PHINIA INC

PHINIA Inc. (together with its consolidated subsidiaries, the Company or PHINIA) is a Delaware corporation incorporated in 2023. The Company 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 in combustion and hybrid propulsion for commercial vehicles and industrial applications (medium-duty and heavy-duty trucks, buses and other off-highway construction, marine, agricultural and industrial applications), 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 original equipment manufacturers (OEMs) seeking to meet and exceed increasingly stringent global regulatory requirements and satisfy consumer demands for an enhanced user experience. Additionally, we offer 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.

On December 6, 2022, BorgWarner Inc., a manufacturer and supplier of automotive industry components and parts (BorgWarner, or Former Parent) announced plans for the complete legal and structural separation of its Fuel Systems and Aftermarket businesses by the spin-off of its wholly-owned subsidiary, PHINIA, which was formed on February 9, 2023 (the Spin-Off).

On July 3, 2023, BorgWarner completed the Spin-Off in a transaction intended to qualify as tax-free to BorgWarner’s stockholders for U.S. federal income tax purposes, which was accomplished by the distribution of the outstanding common stock of PHINIA to holders of record of common stock of BorgWarner on a pro rata basis. Each holder of record of BorgWarner common stock received one share of PHINIA common stock for every five shares of BorgWarner common stock held on June 23, 2023, the record date. In lieu of fractional shares of PHINIA, BorgWarner stockholders received cash. As a result of these transactions, all of the assets, liabilities, and legal entities comprising BorgWarner’s Fuel Systems and Aftermarket businesses are now owned directly, or indirectly through its subsidiaries, by PHINIA. PHINIA is an independent public company trading under the symbol “PHIN” on the New York Stock Exchange.

Narrative Description of Reportable Segments

The Company reports its results under two reportable segments: Fuel Systems and Aftermarket.

Net sales by reportable segment were as follows:

The sales information presented above does not include the sales by the Company’s unconsolidated joint venture (see sub-heading “Joint Venture” below). Such unconsolidated sales totaled approximately $224 million, $228 million, and $235 million for the years ended December 31, 2024, 2023 and 2022, respectively. In addition, the sales information for the years ended December 31, 2024 and 2023 includes $23 million and $50 million, respectively, of certain contract manufacturing agreements with BorgWarner that were entered into at the time of the Spin-Off.

Fuel Systems

The Fuel Systems 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

The Aftermarket segment 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.

Financial Information About Reportable Segments

Refer to Note 22, “Reportable Segments and Related Information,” to the Consolidated Financial Statements in Item 8 of this Form 10-K for financial information about the Company's reportable segments.

Joint Venture

As of December 31, 2024, the Company had one unconsolidated joint venture in which it exercises significant influence but has a less-than-100% ownership interest. Results from the unconsolidated joint venture are reported by the Company using the equity method of accounting pursuant to which the Company records its proportionate share of the joint venture’s income or loss each period.

Management of the unconsolidated joint venture is shared with the Company’s joint venture partner. Certain information concerning the Company's unconsolidated joint venture is set forth below:

Financial Information About Geographic Areas

The Company has a global presence. During the year ended December 31, 2024, approximately 37% of the Company’s net sales were generated in the United States, and 63% were generated outside the United States. Refer to Note 22, “Reportable Segments and Related Information,” to the Consolidated Financial Statements in Item 8 of this Form 10-K for additional financial information about geographic areas.

Product Lines and Customers

During the year ended December 31, 2024, approximately 34% of the Company’s net sales were for independent aftermarket customers and OES, approximately 27% were for light passenger vehicle applications; approximately 20% were for commercial vehicle and industrial applications; approximately 18% were for light commercial vehicle applications, and 1% for other markets.

The Company’s worldwide net sales to General Motors Company during the years ended December 31, 2024,2023, and 2022 were 17%, 16%, and 12%, respectively. No other single customer accounted for more than 10% of the Company’s consolidated net sales in any of the years presented. Sales to the Company’s top five customers represented 40% of sales for the year ended December 31, 2024.

The Company’s products are generally sold directly to OEMs, substantially pursuant to negotiated annual contracts, long-term supply agreements or terms and conditions as may be modified by the parties. Deliveries are subject to periodic authorizations based upon OEM production schedules. The Company typically ships its products directly from its plants to the OEMs.

Sales and Marketing

The Fuel Systems and Aftermarket segments each have their own sales function. Account managers for each of our businesses are assigned to serve specific customers for one or more of the businesses’ products. Account managers spend the majority of their time in direct contact with customers’ purchasing and engineering employees and are responsible for servicing existing business and for identifying and obtaining new business. Because of their close relationship with customers, account managers are able to identify and meet customers’ needs based upon their knowledge of our product design and manufacturing capabilities. Upon securing a new order, account managers participate in product launch team activities and serve as a key interface with customers. In addition, sales and marketing employees of our reportable segments often work together to explore cross-development opportunities where appropriate.

Seasonality

Our operations are directly related to the commercial vehicle and light vehicle industries. Consequently, our segments may experience seasonal fluctuations to the extent vehicle production slows, such as for OEM shutdowns in summer or winter, and for aftermarket parts depending on primary repair periods (summer for buses) or primary failure periods due to extreme heat or cold.

Research and Development

We have our own research and development (R&D) organization, including engineers and technicians, engaged in R&D activities at facilities around the globe. We also operate testing facilities such as prototype, measurement and calibration, life-cycle testing, dynamometer testing and validation laboratories. By working closely with OEMs and anticipating their future product needs, our R&D employees conceive, design, develop, test and validate new proprietary components and systems. R&D employees also work to improve current products and production processes. We believe our commitment to R&D will allow us to continue to obtain new orders from our OEM customers.

Our net R&D costs are primarily included in selling, general and administrative expenses of the 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.

Net R&D costs as a percentage of net sales were 3.3%, 3.1% and 3.1% for the years ended December 31, 2024, 2023 and 2022, respectively.

Intellectual Property

Intellectual property rights are important and valuable assets to our company. We have in the past and will continue in the future to file applications to protect our own rights, or to obtain licenses from third parties, when and where appropriate. We currently hold over 2,500 active pending applications and issued patents worldwide, and numerous pending and registered trademarks worldwide. Many of our trademarks are well-known in the markets in which we operate, and are key differentiators in particular for our aftermarket business. In certain instances, we also license some of our intellectual property assets to third parties, and in some cases, receive royalties in return. While we consider our intellectual property portfolio on the whole to be important, we do not consider our business to be materially dependent upon any one single intellectual property right or agreement.

Competition

We compete globally with a number of other manufacturers and distributors that produce and sell similar products. Many of these competitors are larger, have more diverse product portfolios and have greater resources than us. Technological innovation, application engineering development, quality, price, delivery and program launch support are the primary methods of competition.

Our major competitors are Robert Bosch GmbH, Cummins Inc., Denso Corporation, Dorman Products, Inc., Hitachi Astemo, Ltd., Hyundai KEFICO, Marelli, Valeo, Schaeffler Group, SEG Automotive, Aisan Industry Co., Ltd., Tenneco, ZF Group, SMP Auto Inc., Vitesco Technologies, Kayser, Mahle GmbH, and TI Fluid Systems.

For many of our products, our competitors include suppliers in parts of the world that enjoy economic advantages such as lower labor costs, lower health care costs, lower tax rates and, in some cases, export subsidies and/or raw materials subsidies. Also, see Item 1A, “Risk Factors.”

Human Capital Management

Our ability to attract, retain and develop a highly skilled workforce globally is critical to our sustained success and the growth of our business. We believe the broad array of skills, backgrounds, experiences, and industry knowledge of our talented employees advance our efforts in cultivating an inclusive culture, driving operational excellence, executing our business strategy and providing innovative products and solutions designed to optimize performance, increase efficiency and solve our customers’ biggest challenges. This belief is core to our human capital management strategy, which is focused on creating an inclusive and performance-based environment that fosters learning and development and empowers our people to deliver business results while supporting our Company values and vision for powering a better tomorrow.

As of December 31, 2024, our workforce was composed of salaried and hourly employees in the following geographic regions.

We advance our human capital management strategy through programs and initiatives focused on inclusion, total rewards, culture and engagement, learning and development, and health and safety.

Inclusion. Humility, inclusivity, integrity and accountability are the Company’s people-focused core values. We strive to cultivate a culture where differences are valued, respected and embraced and provide tools and opportunities to help all employees reach their full potential. We regularly review our policies, programs and initiatives designed to promote an inclusive workforce and confirm their alignment with our strategies and efforts to foster a highly qualified talent and leadership pipeline consisting of individuals with diverse perspectives, skills and experiences. We believe recognition, and appreciation for, differences in backgrounds and experiences is an important part of creating a greater understanding of each other. Through our various initiatives, we support this belief and showcase the broad spectrum of backgrounds, experiences, and skills of our talented employees.

Our Code of Ethical Conduct outlines our expectations for employees to act ethically and responsibly and sets the tone for employee interactions with each other and external stakeholders to create a respectful, inclusive and productive business environment. We seek to reinforce our employees’ understanding of the Code by requiring training for new hires and refresher training for other employees.

Total Rewards. Our total rewards program is aligned to our employee value proposition and critical to our ability to attract, engage and retain a highly talented workforce. Through this program, we deliver reward and recognition programs and competitive pay and benefit packages, including benefits to support health and wellbeing, disease prevention, management of chronic conditions, and emotional health. All full- and part-time employees are eligible to participate in our retirement plans, family-friendly leave programs, and flexible work policies, unless precluded by collective bargaining agreements or national statutory plans.

Additionally, our compensation infrastructure for salaried employees provides a globally consistent framework, with appropriate flexibility and country specific market data informing pay decisions and supporting our ability to provide market competitive compensation, which enables us to attract and retain highly qualified talent. We offer pay and benefits that are competitive and consistent with employee positions, skill levels, experience, knowledge, and geographic location.

Culture and Engagement. We regularly conduct engagement surveys to solicit feedback from employees on a variety of topics. We incorporate this feedback into actions plans across the organization with the aim of continually improving the employee experience and ensuring our workforce remains engaged and motivated to deliver outstanding results. Our team closely monitors employee turnover as part of our efforts to identify potential opportunities for improving employee retention. Additionally, we give our employees the opportunity to give back to their local communities, through community service, environmental initiatives, and educational involvement.

Employees at some of our non-U.S. facilities are unionized. We recognize that, in many of the locations where we operate, employees have freedom of association rights with third-party organizations such as labor unions. We respect and support those rights, including the right to collective bargaining, in accordance with local laws.

Learning and Development. We provide training and formal development opportunities for our employees to enable them to build the skills needed to reach their short- and long-term career goals. These opportunities are delivered to employees in a variety of formats to make our portfolio of learning and development solutions flexible, accessible, scalable and translatable to meet the needs of our evolving global workplace and workforce.

Our formal performance management system enables managers and employees to set goals that align to our strategy and core values, provide formal feedback throughout the year, and identify professional development goals and opportunities to assist employees in reaching their full potential. We also offer employees the opportunity to participate in traditional and reverse mentoring programs. Our reverse mentoring program pairs early career talent with more senior leadership and is designed to promote collaboration, foster dialogue, and raise awareness and understanding of different perspectives to deliver on our collective goals. Finally, we have a regular cadence of talent reviews and robust succession plans for key roles in the Company, which includes the use of talent pools to help tailor development in line with career aspirations and trajectories.

Health and Safety. The health and safety of our employees is a top priority. We are dedicated to continually improving health and safety performance through education, managing and mitigating risk and building a culture where safety comes first and is embedded as a value. We maintain safety management systems at all of our manufacturing facilities. Our manufacturing locations that supply directly to OEM customers are certified to the ISO 45001:2018 Occupational health and safety management standard.

We engage employees across different roles and geographies through ongoing workplace safety training and prevention initiatives, best practice sharing, safety meetings, and recognition programs. These initiatives and programs aim to facilitate engagement, share successes and focus employees on continually improving the safety of our work environments and fostering safe and healthy practices.

Raw Materials

We use a variety of raw materials in the production of our products including aluminum, copper, nickel, plastic resins, steel, certain alloy elements, and semiconductor chips. Manufacturing operations for each of our operating segments are dependent upon natural gas (including carbon dioxide and helium), fuel oil, and electricity.

We use a variety of measures to limit the impact of supply shortages and inflationary pressures. Our global procurement organization works to accelerate cost reductions, purchase from best-cost regions, optimize the supply base, mitigate risk, and collaborate on our buying activities. In addition, we use long-term contracts, cost sharing arrangements, design changes, customer buy programs, and limited financial instruments to help control costs wherever beneficial. The Company intends to use similar measures in 2025 and beyond. Refer to Note 14, “Financial Instruments,” to the Consolidated Financial Statements in Item 8 of this Form 10-K for information related to the Company’s hedging activities.

Prices for commodities remain volatile, and since the beginning of 2021, the Company has experienced price increases for energy and base metals (e.g., steel, aluminum and copper) while slightly decreasing in 2024. In addition, many global economies are experiencing elevated levels of inflation more generally, which is driving an increase in other input costs. As a result, the Company has experienced, and is continuing to experience, higher costs. For 2025, the Company believes there will be lower levels of continued inflationary pressures in certain raw materials, labor and energy. Supplies of other raw materials are adequate and available from multiple sources to support our manufacturing requirements.

Government Regulations

We are subject to extensive and varied laws and regulations in the jurisdictions in which we operate, including those relating to anti‑corruption and trade, anti-money laundering, environmental matters, import and export compliance, antitrust, data security and privacy, employment, public health and safety, intellectual property, transportation, zoning, and fire codes. Our policies mandate compliance with all applicable laws and regulations, and we operate our business in accordance with standards and procedures designed to comply with these laws and regulations.

Our practice is to identify potential regulatory and quality risks early in the design and development process and proactively manage them throughout the product lifecycle through the use of routine assessments, protocols, standards, performance measures and audits. New regulations and changes to existing regulations are managed in collaboration with our OEM customers and implemented through our global systems and procedures designed to ensure compliance with existing laws and regulations. We demonstrate material content compliance through the International Material Data System (IMDS), which is the vehicle industry material data system. In the IMDS, all materials used for vehicle manufacturing are archived and maintained to meet the obligations placed on the vehicle manufacturers, and thus on their suppliers, by national and international standards, laws and regulations.

The Company works collaboratively with a number of stakeholder groups, including government agencies such as the National Highway Traffic Safety Administration, our customers and our suppliers, to proactively engage in federal, state and international public policy processes.

Refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for a discussion of the impact of environmental regulations on the Company’s business. Also, see Item 1A, “Risk Factors.”

Available Information

Through the Company’s investor relations website (investors.phinia.com), the Company makes available, free of charge, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those reports, and other filings with the SEC as soon as reasonably practicable after they are filed or furnished.

Dissemination of Company Information

The Company intends to make future announcements regarding Company developments and financial performance through its websites, www.phinia.com and investors.phinia.com, as well as through press releases, filings with the SEC, conference calls and webcasts.

Information About Our Executive Officers

Set forth below are the names, ages, positions and certain other information concerning the Company’s executive officers and officers within the meaning of Rule 16a-1(f) of the Exchange Act as of February 13, 2025.