NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
INTRODUCTION
The accompanying Condensed Consolidated Financial Statements and notes present the condensed consolidated statements of operations, cash flows, comprehensive income and stockholders’ equity and balance sheets of PHINIA Inc. (PHINIA or the Company). PHINIA is a diversified industrial supplier and global leader in the development of fuel systems, electrical systems, and aftermarket solutions, with a strong portfolio of trusted brands that includes DELPHI®, DELCO REMY®, HARTRIDGE™ and stoba®. With over 100 years of manufacturing expertise and industry relationships, PHINIA has approximately 13,500 talented employees and over 40 locations in 21 countries and is headquartered in Auburn Hills, Michigan, USA. Our systems and solutions are designed to keep combustion engines operating at peak performance across a variety of applications: medium- and heavy-duty commercial vehicle (on-road vehicles used for commercial transport classified as class 4-8, 14,001 pounds or heavier), light commercial vehicle (on-road vehicles used for commercial transport classified as class 1-3, 14,000 pounds or lighter), light passenger vehicle (on-road vehicles used primarily for carrying passengers), and off-highway, industrial, and other (including construction and agricultural machinery, vocational vehicles, marine, industrial applications, power generation, and aerospace and defense). PHINIA’s service solutions include vehicle repair and replacement parts, offering both new and remanufactured products through the original equipment manufacturer dealer network and the independent aftermarket channel.
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 nine months ended September 30, 2026 are not necessarily indicative of the results that may be expected for the year ending December 31, 2026. The balance sheet as of December 31, 2025 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
Accounting Standards Not Yet Adopted
In November 2024, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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.
In September 2025, the FASB issued ASU 2025-06, “Intangibles - Goodwill and Other - Internal-use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software.” This guidance requires entities to capitalize internal-use software costs when the Company has authorized and committed funding and it is probable the project will be completed. This guidance is effective for annual
reporting periods beginning after December 15, 2027. The Company is currently evaluating the impact of this ASU on its financial statements.
In November 2025, the FASB issued ASU 2025-09, “Derivatives and Hedging (Topic 815): Hedge Accounting Improvements.” This guidance enables entities to apply hedge accounting to a greater number of highly effective economic hedges in “Similar Risk Assessment for Cash Flow Hedges, Hedging Forecasted Interest Payments on Choose-Your-Rate Debt Instruments, Cash Flow Hedges of Nonfinancial Forecasted Transactions and Net Written Options as Hedging Instruments.” This guidance is effective for annual reporting periods beginning after December 15, 2026. The ASU will not have a material impact on the financial statements of the Company.
In December 2025, the FASB issued ASU 2025-10, “Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities.” This guidance requires entities to disclose the nature of government grants, accounting principles applied, and significant terms and conditions. This guidance is effective for annual reporting periods beginning after December 15, 2028. The Company is currently evaluating the impact of this ASU on its financial statements.
In December 2025, the FASB issued ASU 2025-11, “Interim Reporting (Topic 270): Narrow-Scope Improvements.” This guidance requires entities to disclose material events and changes that occur after the end of the most recent fiscal year and clarifies other disclosure requirements for interim reporting. This guidance is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027. The Company is currently evaluating the impact of this ASU on its financial statements.
In December 2025, the FASB issued ASU 2025-12, “Codification Improvements.” This guidance updates a broad range of topics arising from technical corrections, unintended Codification application, clarifications and other minor improvements. This guidance is effective for annual reporting periods beginning after December 15, 2026. The ASU will not have a material impact on the financial statements of the Company.
In May 2026, the FASB issued ASU 2026-02, “Environmental Credits and Environmental Credit Obligations (Topic 818).” This guidance establishes recognition, measurement, presentation, and disclosure requirements for environmental credits and regulatory compliance obligations that may be settled using environmental credits. This guidance is effective for annual reporting periods beginning after December 15, 2027. The Company is currently evaluating the impact of this ASU on its financial statements.
NOTE 2 ACQUISITIONS
stoba Group
On June 30, 2026, PHINIA announced that it entered into a definitive agreement to acquire the stoba Group, a global technology partner specialized in high-precision components, systems, and customized manufacturing solutions. The transaction closed on October 1, 2026. The Company financed the $136 million purchase price with cash on hand, including proceeds from borrowings under the Revolving Facility (as defined in Note 13. “Notes Payable And Debt”) that had been drawn and remained outstanding as of September 30, 2026.
Swedish Electromagnet Invest AB
On August 1, 2025, the Company acquired 100% of Swedish Electromagnet Invest AB (SEM) for $46 million, comprised of $14 million of cash consideration and $32 million cash used to extinguish debt assumed through the acquisition (the SEM Acquisition). During the nine months ended September 30, 2026, the Company recorded a measurement period adjustment which reduced the purchase consideration associated with the SEM Acquisition by $1 million as a result of the resolution of certain acquisition-related matters. The adjustment resulted in a corresponding decrease to goodwill. SEM is part of the Power Systems segment, and is a provider of advanced natural gas, hydrogen and other alternative fuel ignition systems, injector stators and linear position sensors.
The SEM Acquisition was accounted for as a business combination. The Company finalized the evaluation for the fair value of all the assets acquired and liabilities assumed with SEM during the third quarter of 2026.
The following table summarizes the fair values of the assets acquired and liabilities assumed as of the date of acquisition: | | | | | | | | | |
| (in millions) | Initial Purchase Price Allocation | | | | |
Total purchase consideration(1) | $ | 14 | | | | | |
| | | | | |
| ASSETS | | | | | |
| Cash and cash equivalents | $ | 6 | | | | | |
| Property, plant and equipment, net | 5 | | | | | |
| Other intangible assets, net | 27 | | | | | |
| Other assets | 26 | | | | | |
| Total assets acquired | $ | 64 | | | | | |
| | | | | |
| LIABILITIES | | | | | |
| Long-term debt | $ | 33 | | | | | |
| Other liabilities | 20 | | | | | |
| Total liabilities assumed | $ | 53 | | | | | |
| | | | | |
| Net assets acquired | $ | 11 | | | | | |
Goodwill(2) | $ | 3 | | | | | |
____________ | | |
1 Total purchase consideration excludes cash paid of $32 million used to extinguish debt assumed through the SEM Acquisition. 2 Goodwill is not deductible for tax purposes. |
|
The valuation of intangible assets consisted of the following assets subject to amortization (in millions, except weighted-average useful life): | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value | | Weighted-Average Useful Life | | Valuation Methodology | | Key Assumptions |
| Customer relationships | $ | 18 | | | 12 years | | Multi-period excess earnings | | Discount rate, customer attrition rate |
| Patented and unpatented technology | 9 | | 6 years | | Relief-from-royalty | | Royalty rate, discount rate, obsolescence factor |
The purchase price, net of cash acquired, was allocated based on the fair value of the assets acquired and liabilities assumed at the date of acquisition with the excess purchase price recorded as goodwill, all of which was allocated to the Power Systems segment. The goodwill is primarily the result of expected synergies as well as enhancing the Company’s product portfolio and strategy, enabling the Company to explore adjacent market opportunities to increase Power Systems sales globally. Amortization expense of purchased intangible assets is primarily recognized on a straight-line basis.
NOTE 3 REVENUE FROM CONTRACTS WITH CUSTOMERS
The Company manufactures and sells products and solutions, primarily to original equipment manufacturers (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 September 30, 2026, the balance of contract liabilities was $21 million, of which $8 million was reflected in Other current liabilities and $13 million was reflected in Other non-current liabilities. As of December 31, 2025, the balance of contract liabilities was $17 million, of which $7 million was reflected in Other current liabilities and $10 million was reflected as Other non-current liabilities. These amounts are reflected as revenue over the term of the arrangement (typically three 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 nine months ended September 30, 2026 and 2025. Refer to Note 21, “Reportable Segments and Related Information” to the Condensed Consolidated Financial Statements, for more information.
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2026 |
| (in millions) | Power Systems | | Aftermarket Solutions | | Total |
| Americas | $ | 197 | | | $ | 196 | | | $ | 393 | |
| Europe | 239 | | | 134 | | | 373 | |
| Asia | 125 | | | 21 | | | 146 | |
| Total | $ | 561 | | | $ | 351 | | | $ | 912 | |
| | | | | |
| Three Months Ended September 30, 2025 |
| (in millions) | Power Systems | | Aftermarket Solutions | | Total |
| Americas | $ | 195 | | | $ | 187 | | | $ | 382 | |
| Europe | 235 | | | 132 | | | 367 | |
| Asia | 141 | | | 18 | | | 159 | |
| Total | $ | 571 | | | $ | 337 | | | $ | 908 | |
| | | | | |
| Nine Months Ended September 30, 2026 |
| (in millions) | Power Systems | | Aftermarket Solutions | | Total |
| Americas | $ | 586 | | | $ | 583 | | | $ | 1,169 | |
| Europe | 734 | | | 391 | | | 1,125 | |
| Asia | 374 | | | 62 | | | 436 | |
| Total | $ | 1,694 | | | $ | 1,036 | | | $ | 2,730 | |
| | | | | |
| Nine Months Ended September 30, 2025 |
| (in millions) | Power Systems | | Aftermarket Solutions | | Total |
| Americas | $ | 556 | | | $ | 551 | | | $ | 1,107 | |
| Europe | 679 | | | 372 | | | 1,051 | |
| Asia | 382 | | | 54 | | | 436 | |
| Total | $ | 1,617 | | | $ | 977 | | | $ | 2,594 | |
NOTE 4 RESTRUCTURING
The Company’s restructuring activities are undertaken as necessary to execute the Company’s strategy and streamline operations, consolidate and take advantage of available capacity and resources, and ultimately achieve net cost reductions. During the nine months ended September 30, 2026, the Company continued to implement actions as part of a strategic effort to align its legacy infrastructure with current business needs and reduce costs in response to ongoing industry headwinds. Beginning in 2025 and continuing through 2027, the Company anticipates incurring an aggregate of approximately $45 million in restructuring charges under these initiatives, with estimated annual savings of $35 million once fully implemented. As of September 30, 2026, the Company has recognized $25 million of restructuring expense related to these initiatives.
The Company’s restructuring expenses consist primarily of employee termination benefits (principally severance and/or other termination benefits) and other costs, which are primarily information technology infrastructure right-sizing.
The following table displays a roll forward of the restructuring liability recorded within the Company’s Condensed Consolidated Balance Sheets and the related cash flow activity:
| | | | | | | | | | | | | | | | | |
| (in millions) | Employee termination benefits | | Other | | Total |
| Balance at January 1, 2026 | $ | 5 | | | $ | 1 | | | $ | 6 | |
| Restructuring expense, net | 5 | | | 11 | | | 16 | |
| Cash payments | (6) | | | (11) | | | (17) | |
| | | | | |
| Balance at September 30, 2026 | 4 | | | 1 | | | 5 | |
| Less: Non-current restructuring liability | 1 | | | — | | | 1 | |
| Current restructuring liability at September 30, 2026 | $ | 3 | | | $ | 1 | | | $ | 4 | |
| | | | | | | | | | | | | | | | | |
| (in millions) | Employee termination benefits | | Other | | Total |
| Balance at January 1, 2025 | $ | 5 | | | $ | 1 | | | $ | 6 | |
| Restructuring expense, net | 8 | | | 3 | | | 11 | |
| Cash payments | (10) | | | (3) | | | (13) | |
| Foreign currency translation adjustment and other | 1 | | | — | | | 1 | |
| Balance at September 30, 2025 | 4 | | | 1 | | | 5 | |
| Less: Non-current restructuring liability | 1 | | | — | | | 1 | |
| Current restructuring liability at September 30, 2025 | $ | 3 | | | $ | 1 | | | $ | 4 | |
During the nine months ended September 30, 2026 and 2025, the Company recorded $16 million and $11 million, respectively, of restructuring costs for individually approved restructuring actions that primarily related to aligning its legacy infrastructure with current business needs and reductions in headcount in the Power Systems segment.
During the three months ended September 30, 2026 and 2025, the Company recorded $5 million and $4 million, respectively, of restructuring costs for individually approved restructuring actions that primarily related to aligning its legacy infrastructure with current business needs and reductions in headcount in the Power Systems segment.
Estimates of restructuring expense are based on information available at the time such charges are recorded. Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially recorded. Accordingly, the Company may record revisions of previous estimates by adjusting previously established accruals.
The Company will recognize restructuring expense associated with any future actions at the time such actions are approved and become probable or are incurred. Any future actions could result in significant restructuring expense and cash payments.
NOTE 5 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.
The following table presents the Company’s gross and net costs on R&D activities:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | 2026 | | 2025 | | 2026 | | 2025 |
| Gross R&D costs | $ | 48 | | | $ | 44 | | | $ | 145 | | | $ | 136 | |
| Customer reimbursements | (23) | | | (24) | | | (58) | | | (58) | |
| Net R&D costs | $ | 25 | | | $ | 20 | | | $ | 87 | | | $ | 78 | |
Net R&D costs as a percentage of net sales were 2.7% and 3.2% for the three and nine months ended September 30, 2026, respectively. Net R&D costs as a percentage of net sales were 2.2% and 3.0% for the three and nine months ended September 30, 2025, respectively.
NOTE 6 OTHER OPERATING EXPENSE, NET
Items included in Other operating expense, net consist of:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | 2026 | | 2025 | | 2026 | | 2025 |
| Merger and acquisition expense | $ | 2 | | | $ | 4 | | | $ | 5 | | | $ | 9 | |
| Separation-related costs | 2 | | | 53 | | | 3 | | | 43 | |
| Losses (gains) for other one-time events | 1 | | | (2) | | | 1 | | | (2) | |
| | | | | | | |
| Other operating (income) expense, net | (1) | | | 2 | | | (4) | | | (1) | |
| Other operating expense, net | $ | 4 | | | $ | 57 | | | $ | 5 | | | $ | 49 | |
Separation-related costs: The Company classifies certain expenses and benefits related to the legal and structural separation of the former Fuel Systems and Aftermarket businesses from BorgWarner Inc. (the Former Parent) on July 3, 2023 (the Spin-Off) as separation-related costs. These 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 tax matters between the Company and the Former Parent. In the three months ended September 30, 2025, the Company recognized a $39 million loss in connection with the settlement of separation-related claims with the Former Parent.
Merger and acquisition expense: The Company classifies certain expenses and benefits related to certain contemplated and completed acquisition initiatives as merger and acquisition expense. Acquisition costs primarily relate to professional fees for acquisition initiatives.
NOTE 7 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 September 30, 2026 and 2025 was 4% and 32%, respectively. The effective tax rate for the three months ended September 30, 2026 decreased as compared to the prior year due to favorable provision to return adjustments for tax returns filed in the period and a reduction in U.S. tax on foreign earnings.
The Company’s effective tax rate for the nine months ended September 30, 2026 and 2025 was 26% and 41%, respectively. The effective tax rate for the nine months ended September 30, 2026 decreased as compared to the nine months ended September 30, 2025 due to favorable provision to return adjustments
for tax returns filed in the period, a reduction in U.S. tax on foreign earnings and the recognition of an uncertain tax position recorded discretely in the nine month period ended September 30, 2025 that did not recur in the nine month period ended September 30, 2026.
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., U.S. taxes on foreign earnings, and permanent differences between book and tax treatment for certain items including enhanced deduction of R&D 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 nine months ended September 30, 2026 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 material to the total 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.
NOTE 8 RECEIVABLES, NET
The table below provides details of Receivables, net as of September 30, 2026 and December 31, 2025:
| | | | | | | | | | | |
| (in millions) | September 30,
2026 | | December 31,
2025 |
| Receivables, net: | | | |
| Customers | $ | 718 | | | $ | 621 | |
| Indirect taxes | 72 | | | 90 | |
| Due from Former Parent | 33 | | | 51 | |
| Other | 85 | | | 49 | |
| Gross receivables | 908 | | | 811 | |
| Allowance for credit losses | (6) | | | (7) | |
| Total receivables, net | $ | 902 | | | $ | 804 | |
NOTE 9 INVENTORIES
A summary of Inventories is presented below:
| | | | | | | | | | | |
| (in millions) | September 30,
2026 | | December 31,
2025 |
| Raw material and supplies | $ | 263 | | | $ | 238 | |
| Work-in-progress | 42 | | | 47 | |
| Finished goods | 180 | | | 188 | |
| Inventories | $ | 485 | | | $ | 473 | |
NOTE 10 OTHER CURRENT AND NON-CURRENT ASSETS
| | | | | | | | | | | |
| (in millions) | September 30,
2026 | | December 31,
2025 |
| Prepayments and other current assets: | | | |
| Prepaid taxes | $ | 60 | | | $ | 35 | |
| Prepaid engineering | 23 | | | 27 | |
| Prepaid customer tooling | 17 | | | 23 | |
| Prepaid software | 13 | | | 12 | |
| Customer return assets | 9 | | | 9 | |
| Prepaid insurance | 6 | | | 4 | |
| Derivative instruments | 4 | | | 5 | |
| | | |
| Other | 18 | | | 11 | |
| Total prepayments and other current assets | $ | 150 | | | $ | 126 | |
| | | |
| Investments and long-term receivables: | | | |
| Long-term receivables | $ | 68 | | | $ | 63 | |
| Investment in equity affiliates | 64 | | | 60 | |
| Due from Former Parent | 20 | | | 17 | |
| Investment in equity securities | 4 | | | 5 | |
| Total investments and long-term receivables | $ | 156 | | | $ | 145 | |
| | | |
| Other non-current assets: | | | |
| Deferred income taxes | $ | 65 | | | $ | 61 | |
| Operating leases | 40 | | | 48 | |
| Other | 13 | | | 8 | |
| Customer incentive payments | 10 | | | 10 | |
| Total other non-current assets | $ | 128 | | | $ | 127 | |
NOTE 11 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 nine months of 2026 requiring additional assessment or testing.
A summary of the components in the carrying amount of goodwill as of September 30, 2026 and December 31, 2025 is as follows:
| | | | | | | | | | | | | | | | | |
| (in millions) | Power Systems | | Aftermarket Solutions | | Total |
| Gross goodwill balance, December 31, 2025 | $ | 71 | | | $ | 551 | | | $ | 622 | |
| | | | | |
| Accumulated impairment losses | — | | | (113) | | | (113) | |
| Net goodwill balance, December 31, 2025 | $ | 71 | | | $ | 438 | | | $ | 509 | |
| Goodwill during the period: | | | | | |
| | | | | |
| Measurement period adjustments | (1) | | | — | | | (1) | |
| Translation adjustment | (1) | | | 3 | | | 2 | |
| Net goodwill balance, September 30, 2026 | $ | 69 | | | $ | 441 | | | $ | 510 | |
The Company’s other intangible assets from acquisitions consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2026 | | December 31, 2025 |
| (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 | 6 - 15 | | $ | 160 | | | $ | 74 | | | $ | 86 | | | $ | 164 | | | $ | 66 | | | $ | 98 | |
| Customer relationships | 12 - 15 | | 287 | | | 154 | | | 133 | | | 291 | | | 141 | | | 150 | |
| Total amortized intangible assets | | | 447 | | | 228 | | | 219 | | | 455 | | | 207 | | | 248 | |
| Unamortized trade names | | | 147 | | | — | | | 147 | | | 150 | | | — | | | 150 | |
| Total other intangible assets | | | $ | 594 | | | $ | 228 | | | $ | 366 | | | $ | 605 | | | $ | 207 | | | $ | 398 | |
NOTE 12 PRODUCT WARRANTY
The Company provides warranties on some, but not all, of its products. The warranty terms are typically from one to three years. Provisions for estimated expenses related to product warranty are made at the time products are sold. These estimates are established using historical information about the nature, frequency and average cost of warranty claim settlements as well as product manufacturing and industry developments and recoveries from third parties. Management actively studies trends of warranty claims and takes action to improve product quality and minimize warranty claims. Costs of product recalls, which may include the cost of the product being replaced as well as the customer’s cost of the recall, including labor to remove and replace the recalled part, are accrued as part of the Company’s warranty accrual at the time the Company believes it is probable that a loss will be incurred and the amount can be reasonably estimated. See Note 19, “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 Other current liabilities and Other non-current liabilities in the Condensed Consolidated Balance Sheets.
The following table summarizes the activity in the product warranty accrual accounts:
| | | | | | | | | | | |
| (in millions) | 2026 | | 2025 |
| Beginning balance, January 1 | $ | 74 | | | $ | 61 | |
| Provisions for current period sales | 30 | | | 38 | |
| Adjustments of prior estimates | 1 | | | — | |
| Acquisition | — | | | 3 | |
| Payments | (30) | | | (33) | |
| Other, primarily translation adjustment | (1) | | | 3 | |
| Ending balance, September 30 | $ | 74 | | | $ | 72 | |
The product warranty liability is classified in the Condensed Consolidated Balance Sheets as follows:
| | | | | | | | | | | | | | |
| (in millions) | September 30, 2026 | | December 31, 2025 | | | |
| Other current liabilities | $ | 38 | | | $ | 35 | | | | |
| Other non-current liabilities | 36 | | | 39 | | | | |
| Total product warranty liability | $ | 74 | | | $ | 74 | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
NOTE 13 NOTES PAYABLE AND DEBT
As of September 30, 2026 and December 31, 2025, the Company had debt outstanding as follows:
| | | | | | | | | | | |
| (in millions) | September 30,
2026 | | December 31, 2025 |
| Short-term debt | | | |
| Short-term borrowings | $ | 123 | | | $ | 2 | |
| | | |
| Long-term debt | | | |
| | | |
6.750% Senior notes due 04/15/2029 ($525 million par value) | 521 | | | 519 | |
6.625% Senior notes due 10/15/2032 ($450 million par value) | 445 | | | 445 | |
| | | |
| | | |
| Finance leases | 4 | | | 4 | |
| Total long-term debt | $ | 970 | | | $ | 968 | |
| Less: current portion | 1 | | | 1 | |
| Long-term debt, net of current portion | $ | 969 | | | $ | 967 | |
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 September 30, 2026.
As of September 30, 2026, the estimated fair values of the Company’s long-term debt totaled $967 million, which is $1 million higher than carrying value for the same period. As of December 31, 2025, the estimated fair value of the Company’s long-term debt totaled $1,011 million, which was $47 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 Accounting Standards Codification (ASC) Topic 820. The carrying values of the Company’s other debt facilities 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 September 30, 2026. As of September 30, 2026, the Company had $123 million of outstanding borrowings under the Revolving Facility, and availability of $377 million.
NOTE 14 OTHER CURRENT AND NON-CURRENT LIABILITIES
Additional detail related to liabilities is presented in the table below:
| | | | | | | | | | | |
| (in millions) | September 30,
2026 | | December 31,
2025 |
| Other current liabilities: | | | |
| Customer related | $ | 135 | | | $ | 118 | |
| Payroll and employee related | 105 | | | 105 | |
| Product warranties (see Note 12) | 38 | | | 35 | |
| Interest | 31 | | | 15 | |
| Customer advances | 28 | | | — | |
| Income taxes payable | 25 | | | 18 | |
| Uncertain tax positions | 18 | | | 18 | |
| Operating leases | 17 | | | 19 | |
| Accrued freight | 17 | | | 11 | |
| Refundable customer deposits | 11 | | | 9 | |
| Supplier related | 9 | | | 11 | |
| Deferred income | 8 | | | 7 | |
| Other non-income taxes | 7 | | | 7 | |
| Legal and professional fees | 7 | | | 7 | |
| Deferred engineering | 6 | | | — | |
| | | |
| | | |
| Other | 54 | | | 54 | |
| Total other current liabilities | $ | 516 | | | $ | 434 | |
| | | |
| Other non-current liabilities: | | | |
| Deferred income taxes | $ | 52 | | | $ | 53 | |
| Product warranties (see Note 12) | 36 | | | 39 | |
| Uncertain tax positions | 28 | | | 25 | |
| Operating leases | 24 | | | 31 | |
| Deferred income | 21 | | | 18 | |
| Other | 13 | | | 9 | |
| Total other non-current liabilities | $ | 174 | | | $ | 175 | |
NOTE 15 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 an S&P, or equivalent, investment grade credit rating at the time of the contracts’ placement. At September 30, 2026 and December 31, 2025, the Company had no derivative contracts that contained credit-risk-related contingent features.
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.
As of September 30, 2026 and December 31, 2025, the U.S. Dollar equivalent notional values of outstanding currency derivative instruments used for foreign currency cash flow hedging were $79 million and $43 million, respectively. These amounts are primarily related to Euro denominated forward contracts at British Pound and Chinese Renminbi functional currency locations.
The Company recognized immaterial amounts of gains and losses in Accumulated other comprehensive loss (AOCI) related to derivative instruments designated as foreign currency cash flow hedges, as defined by ASC Topic 815, “Derivatives and Hedging”, during the three months ended September 30, 2026 and December 31, 2025. The Company also recognized an immaterial amount of gains and losses in Selling, general and administrative expenses in Net earnings for the three and nine months ended September 30, 2026. Balances in AOCI are reclassified to earnings when transactions related to the underlying risk are recognized. As of September 30, 2026 there was an immaterial derivative asset balance and a $1 million liability balance recorded in the Consolidated Balance Sheets as being payable to or receivable from counterparties under ASC Topic 815, “Derivatives and Hedging”. As of December 31, 2025, the amount of asset and liability balances related to foreign currency cash flow hedges were immaterial.
There were no gains or losses recorded in income related to components excluded from the assessment of effectiveness for derivative instruments designated as cash flow hedges for the periods presented.
The Company uses net investment hedges, as defined by ASC Topic 815, “Derivatives and Hedging” to mitigate the variability of the value of its investments in foreign currency denominated subsidiaries. During the three and nine months ended September 30, 2026 a gain of $1 million was recorded to AOCI. As of September 30, 2026, the notional value of the Company’s designated net investment hedge outstanding was less than $8 million.
The table below shows deferred gains (losses) reported in AOCI related to current and historical financial instruments designated as net investment hedges.
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Deferred gain (loss) in AOCI at | | Gain (loss) expected to be reclassified to income in one year or less |
| Contract Type | | September 30, 2026 | | December 31, 2025 | |
| Foreign currency | | $ | (5) | | | $ | (6) | | | $ | — | |
The gains and (losses) attributable to the financial instruments designated as a net investment hedge were recognized in other comprehensive income (loss) during the periods presented below.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Net investment hedge | | 2026 | | 2025 | | 2026 | | 2025 |
| Foreign currency | | $ | 1 | | | $ | 2 | | | $ | 1 | | | $ | 5 | |
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. The Company entered into cross-currency swap instruments, resulting in a gain of $1 million for the three months ended September 30, 2026 and $4 million for the nine months ended September 30, 2026 which are included in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. At September 30, 2026, the cross-currency swap had a fair value of $4 million and is recorded in Prepayments and other current assets in the Condensed Consolidated Balance Sheets.
NOTE 16 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 2026 range from $15 million to $19 million, of which $9 million has been contributed through the first nine 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 September 30, | | Nine Months Ended September 30, |
| (in millions) | 2026 | | 2025 | | 2026 | | 2025 |
| Service cost | $ | 1 | | | $ | 1 | | | $ | 3 | | | $ | 3 | |
| Interest cost | 11 | | | 12 | | | 34 | | | 35 | |
| Expected return on plan assets | (12) | | | (10) | | | (38) | | | (31) | |
| Amortization of unrecognized gain | — | | | (1) | | | — | | | (1) | |
| | | | | | | |
| Net periodic benefit cost (income) | $ | — | | | $ | 2 | | | $ | (1) | | | $ | 6 | |
Service cost and the components of net periodic benefit cost other than the service cost component are included primarily in Cost of sales and Other postretirement (income) expense, net, respectively, in the Condensed Consolidated Statements of Operations.
NOTE 17 STOCKHOLDERS' EQUITY
The changes of the Stockholders’ Equity items during the three and nine months ended September 30, 2026 and 2025, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| (in millions) | | | | | Issued common stock | | Additional paid-in-capital | | Treasury stock | | Retained earnings | | Accumulated other comprehensive loss | | Total equity |
| Balance, June 30, 2026 | | | | | $ | 1 | | | $ | 1,979 | | | $ | (522) | | | $ | 187 | | | (104) | | | $ | 1,541 | |
Dividends declared ($0.30 per share) | | | | | — | | | — | | | — | | | (11) | | | — | | | (11) | |
| | | | | | | | | | | | | | | |
| Stock-based compensation expense | | | | | — | | | 5 | | | — | | | — | | | — | | | 5 | |
| Purchase of treasury stock | | | | | — | | | — | | | (65) | | | — | | | — | | | (65) | |
| Excise tax on purchase of treasury stock | | | | | — | | | — | | | (1) | | | — | | | — | | | (1) | |
| Net issuance of executive stock plan | | | | | — | | | (4) | | | 2 | | | — | | | — | | | (2) | |
| | | | | | | | | | | | | | | |
| Net earnings | | | | | — | | | — | | | — | | | 67 | | | — | | | 67 | |
| Other comprehensive loss | | | | | — | | | — | | | — | | | — | | | (9) | | | (9) | |
| Balance, September 30, 2026 | | | | | $ | 1 | | | $ | 1,980 | | | $ | (586) | | | $ | 243 | | | $ | (113) | | | $ | 1,525 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| (in millions) | | | | | Issued common stock | | Additional paid-in-capital | | Treasury stock | | Retained earnings | | Accumulated other comprehensive loss | | Total equity |
| Balance, June 30, 2025 | | | | | $ | 1 | | | $ | 1,974 | | | $ | (367) | | | $ | 95 | | | $ | (76) | | | $ | 1,627 | |
Dividends declared ($0.27 per share) | | | | | — | | | — | | | — | | | (11) | | | — | | | (11) | |
| | | | | | | | | | | | | | | |
| Stock-based compensation expense | | | | | — | | | 5 | | | — | | | — | | | — | | | 5 | |
| Purchase of treasury stock | | | | | — | | | — | | | (30) | | | — | | | — | | | (30) | |
| Excise tax on purchase of treasury stock | | | | | — | | | — | | | (1) | | | — | | | — | | | (1) | |
| Net issuance of executive stock plan | | | | | — | | | (4) | | | 1 | | | — | | | — | | | (3) | |
| Net earnings | | | | | — | | | — | | | — | | | 13 | | | — | | | 13 | |
| Other comprehensive loss | | | | | — | | | — | | | — | | | — | | | (14) | | | (14) | |
| | | | | | | | | | | | | | | |
| Balance, September 30, 2025 | | | | | $ | 1 | | | $ | 1,975 | | | $ | (397) | | | $ | 97 | | | $ | (90) | | | $ | 1,586 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | | | | Issued common stock | | Additional paid-in-capital | | Treasury stock | | Retained earnings | | Accumulated other comprehensive loss | | Total equity |
| Balance, December 31, 2025 | | | | | $ | 1 | | | $ | 1,978 | | | $ | (426) | | | $ | 132 | | | $ | (98) | | | $ | 1,587 | |
Dividends declared ($0.90 per share) | | | | | — | | | — | | | — | | | (33) | | | — | | | (33) | |
| | | | | | | | | | | | | | | |
| Stock-based compensation expense | | | | | — | | | 17 | | | — | | | — | | | — | | | 17 | |
| Purchase of treasury stock | | | | | — | | | — | | | (163) | | | — | | | — | | | (163) | |
| Excise tax on purchase of treasury stock | | | | | — | | | — | | | (2) | | | — | | | — | | | (2) | |
| Net issuance of executive stock plan | | | | | — | | | (15) | | | 5 | | | — | | | — | | | (10) | |
| | | | | | | | | | | | | | | |
| Net earnings | | | | | — | | | — | | | — | | | 144 | | | — | | | 144 | |
| Other comprehensive loss | | | | | — | | | — | | | — | | | — | | | (15) | | | (15) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Balance, September 30, 2026 | | | | | $ | 1 | | | $ | 1,980 | | | $ | (586) | | | $ | 243 | | | $ | (113) | | | $ | 1,525 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | | | | Issued common stock | | Additional paid-in-capital | | Treasury stock | | Retained earnings | | Accumulated other comprehensive (loss) income | | Total equity | | | | |
| Balance, December 31, 2024 | | | | | $ | 1 | | | $ | 1,976 | | | $ | (230) | | | $ | 44 | | | $ | (217) | | | $ | 1,574 | | | | | |
Dividends declared ($0.54 per share) | | | | | — | | | — | | | — | | | (32) | | | — | | | (32) | | | | | |
| Stock-based compensation expense | | | | | — | | | 13 | | | — | | | — | | | — | | | 13 | | | | | |
| Purchase of treasury stock | | | | | — | | | — | | | (170) | | | — | | | — | | | (170) | | | | | |
| Excise tax on purchase of treasury stock | | | | | — | | | — | | | (2) | | | — | | | — | | | (2) | | | | | |
| Net issuance of executive stock plan | | | | | — | | | (14) | | | 5 | | | — | | | — | | | (9) | | | | | |
| Net earnings | | | | | — | | | — | | | — | | | 85 | | | — | | | 85 | | | | | |
| Other comprehensive income | | | | | — | | | — | | | — | | | — | | | 127 | | | 127 | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Balance, September 30, 2025 | | | | | $ | 1 | | | $ | 1,975 | | | $ | (397) | | | $ | 97 | | | $ | (90) | | | $ | 1,586 | | | | | |
NOTE 18 ACCUMULATED OTHER COMPREHENSIVE LOSS
The following tables summarize the activity within Accumulated other comprehensive loss during the three and nine months ended September 30, 2026 and 2025:
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Foreign currency translation adjustments | | Defined benefit pension plans | | Hedge instruments | | Total |
| Beginning balance, June 30, 2026 | $ | (65) | | | $ | (39) | | | $ | — | | | $ | (104) | |
| Comprehensive loss before reclassifications | (8) | | | (2) | | | — | | | (10) | |
| | | | | | | |
| Reclassification from accumulated other comprehensive loss | — | | | 1 | | | — | | | 1 | |
| Ending Balance, September 30, 2026 | $ | (73) | | | $ | (40) | | | $ | — | | | $ | (113) | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Foreign currency translation adjustments | | Defined benefit pension plans | | Hedge instruments | | Total |
| Beginning balance, June 30, 2025 | $ | (50) | | | $ | (27) | | | $ | 1 | | | $ | (76) | |
| Comprehensive (loss) income before reclassifications | (15) | | | 1 | | | — | | | (14) | |
| | | | | | | |
| | | | | | | |
| Ending Balance, September 30, 2025 | $ | (65) | | | $ | (26) | | | $ | 1 | | | $ | (90) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Foreign currency translation adjustments | | Defined benefit pension plans | | Hedge instruments | | Total |
| Beginning Balance, December 31, 2025 | $ | (58) | | | $ | (40) | | | $ | — | | | $ | (98) | |
| Comprehensive loss before reclassifications | (15) | | | (1) | | | — | | | (16) | |
| | | | | | | |
| Reclassification from accumulated other comprehensive loss | — | | | 1 | | | — | | | 1 | |
| Ending Balance, September 30, 2026 | $ | (73) | | | $ | (40) | | | $ | — | | | $ | (113) | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Foreign currency translation adjustments | | Defined benefit pension plans | | Hedge instruments | | Total |
| Beginning Balance, December 31, 2024 | $ | (193) | | | $ | (24) | | | $ | — | | | $ | (217) | |
| Comprehensive income (loss) before reclassifications | 128 | | | (2) | | | 1 | | | 127 | |
| Income taxes associated with comprehensive loss | — | | | (1) | | | — | | | (1) | |
| Reclassification from accumulated other comprehensive loss | — | | | 1 | | | — | | | 1 | |
| Ending Balance, September 30, 2025 | $ | (65) | | | $ | (26) | | | $ | 1 | | | $ | (90) | |
| | | | | | | |
NOTE 19 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, and governmental investigations and related proceedings.
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. 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.
NOTE 20 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.
The following table reconciles the numerators and denominators used to calculate basic and diluted earnings per share of common stock:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in millions, except per share amounts) | 2026 | | 2025 | | 2026 | | 2025 |
| Basic earnings per share: | | | | | | | |
| Net earnings | $ | 67 | | | $ | 13 | | | $ | 144 | | | $ | 85 | |
| Weighted average shares of common stock outstanding | 36.3 | | 38.7 | | 37.1 | | 39.6 |
| Basic earnings per share of common stock | $ | 1.84 | | | $ | 0.34 | | | $ | 3.89 | | | $ | 2.15 | |
| | | | | | | |
| Diluted earnings per share: | | | | | | | |
| Net earnings | $ | 67 | | | $ | 13 | | | $ | 144 | | | $ | 85 | |
| Weighted average shares of common stock outstanding | 36.3 | | 38.7 | | 37.1 | | 39.6 |
| Effect of stock-based compensation | 0.8 | | | 0.9 | | | 0.9 | | | 0.8 | |
| Weighted average shares of common stock outstanding including dilutive shares | 37.1 | | 39.6 | | 38.0 | | 40.4 |
| Diluted earnings per share of common stock | $ | 1.80 | | | $ | 0.33 | | | $ | 3.79 | | | $ | 2.10 | |
| | | | | | | |
| Anti-dilutive stock-based awards excluded from the calculation of diluted earnings per share | 0.1 | | | — | | | 0.1 | | | — | |
NOTE 21 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.
Effective September 1, 2026, to reflect the Company’s strategic priorities, the Company’s Fuel Systems reportable segment has been renamed Power Systems, and the Company’s Aftermarket reportable segment has been renamed Aftermarket Solutions. The reporting segment disclosures have been updated accordingly.
In the fourth quarter of 2025, the Company made a strategic decision to shift a significant portion of the original equipment service (OES) business, previously reported in its Aftermarket Solutions segment, to the Power Systems segment, as distribution will now be handled by the Power Systems locations that manufacture the products. This is expected to streamline the sales structure to external customers while also reducing administrative efforts. The reporting segment disclosures have been updated accordingly which included recasting prior period information for the new reporting structure.
•Power Systems. This segment provides advanced fuel injection systems, fuel delivery modules, canisters, sensors, fuel ignition systems, injector stators, linear position sensors, precision machined components, 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 Solutions. Through this segment, the Company sells products to independent aftermarket solutions customers. Its product portfolio includes a wide range of products as well as maintenance, test equipment and vehicle diagnostics solutions. Additionally, it offers a diverse
portfolio of original equipment service solutions and remanufactured products. The Aftermarket Solutions segment also includes sales of starters and alternators to OEM and OES customers.
Segment Adjusted Operating Income (AOI) is the measure of segment income or loss used by the Company. Segment AOI is comprised of segment operating income adjusted for restructuring, separation-related costs, merger and acquisition costs, acquisition-related intangible asset amortization expense, impairment charges, other net expenses 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.
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 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 September 30, 2026 |
| Power Systems | | Aftermarket Solutions | | Inter-segment Eliminations | | Consolidated |
| (in millions) | | | |
| Net sales to external customers | $ | 561 | | | $ | 351 | | | $ | — | | | $ | 912 | |
| Inter-segment eliminations | $ | 38 | | | $ | — | | | $ | (38) | | | $ | — | |
| Net Sales | $ | 599 | | | $ | 351 | | | $ | (38) | | | $ | 912 | |
| Less: | | | | | | | |
| Cost of sales | 492 | | | 254 | | | | | |
| | | | | | | |
Selling, general and administrative expenses (excluding Net R&D costs shown separately below)1 | 18 | | | 34 | | | | | |
| Net R&D costs | 22 | | | 3 | | | | | |
Other segment items2 | (1) | | | — | | | | | |
| Segment AOI | $ | 68 | | | $ | 60 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2025 |
| Power Systems | | Aftermarket Solutions | | Inter-segment Eliminations | | Consolidated |
| (in millions) | | | |
| Net sales to external customers | $ | 571 | | | $ | 337 | | | $ | — | | | $ | 908 | |
| Inter-segment eliminations | $ | 39 | | | $ | — | | | $ | (39) | | | $ | — | |
| Net Sales | $ | 610 | | | $ | 337 | | | $ | (39) | | | $ | 908 | |
| Less: | | | | | | | |
| Cost of sales | 501 | | | 246 | | | | | |
| | | | | | | |
Selling, general and administrative expenses (excluding Net R&D costs shown separately below)1 | 18 | | | 34 | | | | | |
| Net R&D costs | 18 | | | 2 | | | | | |
Other segment items2 | (3) | | | 4 | | | | | |
| Segment AOI | $ | 76 | | | $ | 51 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2026 |
| Power Systems | | Aftermarket Solutions | | Inter-segment Eliminations | | Consolidated |
| (in millions) | | | |
| Net sales to external customers | $ | 1,694 | | | $ | 1,036 | | | $ | — | | | $ | 2,730 | |
| Inter-segment eliminations | $ | 97 | | | $ | — | | | $ | (97) | | | $ | — | |
| Net Sales | $ | 1,791 | | | $ | 1,036 | | | $ | (97) | | | $ | 2,730 | |
| Less: | | | | | | | |
| Cost of sales | 1,478 | | | 741 | | | | | |
| | | | | | | |
Selling, general and administrative expenses (excluding Net R&D costs shown separately below)1 | 59 | | | 107 | | | | | |
| Net R&D costs | 78 | | | 9 | | | | | |
Other segment items2 | (7) | | | 2 | | | | | |
| Segment AOI | $ | 183 | | | $ | 177 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2025 |
| Power Systems | | Aftermarket Solutions | | Inter-segment Eliminations | | Consolidated |
| (in millions) | | | |
| Net sales to external customers | $ | 1,617 | | | $ | 977 | | | $ | — | | | $ | 2,594 | |
| Inter-segment eliminations | $ | 114 | | | $ | — | | | $ | (114) | | | $ | — | |
| Net Sales | $ | 1,731 | | | $ | 977 | | | $ | (114) | | | $ | 2,594 | |
| Less: | | | | | | | |
| Cost of sales | 1,432 | | | 707 | | | | | |
| | | | | | | |
Selling, general and administrative expenses (excluding Net R&D costs shown separately below)1 | 50 | | | 97 | | | | | |
| Net R&D costs | 70 | | | 8 | | | | | |
Other segment items2 | (5) | | | 6 | | | | | |
| Segment AOI | $ | 184 | | | $ | 159 | | | | | |
____________ | | |
1 Excludes acquisition-related intangibles amortization.
2 Other segment items include inter-segment fees and other income. |
|
The following table shows a reconciliation of Segment AOI to Earnings before income taxes for the Company’s reportable segments: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | 2026 | | 2025 | | 2026 | | 2025 |
Power Systems | $ | 68 | | | $ | 76 | | | $ | 183 | | | $ | 184 | |
| Aftermarket Solutions | 60 | | | 51 | | | 177 | | | 159 | |
| Segment AOI | 128 | | | 127 | | | 360 | | | 343 | |
| | | | | | | |
| Corporate, including stock-based compensation | 26 | | | 26 | | | 78 | | | 75 | |
| Amortization of acquisition-related intangibles | 8 | | | 8 | | | 24 | | | 22 | |
| Restructuring expense | 5 | | | 4 | | | 16 | | | 11 | |
| Merger and acquisition expense | 2 | | | 4 | | | 5 | | | 9 | |
| Separation-related costs | 2 | | | 53 | | | 3 | | | 43 | |
| Losses (gains) for other one-time events | 1 | | | (2) | | | 1 | | | (2) | |
| | | | | | | |
| | | | | | | |
| Interest income | (2) | | | (3) | | | (6) | | | (11) | |
| Interest expense | 21 | | | 20 | | | 62 | | | 60 | |
| Equity in affiliates’ earnings, net of tax | (4) | | | (3) | | | (13) | | | (11) | |
| Other postretirement (income) expense, net | (1) | | | 1 | | | (4) | | | 3 | |
| Earnings before income taxes | $ | 70 | | | $ | 19 | | | $ | 194 | | | $ | 144 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Segment Information
Segment information as of September 30, 2026 and December 31, 2025 and for the three and nine months ended September 30, 2026 and 2025 is presented in the tables below:
| | | | | | | | | | | |
| Assets | | | |
| (in millions) | September 30, 2026 | | December 31, 2025 |
| Power Systems | $ | 2,055 | | | $ | 2,088 | |
| Aftermarket Solutions | 1,413 | | | 1,351 | |
| | | |
| Total | 3,468 | | | 3,439 | |
Corporate1 | 491 | | | 378 | |
| Consolidated | $ | 3,959 | | | $ | 3,817 | |
_______________ | | |
1 Corporate assets include cash and cash equivalents, investments and long-term receivables, and deferred income taxes. |
| | | | | | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | 2026 | | 2025 | | 2026 | | 2025 |
| Power Systems | $ | 35 | | | $ | 34 | | | $ | 103 | | | $ | 96 | |
| Aftermarket Solutions | 6 | | | 6 | | | 18 | | | 19 | |
| | | | | | | |
| Total | 41 | | | 40 | | | 121 | | | 115 | |
| Corporate | — | | | — | | | 1 | | | 1 | |
| Consolidated | $ | 41 | | | $ | 40 | | | $ | 122 | | | $ | 116 | |
| | | | | | | | | | | |
Long-lived asset expenditures1 | Nine Months Ended September 30, |
| (in millions) | 2026 | | 2025 |
| Power Systems | $ | 63 | | | $ | 85 | |
| Aftermarket Solutions | 6 | | | 7 | |
| | | |
| Total | 69 | | | 92 | |
| Corporate | 2 | | | 3 | |
| Consolidated | $ | 71 | | | $ | 95 | |
_______________ | | |
1 Long-lived asset expenditures include capital expenditures and tooling outlays. |
NOTE 22 OPERATING CASH FLOW AND OTHER SUPPLEMENTAL FINANCIAL INFORMATION
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| (in millions) | 2026 | | 2025 |
| OPERATING | | | |
| Net earnings | $ | 144 | | | $ | 85 | |
| Adjustments to reconcile net earnings to net cash provided by operating activities: | | | |
| Depreciation and tooling amortization | 98 | | | 94 | |
| Intangible asset amortization | 24 | | | 22 | |
| Restructuring expense, net of cash paid | 2 | | | 1 | |
| | | |
| Stock-based compensation expense | 17 | | | 13 | |
| Deferred income tax provision | (4) | | | (2) | |
| Other non-cash adjustments, net | (14) | | | 35 | |
| | | |
| Changes in assets and liabilities, excluding foreign currency translation adjustments: | | | |
| Receivables | (74) | | | (25) | |
| | | |
| Inventories | (15) | | | (44) | |
| Prepayments and other current assets | — | | | (10) | |
| Accounts payable and other current liabilities | 67 | | | 87 | |
| | | |
| Prepaid taxes and income taxes payable | (20) | | | (31) | |
| Other assets and liabilities | 15 | | | (5) | |
| Retirement benefit plan contributions | (9) | | | (4) | |
| Net cash provided by operating activities | $ | 231 | | | $ | 216 | |
| | | |
| SUPPLEMENTAL CASH FLOW INFORMATION | | | |
| Cash paid during the year for: | | | |
| Interest, net | $ | 33 | | | $ | 27 | |
| Income taxes, net of refunds | $ | 58 | | | $ | 55 | |
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 and other factors, including geopolitical tensions and related trade restrictions, impacting the global transportation and industrial equipment industries;
•our inability to deliver new products, services and technologies in response to changing consumer preferences and evolving exhaust emissions regulations, or acceleration of the market for electric vehicles or deceleration of the market for alternative fuel technologies, including for use in internal combustion engines;
•competitive industry conditions;
•failure to identify, consummate, effectively integrate or realize the expected benefits from acquisitions, partnerships or other strategic investments;
•failure of or disruption in our technology infrastructure, including a disruption related to cybersecurity;
•pricing pressures from customers;
•elevated inflation rates and volatility in the costs of commodities used in the production of our products;
•difficulties launching new machine, engine or vehicle programs;
•changes in U.S. and foreign administrative policy, including increases in tariffs, changes to existing trade agreements and import or export licensing requirements and exchange controls, and any resulting changes in international trade relations;
•our inability to identify, attract, retain and develop a qualified global workforce;
•our inability to protect our intellectual property;
•failure to achieve the anticipated savings and benefits from restructuring and other actions, including those intended to improve future profitability and competitiveness, optimize our product portfolio and operations and execute our strategy;
•extraordinary events, including natural disasters or extreme weather events, political disruptions, terrorist attacks, pandemics or other public health crises, and acts of war;
•risks related to our international operations;
•economic, geopolitical, social and market conditions impacting our business in China;
•supply chain disruptions, including due to U.S. and foreign government action;
•our reliance on a limited number of OEM customers;
•work stoppages, production shutdowns and similar events or conditions;
•liabilities related to product warranties, litigation and other claims;
•current and future environmental, health and safety, human rights and other laws and regulations related to corporate sustainability;
•tax audits or similar processes, and changes in tax laws or tax rates taken by taxing authorities;
•governmental investigations and related proceedings;
•the impacts of climate change, regulations related to climate change, various stakeholders’ emphasis on reducing the impacts of climate change and other related matters;
•compliance with and changes in other laws and regulations impacting our operations;
•impairment charges on goodwill, indefinite-lived intangible assets and long-lived assets;
•changes in interest rates and asset returns that increase our pension funding obligations;
•restrictive covenants and other requirements impacting our financial and operating flexibility pursuant to the agreements governing our indebtedness;
•risks relating to the Spin-Off, including a determination that the Spin-Off does not qualify as tax-free for U.S. federal income tax purposes, 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 any amendments and restatements thereto, and the availability of, and our ability to use, various credits and offsets detailed in such agreements or the settlement agreement between the Company and our Former Parent; 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.