Net R&D costs | |||||||||||||||||||||||
Other segment items2 | ( | ||||||||||||||||||||||
| Segment AOI | $ | $ | |||||||||||||||||||||
1 Excludes acquisition-related intangible amortization. 2 Other segment items include inter-segment fees and other income. | ||
23
The following table shows a reconciliation of Segment AOI to Earnings before income taxes for the Company’s reportable segments:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in millions) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| Fuel Systems | $ | $ | $ | $ | |||||||||||||||||||
| Aftermarket | |||||||||||||||||||||||
| Segment AOI | |||||||||||||||||||||||
| Corporate, including stock-based compensation | |||||||||||||||||||||||
| Amortization of acquisition-related intangibles | |||||||||||||||||||||||
| Transaction-related (benefits) costs | ( | ( | |||||||||||||||||||||
| Restructuring expense | |||||||||||||||||||||||
| Equity in affiliates’ earnings, net of tax | ( | ( | ( | ( | |||||||||||||||||||
| Interest income | ( | ( | ( | ( | |||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Other postretirement expense, net | |||||||||||||||||||||||
| Earnings before income taxes | $ | $ | $ | $ | |||||||||||||||||||
Segment Information
Segment information as of June 30, 2025 and December 31, 2024 and for the three and six months ended June 30, 2025 and 2024 is presented in the tables below:
| Assets | |||||||||||
| (in millions) | June 30, 2025 | December 31, 2024 | |||||||||
| Fuel Systems | $ | $ | |||||||||
| Aftermarket | |||||||||||
| Total | |||||||||||
Corporate1 | |||||||||||
| Consolidated | $ | $ | |||||||||
1 Corporate assets include cash and cash equivalents, investments and long-term receivables, and deferred income taxes. | ||
| Depreciation and amortization | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
| (in millions) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| Fuel Systems | $ | $ | $ | $ | |||||||||||||||||||
| Aftermarket | |||||||||||||||||||||||
| Total | |||||||||||||||||||||||
| Corporate | — | — | |||||||||||||||||||||
| Consolidated | $ | $ | $ | $ | |||||||||||||||||||
24
Long-lived asset expenditures1 | Six Months Ended June 30, | ||||||||||
| (in millions) | 2025 | 2024 | |||||||||
| Fuel Systems | $ | $ | |||||||||
| Aftermarket | |||||||||||
| Total | |||||||||||
| Corporate | |||||||||||
| Consolidated | $ | $ | |||||||||
1 Long-lived asset expenditures include capital expenditures and tooling outlays. | ||
25
NOTE 20 OPERATING CASH FLOW AND OTHER SUPPLEMENTAL FINANCIAL INFORMATION
| Six Months Ended June 30, | |||||||||||
| (in millions) | 2025 | 2024 | |||||||||
| OPERATING | |||||||||||
| Net earnings | $ | $ | |||||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||
| Depreciation and tooling amortization | |||||||||||
| Intangible asset amortization | |||||||||||
| Restructuring expense, net of cash paid | |||||||||||
| Loss on extinguishment of debt | |||||||||||
| Stock-based compensation expense | |||||||||||
| Deferred income tax (benefit) expense | ( | ||||||||||
| Other non-cash adjustments, net | ( | ( | |||||||||
| Changes in assets and liabilities, excluding foreign currency translation adjustments: | |||||||||||
| Receivables | ( | ||||||||||
| Inventories | ( | ||||||||||
| Prepayments and other current assets | ( | ( | |||||||||
| Accounts payable and other current liabilities | ( | ||||||||||
| Prepaid taxes and income taxes payable | ( | ||||||||||
| Other assets and liabilities | ( | ||||||||||
| Retirement benefit plan contributions | ( | ( | |||||||||
| Net cash provided by operating activities | $ | $ | |||||||||
| SUPPLEMENTAL CASH FLOW INFORMATION | |||||||||||
| Cash paid during the year for: | |||||||||||
| Interest, net | $ | $ | |||||||||
| Income taxes, net of refunds | $ | $ | |||||||||
26
Cautionary Statement Regarding Forward-Looking Information
Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q (Form 10-Q) to “PHINIA,” the “Company,” “we, “our” or “us” refer to PHINIA Inc. and its consolidated subsidiaries.
This Form 10-Q contains forward-looking statements within the meaning of the U.S. federal securities laws. Forward-looking statements are statements other than historical fact that provide current expectations or forecasts of future events based on certain assumptions and are not guarantees of future performance. Forward-looking statements use words such as “anticipate,” “believe,” “continue,” “could,” “designed,” “effect,” “estimate,” “evaluate,” “expect,” “forecast,” “goal,” “initiative,” “intend,” “likely,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “pursue,” “seek,” “should,” “target,” “when,” “will,” “would,” and other words of similar meaning. Forward-looking statements are subject to risks, uncertainties, and factors relating to our business and operations, all of which are difficult to predict and which could cause our actual results to differ materially from the expectations expressed in or implied by such forward-looking statements. Risks, uncertainties, and factors that could cause actual results to differ materially from those implied by these forward-looking statements include, but are not limited to:
•adverse changes in general business and economic conditions, including recessions, adverse market conditions or downturns impacting the vehicle and industrial equipment industries;
•our ability to deliver new products, services and technologies in response to changing consumer preferences, increased regulation of greenhouse gas emissions, and acceleration of the market for electric vehicles;
•competitive industry conditions;
•failure to identify, consummate, effectively integrate or realize the expected benefits from acquisitions or partnerships;
•pricing pressures from OEMs;
•inflation rates and volatility in the costs of commodities used in the production of our products;
•changes in U.S. and foreign administrative policy, including tariffs, changes to existing trade agreements and import or export licensing requirements, and any resulting changes in international trade relations;
•our ability to protect our intellectual property;
•failure of or disruption in our information technology infrastructure, including a disruption related to cybersecurity;
•our ability to identify, attract, retain and develop a qualified global workforce;
•difficulties launching new vehicle programs;
•failure to achieve the anticipated savings and benefits from restructuring and product portfolio optimization actions;
•extraordinary events, including natural disasters or extreme weather events, fires or similar catastrophic events, political disruptions, terrorist attacks, pandemics or other public health crises, and acts of war;
•risks related to our international operations;
•the impact of economic, political, social and market conditions on our business in China;
•our reliance on a limited number of OEM customers;
27
•supply chain disruptions, including due to U.S. and foreign government action;
•work stoppages, production shutdowns and similar events or conditions;
•governmental investigations and related proceedings regarding vehicle emissions standards, including related to diesel defeat devices;
•current and future environmental, health and safety, human rights and other laws and regulations;
•the impacts of climate change, regulations related to climate change and various stakeholders’ emphasis on climate change and other related matters;
•compliance with and changes in other laws and regulations;
•liabilities related to product warranties, litigation and other claims;
•tax audits and changes in tax laws or tax rates taken by taxing authorities;
•impairment charges on goodwill and indefinite-lived intangible assets;
•the impact of changes in interest rates and asset returns on our pension funding obligations;
•the impact of restrictive covenants and other requirements on our financial and operating flexibility pursuant to the agreements governing our indebtedness;
•risks relating to the Spin-Off, including our ability to achieve some or all of the benefits that we expect to achieve from the Spin-Off, a determination that the Spin-Off does not qualify as tax-free for U.S. federal income tax purposes, and our or our Former Parent’s failure to perform under, or additional disputes that may arise between the parties relating to, various transaction agreements executed in connection with the Spin-Off; and
•other risks and uncertainties described in Item 1A, “Risk Factors” of our annual Form 10-K and in our other reports filed from time to time with the Securities and Exchange Commission (the SEC).
We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
28
Item 2. 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, increase efficiency and reduce emissions for 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 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).
Proposed Acquisition of Swedish Electromagnet Invest AB (SEM)
On June 10, 2025, the Company announced that it entered into a definitive agreement to acquire all of the issued and outstanding shares of Swedish Electromagnet Invest AB (SEM), a prominent provider of advanced natural gas, hydrogen and other alternative fuel ignition systems, injector stators and linear position sensors for approximately $47 million. The acquisition is expected to generate approximately $50 million of annual revenue and approximately $10 million of annual adjusted EBITDA. The transaction is expected to close in the third quarter of 2025.
Key Trends and Economic Factors
Commodities and Other Inflationary Impacts. Prices for commodities remain volatile, and since the beginning of 2021, the Company’s business has experienced price increases for base metals (e.g., steel, aluminum and copper) but have mostly stabilized in 2025 compared to 2024. 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 by 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. Additionally, these tariffs increase the risk for elevated inflation more generally, which may be driving an increase in other input costs. As a result, the Company may experience higher costs, especially with respect to products imported from certain regions subject to significant tariff increases, including, but not limited to, Mexico and China.
Outlook
We expect earnings and cash generation in 2025 to be challenged as we expect a softening of the original equipment markets to outpace our ability to drive operational efficiencies and grow our Aftermarket sales. Continued economic and political uncertainty has caused the CV and LV markets to soften. LV volumes in our key markets for 2025 are expected to decline by mid-single digit percentages. CV volumes in our key markets are expected to decline by low-single digit percentages. Assuming constant foreign exchange rates and excluding sales from acquisitions, we expect flat to a modest increase in sales. Additionally, we may be impacted by other macroeconomic challenges in 2025,
29
including but not limited to inflation, supply chain constraints, market volatility, higher tariffs relevant to our operations (particularly in Mexico and China) and changes in international trade relations.
The Company maintains a positive long-term outlook for its global business and is committed to new product development and strategic investments to enhance its product leadership strategy. There are several trends that are driving the Company’s long-term growth that management expects to continue, including market share expansion in the CV market, growth in overall vehicle parc that supports aftermarket demand, increased consumer interest in hybrid and plug-in vehicles, and adoption of additional product offerings enabling zero- and lower-carbon fuel solutions for combustion vehicles. 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-Q 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-Q. The reconciliations include all information reasonably available to the Company at the date of this Form 10-Q 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.
30
RESULTS OF OPERATIONS
Three Months Ended June 30, 2025 vs. Three Months Ended June 30, 2024
The following table presents a summary of the Company’s operating results:
| Three Months Ended June 30, | |||||||||||||||||||||||
| (in millions) | 2025 | 2024 | |||||||||||||||||||||
| Net sales | % of net sales | % of net sales | |||||||||||||||||||||
| Fuel Systems | $ | 592 | 66.5 | % | $ | 587 | 67.6 | % | |||||||||||||||
| Aftermarket | 353 | 39.7 | % | 355 | 40.9 | % | |||||||||||||||||
| Inter-segment eliminations | (55) | (6.2) | % | (74) | (8.5) | % | |||||||||||||||||
| Total net sales | 890 | 100.0 | % | 868 | 100.0 | % | |||||||||||||||||
| Cost of sales | 693 | 77.9 | % | 680 | 78.3 | % | |||||||||||||||||
| Gross profit | 197 | 22.1 | % | 188 | 21.7 | % | |||||||||||||||||
| Selling, general and administrative expenses | 112 | 12.6 | % | 112 | 12.9 | % | |||||||||||||||||
| Other operating (income) expense, net | (4) | (0.4) | % | 5 | 0.6 | % | |||||||||||||||||
| Operating income | 89 | 9.9 | % | 71 | 8.2 | % | |||||||||||||||||
| Equity in affiliates’ earnings, net of tax | (4) | (0.4) | % | (2) | (0.2) | % | |||||||||||||||||
| Interest income | (4) | (0.4) | % | (4) | (0.5) | % | |||||||||||||||||
| Interest expense | 21 | 2.4 | % | 39 | 4.5 | % | |||||||||||||||||
| Other postretirement expense, net | 1 | 0.1 | % | 1 | 0.1 | % | |||||||||||||||||
| Earnings before income taxes | 75 | 8.2 | % | 37 | 4.3 | % | |||||||||||||||||
| Provision for income taxes | 29 | 3.3 | % | 23 | 2.6 | % | |||||||||||||||||
| Net earnings | $ | 46 | 4.9 | % | $ | 14 | 1.7 | % | |||||||||||||||
31
Net sales and Cost of sales
Net sales for the three months ended June 30, 2025 totaled $890 million, an increase of $22 million, or 3%, compared to the three months ended June 30, 2024. Cost of sales and cost of sales as a percentage of net sales were $693 million and 78%, respectively, during the three months ended June 30, 2025, compared to $680 million and 78%, respectively, during the three months ended June 30, 2024. The change in net sales and cost of sales for the three months ended June 30, 2025 was primarily driven by positive impacts of foreign currency primarily due to the strengthening of the Euro and British Pound relative to the U.S. Dollar and supplier savings, partially offset by the end of the contract manufacturing agreements with the Former Parent in the second quarter of 2024. Gross profit was negatively impacted by unfavorable impacts from recent tariff changes, for which the Company continues to negotiate with customers to achieve full recovery.
| (in millions) | Net Sales | Cost of Sales | Gross Profit | ||||||||||||||
| Three Months Ended June 30, 2024 | $ | 868 | $ | 680 | $ | 188 | |||||||||||
| Volume and mix | 2 | (4) | 6 | ||||||||||||||
| Customer pricing | (2) | — | (2) | ||||||||||||||
| Supplier costs | — | (6) | 6 | ||||||||||||||
| Tariff cost and recovery | 9 | 11 | (2) | ||||||||||||||
| Employee costs | — | 5 | (5) | ||||||||||||||
| Contract manufacturing agreements | (5) | (5) | — | ||||||||||||||
| Foreign currency and other | 18 | 12 | 6 | ||||||||||||||
| Three Months Ended June 30, 2025 | $ | 890 | $ | 693 | $ | 197 | |||||||||||
Selling, general and administrative expenses (SG&A)
SG&A for the three months ended June 30, 2025 and 2024 was $112 million, or 13% as a percentage of net sales. SG&A expenses remained flat period-over-period, attributable to favorable foreign currency impacts, offset primarily by increased employee costs, including stock-based compensation.
| Three Months Ended June 30, | |||||||||||||||||
| (in millions) | 2025 | 2024 | Change ($) | ||||||||||||||
| Employee costs | $ | 40 | $ | 36 | $ | 4 | |||||||||||
| Research & development | 30 | 30 | — | ||||||||||||||
| Information technology | 7 | 6 | 1 | ||||||||||||||
| Amortization of acquisition-related intangibles | 7 | 7 | — | ||||||||||||||
| Other | 28 | 33 | (5) | ||||||||||||||
| Selling, general and administrative expenses | $ | 112 | $ | 112 | $ | — | |||||||||||
Other operating (income) expense, net
Other operating (income) expense, net was $4 million of income and $5 million of expense for the three months ended June 30, 2025 and 2024, respectively. The change in other operating (income) expense, net was primarily driven by a decrease in transaction-related costs, primarily related to adjustments under the Tax Matters Agreement. Other operating (income) expense, net was comprised of the following:
32
| Three Months Ended June 30, | |||||||||||||||||
| (in millions) | 2025 | 2024 | Change ($) | ||||||||||||||
| Restructuring | $ | 2 | $ | 3 | $ | (1) | |||||||||||
| Transaction-related (benefits) costs | (4) | 3 | (7) | ||||||||||||||
| Other operating income, net | (2) | (1) | (1) | ||||||||||||||
| Other operating (income) expense, net | $ | (4) | $ | 5 | $ | (9) | |||||||||||
Equity in affiliates’ earnings, net of tax
Equity in affiliates’ earnings, net of tax was $4 million and $2 million in the three months ended June 30, 2025 and 2024, respectively. This line item is driven by the results of the Company’s unconsolidated joint venture.
Interest income
Interest income was $4 million in the three months ended June 30, 2025 and 2024. The interest income is primarily related to interest earned on funds held in money market, local overnight deposits, and short term investments.
Interest expense
Interest expense was $21 million and $39 million in the three months ended June 30, 2025 and 2024, respectively. The decrease was primarily due to the loss on extinguishment as a result of the restructuring of the Company’s debt positions in the prior period. See Note 11, “Notes Payable and Debt”, for further discussion.
Provision for income taxes
Provision for income taxes was $29 million for the three months ended June 30, 2025, resulting in an effective tax rate of 39%, compared to $23 million, or 62%, for the three months ended June 30, 2024. The effective tax rate for the three months ended June 30, 2025 deceased as compared to the prior year as result of a change in the jurisdictional mix of pre-tax earnings, partially offset by an increase in uncertain tax position reserves of $11 million related to periods prior to the Spin-Off.
Excluding the impact of items not related to the Company’s ongoing operations, the Company’s effective tax rate associated with ongoing operations was 36% for the three months ended June 30, 2025 compared to 42% for the three months ended June 30, 2024.
For further details, see Note 5, “Income Taxes,” to the Condensed Consolidated Financial Statements for the three months ended June 30, 2025 and 2024.
33
Net earnings per diluted share and adjusted net earnings per diluted share
The Company’s net earnings per diluted share was $1.14 and $0.31 for the three months ended June 30, 2025 and 2024, respectively. The Company’s adjusted net earnings per diluted share was $1.27 and $0.88 for the three months ended June 30, 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, transaction-related 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.
| Three Months Ended June 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Net earnings per diluted share | $ | 1.14 | $ | 0.31 | |||||||
| Amortization of acquisition-related intangibles | 0.18 | 0.15 | |||||||||
| Restructuring expense | 0.05 | 0.07 | |||||||||
| Transaction-related (benefits) costs | (0.10) | 0.06 | |||||||||
| Loss on extinguishment of debt | — | 0.44 | |||||||||
| Tax effects and adjustments | — | (0.15) | |||||||||
| Adjusted net earnings per diluted share | $ | 1.27 | $ | 0.88 | |||||||
Results by Reportable Segment for the three months ended June 30, 2025 and 2024
The Company’s business is aggregated into two reportable segments: Fuel Systems and Aftermarket.
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, transaction-related costs, acquisition-related intangible asset amortization expense, impairment charges and other items not reflective of 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 $25 million and $21 million for the three months ended June 30, 2025 and 2024, respectively. The increase in corporate expenses was primarily related to foreign exchange losses and the addition of a second tranche of performance stock units under the Company's stock incentive plan.
Refer to Note 19, “Reportable Segments and Related Information” to the Condensed Consolidated Financial Statements, for more information.
34
The following table presents Net sales and Segment AOI for the Company’s reportable segments:
| Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||
| (in millions) | Net Sales to Customers | Segment AOI | % Margin | Net Sales to Customers | Segment AOI | % Margin | |||||||||||||||||||||||||||||
| Fuel Systems | $ | 537 | $ | 62 | 11.5 | % | $ | 518 | $ | 52 | 10.0 | % | |||||||||||||||||||||||
| Aftermarket | 353 | 57 | 16.1 | % | 350 | 53 | 15.1 | % | |||||||||||||||||||||||||||
| Totals | $ | 890 | $ | 119 | $ | 868 | $ | 105 | |||||||||||||||||||||||||||
The following table presents the year-over-year change in net sales and Segment AOI for the Company’s reportable segments for the three months ended:
| Fuel Systems | Aftermarket | ||||||||||||||||||||||
| (in millions) | Net sales | Segment AOI | Net sales | Segment AOI | |||||||||||||||||||
| June 30, 2024 | $ | 518 | $ | 52 | $ | 350 | $ | 53 | |||||||||||||||
| Volume and mix | 9 | 2 | (7) | 4 | |||||||||||||||||||
| Customer pricing | (1) | (1) | (1) | (1) | |||||||||||||||||||
| Supplier costs | — | 4 | — | 2 | |||||||||||||||||||
| Tariff cost and recovery | 4 | (1) | 5 | (1) | |||||||||||||||||||
| Contract manufacturing agreements | (5) | — | — | — | |||||||||||||||||||
| Foreign currency and other | 12 | 6 | 6 | — | |||||||||||||||||||
| June 30, 2025 | $ | 537 | $ | 62 | $ | 353 | $ | 57 | |||||||||||||||
The Fuel Systems segment’s Segment Adjusted Operating margin was 11.5% for the three months ended June 30, 2025, compared to 10.0% for the three months ended June 30, 2024. The Segment Adjusted Operating margin increase was primarily due to supply chain savings, other cost of sales improvements and favorable foreign currency impacts.
The Aftermarket segment’s Segment Adjusted Operating margin was 16.1% for the three months ended June 30, 2025, compared to 15.1% for the three months ended June 30, 2024. The Segment Adjusted Operating margin increased primarily due to favorable product mix, supply chain efficiencies and favorable foreign currency impacts.
35
RESULTS OF OPERATIONS
Six Months Ended June 30, 2025 vs. Six Months Ended June 30, 2024
The following table presents a summary of the Company’s operating results:
| Six Months Ended June 30, | |||||||||||||||||||||||
| (in millions) | 2025 | 2024 | |||||||||||||||||||||
| Net sales | % of net sales | % of net sales | |||||||||||||||||||||
| Fuel Systems | $ | 1,120 | 66.4 | % | $ | 1,163 | 67.2 | % | |||||||||||||||
| Aftermarket | 676 | 40.1 | % | 693 | 40.0 | % | |||||||||||||||||
| Inter-segment eliminations | (110) | (6.5) | % | (125) | (7.2) | % | |||||||||||||||||
| Total net sales | 1,686 | 100.0 | % | 1,731 | 100.0 | % | |||||||||||||||||
| Cost of sales | 1,317 | 78.1 | % | 1,351 | 78.0 | % | |||||||||||||||||
| Gross profit | 369 | 21.9 | % | 380 | 22.0 | % | |||||||||||||||||
| Selling, general and administrative expenses | 219 | 13.0 | % | 216 | 12.5 | % | |||||||||||||||||
| Other operating (income) expense, net | (1) | (0.1) | % | 22 | 1.3 | % | |||||||||||||||||
| Operating income | 151 | 9.0 | % | 142 | 8.2 | % | |||||||||||||||||
| Equity in affiliates’ earnings, net of tax | (8) | (0.5) | % | (5) | (0.3) | % | |||||||||||||||||
| Interest income | (8) | (0.5) | % | (8) | (0.5) | % | |||||||||||||||||
| Interest expense | 40 | 2.4 | % | 61 | 3.5 | % | |||||||||||||||||
| Other postretirement expense, net | 2 | 0.1 | % | 1 | 0.1 | % | |||||||||||||||||
| Earnings before income taxes | 125 | 7.5 | % | 93 | 5.4 | % | |||||||||||||||||
| Provision for income taxes | 53 | 3.1 | % | 50 | 2.9 | % | |||||||||||||||||
| Net earnings | $ | 72 | 4.4 | % | $ | 43 | 2.5 | % | |||||||||||||||
36
Net sales and Cost of sales
Net sales for the six months ended June 30, 2025 totaled $1,686 million, a decrease of $45 million, or 3%, compared to the six months ended June 30, 2024. Cost of sales and cost of sales as a percentage of net sales were $1,317 million and 78%, respectively, during the six months ended June 30, 2025, compared to $1,351 million and 78%, respectively, during the six months ended June 30, 2024. The change in net sales and cost of sales for the six months ended June 30, 2025 was primarily driven by unfavorable volume and mix driven by lower OEM sales across all regions, and the end of the contract manufacturing agreements with the Former Parent in the second quarter of 2024. Cost of sales was also negatively impacted by a $7 million nonrecurrence of a supplier settlement and unfavorable impacts from recent tariff changes, for which the Company continues to negotiate with customers to achieve full recovery.
| (in millions) | Net Sales | Cost of Sales | Gross Profit | ||||||||||||||
| Six Months Ended June 30, 2024 | $ | 1,731 | $ | 1,351 | $ | 380 | |||||||||||
| Volume and mix | (32) | (25) | (7) | ||||||||||||||
| Customer pricing | (2) | — | (2) | ||||||||||||||
| Supplier costs | — | (4) | 4 | ||||||||||||||
| Tariff cost and recovery | 9 | 15 | (6) | ||||||||||||||
| Employee costs | — | 3 | (3) | ||||||||||||||
| Contract manufacturing agreements | (22) | (22) | — | ||||||||||||||
| Foreign currency and other | 2 | (1) | 3 | ||||||||||||||
| Six Months Ended June 30, 2025 | $ | 1,686 | $ | 1,317 | $ | 369 | |||||||||||
Selling, general and administrative expenses (SG&A)
SG&A for the six months ended June 30, 2025 was $219 million as compared to $216 million for the six months ended June 30, 2024. SG&A as a percentage of net sales was 13% for the six months ended June 30, 2025 and 2024. The change in SG&A expenses was primarily attributable to increased employee costs, including stock-based compensation, offset by favorable foreign currency impacts.
| Six Months Ended June 30, 2025 | |||||||||||||||||
| (in millions) | 2025 | 2024 | Change ($) | ||||||||||||||
| Employee costs | $ | 75 | $ | 66 | $ | 9 | |||||||||||
| Research & development | 58 | 57 | 1 | ||||||||||||||
| Information technology | 15 | 14 | 1 | ||||||||||||||
| Amortization of acquisition-related intangibles | 14 | 14 | — | ||||||||||||||
| Other | 57 | 65 | (8) | ||||||||||||||
| Selling, general and administrative expenses | $ | 219 | $ | 216 | $ | 3 | |||||||||||
Other operating (income) expense, net
Other operating (income) expense, net was $1 million of income and $22 million of expense for the six months ended June 30, 2025 and 2024, respectively. The change in other operating expense, net was mainly driven by a decrease in transaction-related costs, primarily related to adjustments under the Tax Matters Agreement. Other operating (income) expense, net was comprised of the following:
37
| Six Months Ended June 30, | |||||||||||||||||
| (in millions) | 2025 | 2024 | Change ($) | ||||||||||||||
| Restructuring | $ | 7 | $ | 5 | $ | 2 | |||||||||||
| Transaction-related (benefits) costs | (5) | 20 | (25) | ||||||||||||||
| Other operating income, net | (3) | (3) | — | ||||||||||||||
| Other operating (income) expense, net | $ | (1) | $ | 22 | $ | (23) | |||||||||||
Equity in affiliates’ earnings, net of tax
Equity in affiliates’ earnings, net of tax was $8 million and $5 million in the six months ended June 30, 2025 and 2024, respectively. This line item is driven by the results of the Company’s unconsolidated joint venture.
Interest income
Interest income was $8 million in the six months ended June 30, 2025 and 2024. The interest income is primarily related to interest earned on funds held in money market, local overnight deposits, and short term investments.
Interest expense
Interest expense was $40 million and $61 million in the six months ended June 30, 2025 and 2024, respectively. The decrease was primarily due to the loss on extinguishment as a result of the restructuring of the Company’s debt positions in the prior period. See Note 11, “Notes Payable and Debt”, for further discussion.
Provision for income taxes
Provision for income taxes was $53 million for the six months ended June 30, 2025, resulting in an effective tax rate of 42%, compared to $50 million, or 54%, for the six months ended June 30, 2024. The effective tax rate for the six months ended June 30, 2025 decreased as compared to the prior year as a result of a change in the jurisdictional mix of pre-tax earnings, most notably a decrease in pre-tax losses where no benefit is recognized, partially offset by an increase in pre-spin uncertain tax position reserves of $18 million.
Excluding the impact of items not related to the Company’s ongoing operations, the Company’s effective tax rate associated with ongoing operations was 36% for the six months ended June 30, 2025 compared to 40% for the six months ended June 30, 2024.
For further details, see Note 5, “Income Taxes,” to the Condensed Consolidated Financial Statements for the six months ended June 30, 2025 and 2024.
38
Net earnings per diluted share and adjusted net earnings per diluted share
The Company’s net earnings per diluted share was $1.76 and $0.93 for the six months ended June 30, 2025 and 2024, respectively. The Company’s adjusted net earnings per diluted share was $2.21 and $1.98 for the six months ended June 30, 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, transaction-related 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.
| Six Months Ended June 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Net earnings per diluted share | $ | 1.76 | $ | 0.93 | |||||||
| Amortization of acquisition-related intangibles | 0.35 | 0.30 | |||||||||
| Restructuring expense | 0.17 | 0.11 | |||||||||
| Loss on extinguishment of debt | — | 0.44 | |||||||||
| Transaction-related (benefits) costs | (0.12) | 0.43 | |||||||||
| Tax effects and adjustments | 0.05 | (0.23) | |||||||||
| Adjusted net earnings per diluted share | $ | 2.21 | $ | 1.98 | |||||||
Results by Reportable Segment for the six months ended June 30, 2025 and 2024
The Company’s business is aggregated into two reportable segments: Fuel Systems and Aftermarket.
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, transaction-related costs, acquisition-related intangible asset amortization expense, impairment charges and other items not reflective of 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 $49 million and $39 million for the six months ended June 30, 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, foreign exchange losses and the addition of a second tranche of performance stock units under the Company's stock incentive plan.
Refer to Note 19, “Reportable Segments and Related Information” to the Condensed Consolidated Financial Statements, for more information.
39
The following table presents Net sales and Segment AOI for the Company’s reportable segments:
| Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||
| (in millions) | Net Sales to Customers | Segment AOI | % Margin | Net Sales to Customers | Segment AOI | % Margin | |||||||||||||||||||||||||||||
| Fuel Systems | $ | 1,010 | $ | 107 | 10.6 | % | $ | 1,045 | $ | 107 | 10.2 | % | |||||||||||||||||||||||
| Aftermarket | 676 | 109 | 16.1 | % | 686 | 113 | 16.5 | % | |||||||||||||||||||||||||||
| Totals | $ | 1,686 | $ | 216 | $ | 1,731 | $ | 220 | |||||||||||||||||||||||||||
The following table presents the year-over-year change in net sales and Segment AOI for the Company’s reportable segments for the six months ended:
| Fuel Systems | Aftermarket | ||||||||||||||||||||||
| (in millions) | Net sales | Segment AOI | Net sales | Segment AOI | |||||||||||||||||||
| June 30, 2024 | $ | 1,045 | $ | 107 | $ | 686 | $ | 113 | |||||||||||||||
| Volume and mix | (16) | (5) | (16) | (2) | |||||||||||||||||||
| Customer pricing | (3) | (3) | 1 | 1 | |||||||||||||||||||
| Supplier costs | — | 1 | — | 3 | |||||||||||||||||||
| Tariff cost and recovery | 4 | (3) | 5 | (3) | |||||||||||||||||||
| Contract manufacturing agreements | (22) | — | — | — | |||||||||||||||||||
| Foreign currency and other | 2 | 10 | — | (3) | |||||||||||||||||||
| June 30, 2025 | $ | 1,010 | $ | 107 | $ | 676 | $ | 109 | |||||||||||||||
The Fuel Systems segment’s Segment Adjusted Operating margin was 10.6% for the six months ended June 30, 2025, compared to 10.2% for the six months ended June 30, 2024. The Segment Adjusted Operating margin increase was primarily due to favorable foreign exchange impact and supply chain savings, partially offset by unfavorable mix, the nonrecurrence of a supplier settlement and the impacts of recent tariff changes.
The Aftermarket segment’s Segment Adjusted Operating margin was 16.1% for the six months ended June 30, 2025, compared to 16.5% for the six months ended June 30, 2024. The Segment Adjusted Operating margin decreased primarily due to impacts of recent tariff changes on the segment’s OEM sales and unfavorable mix, partially offset by favorable foreign exchange impacts and supply chain efficiencies.
LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company maintains various liquidity sources, including cash and cash equivalents and the unused portion of its $500 million revolving credit facility maturing in July 2028 (the Revolving Facility). As of June 30, 2025, the Company had liquidity of $846 million, comprised of cash and cash equivalent balances of $347 million and availability on the Revolving Facility of $499 million. Given the Company’s strong liquidity position, management believes that it will have sufficient liquidity and will maintain compliance with all covenants through at least the next 12 months.
At June 30, 2025 and December 31, 2024, the Company had $347 million and $484 million of cash and cash equivalents, respectively, of which $290 million and $409 million, respectively, was held by our subsidiaries outside of the United States. We believe our existing cash and cash flows generated from operations and indebtedness incurred in conjunction with the Spin-Off discussed below will be responsive
40
to the needs of our current and planned operations for at least the next 12 months and the foreseeable future thereafter.
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 any outstanding receivables.
Cash Flows
Operating Activities
Net cash provided by operating activities was $97 million and $140 million in the six months ended June 30, 2025 and 2024, respectively. The decrease in cash from operating activities for the six months ended June 30, 2025 compared with the six months ended June 30, 2024 was primarily due to increased working capital demands as the Company navigates fluctuating volumes and other shifting industry conditions.
Investing Activities
Net cash used in investing activities was $68 million and $59 million in the six months ended June 30, 2025 and 2024, respectively, primarily related to capital expenditures. As a percentage of sales, capital expenditures were 4.1% and 3.5% for the six months ended June 30, 2025 and 2024, respectively.
Financing Activities
Net cash used in financing activities was $169 million and $126 million in the six months ended June 30, 2025 and 2024, respectively, primarily related to stock repurchases.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Critical accounting policies and estimates disclosures appear in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies And Estimates,” in the Company’s Form 10-K filed on February 13, 2025. There were no material changes to this information during the quarter ended June 30, 2025.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosures about market risk appear in “Item 7A - Quantitative and Qualitative Disclosures About Market Risk” and “Item 1A - Risk Factors” in the Company’s Form 10-K filed on February 13, 2025. Excluding the information discussed below, there were no material changes to this information during the quarter ended June 30, 2025.
Currency Exchange Rate Risk
Currency exchange rate risk refers to the possibility that the Company may incur economic losses due to adverse changes in currency exchange rates. The Company operates globally and transacts in multiple currencies in addition to its reporting currency, the U.S. dollar. Although the Company generally uses the national or regional currency as the functional currency of its local entities, the Company has a significant amount of transactions in non-functional currency denominations including U.S. Dollar, Euro, Chinese Renminbi, Great British Pound and Mexico Peso. The Company mitigates its currency exchange rate risk by establishing local production facilities and related supply chain participants in the markets it serves, by invoicing customers in the same currency as the source of the products. The Company at times will also
41
use derivative financial instruments to mitigate the risk of certain transactional foreign currency exposures.
In addition, the Company executed an intercompany loan designated as a net investment hedge to mitigate specific exchange rate translation risk. As of June 30, 2025 and December 31, 2024, the Company deferred a pre-tax loss of $8 million and $11 million, respectively, for the designated net investment hedge within the cumulative translation account within accumulated other comprehensive income, a component of total shareholders’ equity.
Currency translation adjustments, including the impact of the net investment hedges discussed above, during the six months ended June 30, 2025 and 2024, are shown in the following tables, which provide the percentage change in U.S. Dollars against the respective currencies and the approximate impacts of these changes recorded within other comprehensive income (loss) for the respective periods.
| (in millions, except for percentages) | June 30, 2025 | ||||||||||
| Euro | 14 | % | $ | 84 | |||||||
| Brazilian Real | 14 | % | $ | 19 | |||||||
| British Pound | 10 | % | $ | 26 | |||||||
| Chinese Renminbi | 2 | % | $ | 9 | |||||||
| (in millions, except for percentages) | June 30, 2024 | ||||||||||
| Brazilian Real | (13) | % | $ | (23) | |||||||
| Chinese Renminbi | (2) | % | $ | (10) | |||||||
| Euro | (3) | % | $ | (3) | |||||||
| Korean Won | (6) | % | $ | (2) | |||||||
For additional information regarding the level of business outside the United States, which is subject to foreign currency exchange rate market risk, refer to Note 19, “Reportable Segments and Related Information,” to the Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective.
There have been no changes in internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
42
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of its business, the Company is involved in a number of lawsuits and claims, both actual and potential. Proceedings that were previously disclosed may no longer be reported because, as a result of rulings in the case, settlements, changes in our business, or other developments, in our judgment, they are no longer material to the Company’s business, financial position or results of operations. Refer to Note 17, “Contingencies,” to the Condensed Consolidated Financial Statements of this Form 10-Q for additional information.
SEC regulations require disclosure of certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions that the Company reasonably believes will exceed a specified threshold. Pursuant to these regulations, the Company uses a threshold of $1 million for purposes of determining whether disclosure of any such proceedings is required.
Item 1A. Risk Factors
We face a number of risks and uncertainties that could materially and adversely affect our business, financial condition or results of operations. A discussion of our risk factors can be found in Part I, Item 1A. Risk Factors in the Company’s Form 10-K filed on February 13, 2025. Readers should not interpret the disclosure of any risk factor to imply that the risk has not already materialized. During the three months ended June 30, 2025, there were no material changes to our previously disclosed risk factors.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities
In August 2024, the Company’s Board of Directors increased the capacity under our previously announced share repurchase program by $250 million. On February 12, 2025, an additional $200 million of capacity was approved, for a total share repurchase program of $600 million. As of June 30, 2025, the Company had repurchased $376 million of common stock under its repurchase program, excluding the impact of Federal excise tax. Under the repurchase program, shares may be repurchased in open market transactions, privately negotiated transactions, or pursuant to one or more accelerated stock repurchase programs or Rule 10b5-1 plans in compliance with SEC requirements. The exact amount and timing of any purchases will depend on a number of factors, including trading price, trading volume, and general market conditions. The repurchase program has no expiration date and may be suspended, discontinued, or resumed at any time. Repurchased shares will be deemed common stock held in treasury and may subsequently be reissued.
Employee transactions include shares of the Company’s common stock withheld by the Company in connection with employees’ payment of taxes associated with the vesting of their restricted stock awards granted under the PHINIA Inc. 2023 Stock Incentive Plan.
43
The following table provides information about the Company’s purchases of its equity securities that are registered pursuant to Section 12 of the Exchange Act during the quarter ended June 30, 2025:
| Issuer Purchases of Equity Securities | ||||||||||||||||||||||||||
| Period | Total number of shares purchased | Average price per share | Total number of shares purchased as part of publicly announced plans or programs | Approximate dollar value of shares that may yet be purchased under plans or programs (in millions) | ||||||||||||||||||||||
| May 1, 2025 - May 31, 2025 | ||||||||||||||||||||||||||
| Common Stock Repurchase Program | 445,611 | $ | 43.50 | 445,611 | $ | 245 | ||||||||||||||||||||
| June 1, 2025 - June 30, 2025 | ||||||||||||||||||||||||||
| Common Stock Repurchase Program | 480,139 | $ | 42.94 | 480,139 | $ | 224 | ||||||||||||||||||||
Item 5. Other Information
Second Amended and Restated By-Laws
On July 21, 2025, the Board approved the Second Amended and Restated By-Laws of PHINIA Inc., effective as of such date (the Amended and Restated By-Laws).
The Amended and Restated By-Laws include certain changes to the notice procedures by which shareholders may recommend nominees for election to the Board, among other updates, including:
•certain revisions to conform to the Delaware General Corporation Law (the DGCL), including giving the Company the ability to provide shareholders information regarding an adjourned meeting in any manner permitted by the DGCL;
•clarification of procedures, definitions and disclosure requirements set forth in the advance notice by-law provisions for director nominations made and business proposals submitted by shareholders (other than proposals submitted pursuant to Rule 14a-8 under the Exchange Act); and
•incorporation of certain administrative and modernizing changes.
The foregoing description of the Amended and Restated By-Laws does not purport to be complete and is qualified in its entirety by reference to the full text of the Amended and Restated By-Laws, which is filed as Exhibit 3.1 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.
Trading Arrangements
During the six months ended June 30, 2025, none of the individuals serving as the Company’s directors or “officers,” as defined in Rule 16a-1(f) of the Exchange Act, at that time adopted terminated
44
Item 6. Exhibits
| 3.1 | |||||
| 10.1 | |||||
| 31.1 | |||||
| 31.2 | |||||
| 32 | |||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.* | ||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document.* | ||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document.* | ||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document.* | ||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document.* | ||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document.* | ||||
| 104.1 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).* | ||||
____________
*Filed herewith.
** Furnished herewith.
+ Indicates management contract or compensatory plan or arrangement.
45
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PHINIA Inc. | |||||
| By: | /s/ Samantha M. Pombier | ||||
| (Signature) | |||||
| Samantha M. Pombier | |||||
| Vice President and Controller (Principal Accounting Officer and Duly Authorized Officer) | |||||
Date: July 24, 2025
46