CUMMINS INC (CMI)

CIK: 0000026172. SIC: 3510 Engines & Turbines. Latest 10-K as of: 2026-02-10.

SIC breadcrumb: Manufacturing > Industrial And Commercial Machinery And Computer Equipment > SIC 3510 Engines & Turbines

SEC company page: https://www.sec.gov/edgar/browse/?CIK=26172. Latest filing source: 0000026172-26-000009.

Selected Fundamentals

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-02-10. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0000026172.json. Derived margins are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Missing metrics are omitted rather than fabricated.

Financial Charts

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Latest 10-K MD&A

Extracted between Item 7 and the next Item 7A/8 heading after HTML sanitization. Confidence: high. Filing date: 2026-02-10. Report date: 2025-12-31.

ITEM 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

ORGANIZATION OF INFORMATION

The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) was prepared to provide the reader with a view and perspective of our business through the eyes of management and should be read in conjunction with our Consolidated Financial Statements and the accompanying notes to those financial statements. Our MD&A is presented in the following sections:

•EXECUTIVE SUMMARY AND FINANCIAL HIGHLIGHTS

•RESULTS OF OPERATIONS

•REPORTABLE SEGMENT RESULTS

•2026 OUTLOOK

•LIQUIDITY AND CAPITAL RESOURCES

•APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

•RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

The following is the discussion and analysis of changes in the financial condition and results of operations for fiscal year 2025 compared to fiscal year 2024. The discussion and analysis of fiscal year 2023 and changes in the financial condition and results of operations for fiscal year 2024 compared to fiscal year 2023, that are not included in this Form 10-K, may be found in Part II, ITEM 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the Securities and Exchange Commission (SEC) on February 11, 2025.

EXECUTIVE SUMMARY AND FINANCIAL HIGHLIGHTS

Overview

We are a global power leader committed to powering a more prosperous world. Since 1919, we have delivered innovative solutions that move people, goods and economies forward. Our five reportable segments - Engine, Components, Distribution, Power Systems and Accelera - offer a broad portfolio, including advanced diesel, electric and hybrid powertrains; integrated power generation systems; critical components such as aftertreatment, turbochargers, fuel systems, controls, transmissions, axles and brakes; and zero emissions technologies like battery and electric powertrain systems. With a global footprint, deep technical expertise and an extensive service network, we deliver dependable, cutting-edge solutions tailored to our customers' needs, supporting them through the energy transition with our Destination Zero strategy. We sell our products to original equipment manufacturers (OEMs), distributors, dealers and other customers worldwide. We have long-standing relationships with many of the leading manufacturers in the markets we serve, including PACCAR Inc., Traton Group, Daimler Trucks AG and Stellantis N.V. We serve our customers through a service network of approximately 640 wholly-owned, joint venture and independent distributor locations and more than 13,000 Cummins certified dealer locations in approximately 190 countries and territories.

Our segment reporting structure is organized according to the products and markets each segment serves. The Engine segment produces engines (15 liters and smaller) and associated parts for sale to customers in on-highway and various off-highway markets. Our engines are used in trucks of all sizes, buses and recreational vehicles, as well as in various industrial applications, including construction, agriculture, power generation systems and other off-highway applications. The Components segment sells axles, drivelines, brakes and suspension systems for commercial diesel and natural gas applications, aftertreatment systems, turbochargers, fuel systems, valvetrain technologies, automated transmissions and electronics. The Distribution segment includes wholly-owned and partially-owned distributorships engaged in wholesaling engines, generator sets and service parts, as well as performing service and repair activities on our products, maintaining relationships with various OEMs throughout the world and providing selected sales and aftermarket support for our Accelera business. The Power Systems segment is an integrated power provider, which designs, manufactures and sells standby and prime power generators, engines (16 liters and larger) for standby and prime power generator sets and industrial applications (including mining, oil and gas, marine, rail and defense), alternators and other power components. The Accelera segment designs, manufactures, sells and supports electrified power systems with innovative components and subsystems, including battery and electric powertrain technologies. The Accelera segment is currently in the early stages of commercializing these technologies with efforts primarily focused on the development of electrified power systems and related components and subsystems. We continue to serve all our markets as they adopt electrification, meeting the needs of our OEM partners and end customers.

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Our financial performance depends, in large part, on varying conditions in the markets we serve, particularly the on-highway, off-highway, power generation and general industrial markets. Demand in these markets tends to fluctuate in response to overall economic conditions. Our sales may also be impacted by OEM inventory levels, production schedules, stoppages and supply chain challenges. Economic downturns in markets we serve generally result in reduced sales of our products and can result in price reductions in certain products and/or markets. As a worldwide business, our operations are also affected by geopolitical risks, currency fluctuations, political and economic uncertainty, tariffs and related trade disruptions, public health crises (epidemics or pandemics) and regulatory matters, including adoption and enforcement of environmental and emission standards. As part of our growth strategy, we invest in businesses in certain countries that carry higher levels of these risks such as China, Brazil, India, Mexico and other countries in Europe, the Middle East and Africa. At the same time, our geographic diversity and broad product and service offerings have helped limit the impact from a drop in demand in any one industry, region, customer or the economy of any single country on our consolidated results.

Uncertain Global Trade Environment

We operate our business on a global basis and changes in international, national and regional trade laws, regulations and policies affecting and/or restricting international trade, including higher tariffs, trade disruptions (such as embargoes, sanctions and export controls) and broader geopolitical tensions, could adversely impact the demand for our products and our competitive position. The uncertain global trade environment, marked by the U.S. imposition of tariffs on certain countries, followed by the imposition of retaliatory tariffs and other actions against U.S. goods and services by certain countries has introduced significant market volatility and raised concerns about potential economic impacts. Our primary risks include reduced global movement of goods impacting freight activity, increased costs for suppliers and end-users and uncertainty around the availability of supply, all of which could contribute to a decline in business confidence, a reduction in demand for our products and increased product costs. We have and continue to look for ways to mitigate these costs including discussions with our suppliers, sourcing alternatives and agreements with our customers to recover these costs. The financial impact of tariffs, net of mitigation actions, was immaterial to our profitability and operating cash flows during 2025. Continued and increasing tariff costs, the effectiveness of our mitigation efforts and the resulting market volatility could materially and adversely affect our results of operations, financial condition and cash flows in the future. We will continue work to minimize the related impacts to our business to the extent possible. See the "OUTLOOK" section for a discussion of the potential tariff impacts for 2026.

Accelera Actions

During 2025, due to the continued rapid deterioration in our electrolyzer markets and overall hydrogen markets, along with significant uncertainty in the alternative power markets resulting from reductions in government incentives, we fully impaired all of the goodwill for our electrolyzer business and wrote off certain inventory in the third quarter of 2025, totaling $240 million. These conditions prompted a further strategic review of this business in the fourth quarter of 2025. As a result of market conditions and the current business outlook, we intend to stop new commercial activity in the electrolyzer space, subject to information and consultation in accordance with local legal requirements. We will continue to fulfill existing customer commitments. As a result of these actions, we recorded several additional charges in the fourth quarter of 2025 related to inventory write-downs, intangible and fixed asset impairments, lease impairments, contract terminations and severance, totaling $218 million. Total charges for all Accelera actions in 2025 were $458 million.

In the fourth quarter of 2024, our Accelera segment underwent a strategic review to better streamline operations as well as pace and re-focus investments on the most promising paths as the adoption of certain zero emission solutions slow. This review resulted in strategic reorganization actions, including decisions to consolidate certain manufacturing efforts, focus internal development efforts towards areas of differentiation while continuing to leverage partners and reduce our investments in certain technologies, joint ventures and markets. In addition, declining customer demand in certain key product lines caused us to re-evaluate the recoverability of certain inventory items. As a result of these actions, we recorded several charges in the fourth quarter related to inventory write-downs, intangible and fixed asset impairments and joint venture impairments. Total charges for these strategic reorganization actions were $312 million. See NOTE 22, “ACCELERA ACTIONS,” to our Consolidated Financial Statements for additional information.

Divestiture of Atmus

On March 18, 2024, we completed the divestiture of our remaining 80.5 percent ownership of Atmus Filtration Technologies Inc. (Atmus) common stock through a tax-free split-off. The exchange resulted in a reduction of shares of our common stock outstanding by 5.6 million shares and a gain of approximately $1.3 billion. See NOTE 21, “ATMUS DIVESTITURE,” to our Consolidated Financial Statements for additional information.

Settlement Agreements

In December 2023, we announced that we reached an agreement in principle with the U.S. Environmental Protection Agency (EPA), the California Air Resources Board (CARB), the Environmental and Natural Resources Division of the U.S. Department of Justice (DOJ) and the California Attorney General’s Office to resolve certain regulatory civil claims regarding our emissions certification and compliance process for certain engines primarily used in pick-up truck applications in the U.S., which became final and effective in

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April 2024 (collectively, the Settlement Agreements). We recorded a charge of $2.0 billion in the fourth quarter of 2023 to resolve the matters addressed by the Settlement Agreements involving approximately one million of our pick-up truck applications in the U.S. In the second quarter of 2024, we made $1.9 billion of payments required by the Settlement Agreements. See NOTE 14, COMMITMENTS AND CONTINGENCIES,” to our Consolidated Financial Statements for additional information.

2025 Results

A summary of our results is as follows:

Years ended December 31,

In millions, except per share amounts

2025

(1)

2024

(2)

2023

(3)

Net sales

$

33,670

$

34,102

$

34,065

Net income attributable to Cummins Inc.

2,843

3,946

735

Earnings per common share attributable to Cummins Inc.

Basic

$

20.62

$

28.55

$

5.19

Diluted

20.50

28.37

5.15

(1) Net income and earnings per common share included $458 million of charges for Accelera actions for the year ended December 31, 2025. See NOTE 22, “ACCELERA ACTIONS,” to our Consolidated Financial Statements for additional information.

(2) Net income and earnings per common share included the $1.3 billion non-taxable gain associated with the divestiture of Atmus and $312 million of charges related to the Accelera strategic reorganization for the year ended December 31, 2024. See NOTE 21, “ATMUS DIVESTITURE,” and NOTE 22, “ACCELERA ACTIONS,” to our Consolidated Financial Statements for additional information.

(3) Net income and earnings per common share included a $2.0 billion charge related to the Settlement Agreements for the year ended December 31, 2023. See NOTE 14, “COMMITMENTS AND CONTINGENCIES,” to our Consolidated Financial Statements for additional information.

Net income attributable to Cummins Inc. for 2025 was $2.8 billion, or $20.50 per diluted share, on sales of $33.7 billion, compared to 2024 net income attributable to Cummins Inc. of $3.9 billion, or $28.37 per diluted share, on sales of $34.1 billion. The decreases in net income attributable to Cummins Inc. and earnings per diluted share were driven by the absence of the $1.3 billion gain recognized on the divestiture of Atmus in the first quarter of 2024, lower demand in on-highway commercial truck markets and Accelera actions in the second half of 2025, partially offset by the strong growth in power generation markets, especially data center and commercial markets, favorable non-tariff pricing mainly related to the launch of updated engine products in light-duty automotive markets and lower compensation expenses. See NOTE 22, “ACCELERA ACTIONS,” to our Consolidated Financial Statements for additional information.

The table below presents our consolidated net sales by country based on the location of the customer:

Favorable/(Unfavorable)

Years ended December 31,

2025 vs. 2024

2024 vs. 2023

In millions

2025

2024

2023

Amount

Percent

Amount

Percent

United States and Canada

$

20,165 

$

20,820 

$

20,650 

$

(655)

(3)

%

$

170 

1 

%

International

13,505 

13,282 

13,415 

223 

2 

%

(133)

(1)

%

Total net sales

$

33,670 

$

34,102 

$

34,065 

$

(432)

(1)

%

$

37 

— 

%

Worldwide revenues decreased by 1 percent in 2025 compared to 2024, mainly due to weaker demand in on-highway commercial truck markets and the divestiture of Atmus in the first quarter of 2024, partially offset by higher demand in power generation markets, especially data center and commercial markets, non-tariff pricing mainly related to the launch of updated engine products in light-duty automotive markets and customer tariff recoveries. Net sales in the U.S. and Canada declined by 3 percent mainly due to lower demand in heavy-duty and medium-duty truck markets and the divestiture of Atmus, partially offset by higher sales in power generation markets and non-tariff pricing mainly related to the launch of updated engine products in light-duty automotive markets. International sales (excludes the U.S. and Canada) improved by 2 percent, primarily due to higher sales in China and Europe, partially offset by lower sales in Latin America. The increase in international sales was primarily due to higher demand in power generation markets and increased off-highway demand (primarily construction), partially offset by weaker demand in on-highway commercial truck markets and the divestiture of Atmus. See NOTE 21, “ATMUS DIVESTITURE,” to our Consolidated Financial Statements for additional information.

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The following table contains sales and EBITDA (defined as earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests) by reportable segment for the years ended December 31, 2025 and 2024. See NOTE 24, “REPORTABLE SEGMENTS,” to our Consolidated Financial Statements for additional information and a reconciliation of our segment information to the corresponding amounts in our Consolidated Statements of Net Income.

Reportable Segments

2025

2024

Percent change

Percent

of Total

Percent

of Total

2025 vs. 2024

In millions

Sales

EBITDA

Sales

EBITDA

Sales

EBITDA

Engine

$

10,875 

26 

%

$

1,382 

$

11,712 

28 

%

$

1,653 

(7)

%

(16)

%

Components

10,149 

25 

%

1,398 

11,679 

28 

%

1,591 

(13)

%

(12)

%

Distribution

12,405 

30 

%

1,808 

11,384 

27 

%

1,378 

9 

%

31 

%

Power Systems

7,463 

18 

%

1,694 

6,408 

16 

%

1,180 

16 

%

44 

%

Accelera

460 

1 

%

(896)

(1)

414 

1 

%

(764)

(2)

11 

%

(17)

%

Total segments

41,352 

100 

%

5,386 

41,597 

100 

%

5,038 

(1)

%

7 

%

Intersegment eliminations

(7,682)

(1)

(7,495)

1,288 

(3)

2 

%

NM

Total

$

33,670 

$

5,385 

$

34,102 

$

6,326 

(3)

(1)

%

(15)

%

“NM” - not meaningful information

(1) Accelera EBITDA included $458 million of charges for Accelera actions for the year ended December 31, 2025. See NOTE 22, “ACCELERA ACTIONS,” to our Consolidated Financial Statements for additional information.

(2) Accelera EBITDA included $312 million of strategic reorganization action charges in the fourth quarter of 2024. See NOTE 22, “ACCELERA ACTIONS,” to our Consolidated Financial Statements for additional information.

(3) Intersegment eliminations and total EBITDA included a $1.3 billion gain recognized on the divestiture of Atmus, and total EBITDA included $35 million of costs associated with the divestiture of Atmus. See NOTE 21, “ATMUS DIVESTITURE,” to our Consolidated Financial Statements for additional information.

2025 Highlights

We generated $3.6 billion in cash from operations for the year ended December 31, 2025, compared to $1.5 billion in 2024. The $2.1 billion increase was mainly due to the absence of $1.9 billion of payments in 2024 required by the Settlement Agreements. See the section titled “Cash Flows” in the “LIQUIDITY AND CAPITAL RESOURCES” section for a discussion of items impacting cash flows. See NOTE 14, “COMMITMENTS AND CONTINGENCIES,” to our Consolidated Financial Statements for additional information on the Settlement Agreements.

Our debt to capital ratio (total capital defined as debt plus equity) at December 31, 2025, was 36.0 percent, compared to 38.4 percent at December 31, 2024. The decrease was primarily due to increased equity balances from strong earnings since December 31, 2024, partially offset by higher debt balances at December 31, 2025. At December 31, 2025, we had $3.6 billion in cash and marketable securities on hand and access to our $4.0 billion credit facilities (net of $353 million of commercial paper outstanding), if necessary, to meet working capital, investment, acquisition and funding needs.

In the second half of 2025, we recorded $458 million of charges for Accelera actions. See NOTE 22, “ACCELERA ACTIONS,” to our Consolidated Financial Statements for additional information.

In December 2025, we entered into a series of interest rate swaps to effectively convert $150 million of our senior notes, due in 2054, from a fixed rate of 5.45 percent to a floating rate equal to the daily United States Dollar Secured Overnight Financing Rate (USD SOFR) plus a spread through February 2041. See NOTE 20, “DERIVATIVES,” to our Consolidated Financial Statements for additional information.

In September 2025, we repaid our $500 million 0.75 percent senior notes, due in 2025, using cash on hand. See NOTE 12, “DEBT,” to our Consolidated Financial Statements for additional information.

In July 2025, the Board of Directors (Board) authorized an increase to our quarterly dividend of approximately 10 percent from $1.82 per share to $2.00 per share.

On July 4, 2025, the One Big Beautiful Bill Act (The Act) was signed into law, enacting significant changes to U.S. federal income tax rules affecting corporations, such as the ability to immediately deduct domestic research and development costs, restoration of elective 100 percent bonus depreciation for qualified property and changes to the international tax provisions. See NOTE 4, “INCOME TAXES,” to our Consolidated Financial Statements for additional information.

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On June 2, 2025, we entered into an amended and restated 5-year credit agreement that allows us to borrow up to $2.0 billion of unsecured funds at any time prior to June 2, 2030. The credit agreement amended and restated the prior $2.0 billion 5-year credit agreement that would have matured on June 3, 2029. We also entered into a new 3-year credit agreement that allows us to borrow up to $2.0 billion of unsecured funds at any time prior to June 2, 2028. The credit agreement replaced the prior $2.0 billion 364-day credit facility that matured on June 2, 2025.

On May 9, 2025, we issued $2.0 billion aggregate principal amount of senior unsecured notes consisting of $300 million aggregate principal amount of 4.25 percent senior unsecured notes due in 2028, $700 million aggregate principal amount of 4.70 percent senior unsecured notes due in 2031 and $1.0 billion aggregate principal amount of 5.30 percent senior unsecured notes due in 2035. Net of the discount and underwriter fees, we received net proceeds of $1.99 billion. See NOTE 12, “DEBT,” to our Consolidated Financial Statements for additional information.

In 2025, the investment gain on our U.S. pension trusts was 10.1 percent, while our U.K. pension trusts' loss was 0.8 percent. Our global pension plans, including our unfunded and non-qualified plans, were 112 percent funded at December 31, 2025. Our U.S. defined benefit plans (qualified and non-qualified), which represented approximately 70 percent of the worldwide pension obligation, were 115 percent funded, and our U.K. defined benefit plans were 105 percent funded at December 31, 2025. We expect to contribute approximately $51 million in cash to our global pension plans in 2026. In addition, we expect our 2026 net periodic pension cost to approximate $73 million. See “APPLICATION OF CRITICAL ACCOUNTING ESTIMATES” and NOTE 10, “PENSIONS AND OTHER POSTRETIREMENT BENEFITS,” to our Consolidated Financial Statements for additional information concerning our pension and other postretirement benefit plans.

As of the date of this filing, our credit ratings and outlooks from the credit rating agencies remain unchanged. See the section titled “Credit Ratings” in the “LIQUIDITY AND CAPITAL RESOURCES” section for our current ratings.

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RESULTS OF OPERATIONS

Favorable/(Unfavorable)

Years ended December 31,

2025 vs. 2024

2024 vs. 2023

In millions (except per share amounts)

2025

2024

2023

Amount

Percent

Amount

Percent

NET SALES

$

33,670 

$

34,102 

$

34,065 

$

(432)

(1)

%

$

37 

— 

%

Cost of sales

25,154 

25,663 

25,816 

509 

2 

%

153 

1 

%

GROSS MARGIN

8,516 

8,439 

8,249 

77 

1 

%

190 

2 

%

OPERATING EXPENSES AND INCOME

Selling, general and administrative expenses

3,125 

3,275 

3,333 

150 

5 

%

58 

2 

%

Research, development and engineering expenses

1,396 

1,463 

1,500 

67 

5 

%

37 

2 

%

Equity, royalty and interest income from investees

469 

395 

483 

74 

19 

%

(88)

(18)

%

Other operating expense, net

439 

346 

2,138 

(93)

(27)

%

1,792 

84 

%

OPERATING INCOME

4,025 

3,750 

1,761 

275 

7 

%

1,989 

NM

Interest expense

329 

370 

375 

41 

11 

%

5 

1 

%

Other income, net

267 

1,523 

240 

(1,256)

(82)

%

1,283 

NM

INCOME BEFORE INCOME TAXES

3,963 

4,903 

1,626 

(940)

(19)

%

3,277 

NM

Income tax expense

1,006 

835 

786 

(171)

(20)

%

(49)

(6)

%

CONSOLIDATED NET INCOME

2,957 

4,068 

840 

(1,111)

(27)

%

3,228 

NM

Less: Net income attributable to noncontrolling interests

114 

122 

105 

8 

7 

%

(17)

(16)

%

NET INCOME ATTRIBUTABLE TO CUMMINS INC. 

$

2,843 

$

3,946 

$

735 

$

(1,103)

(28)

%

$

3,211 

NM

Diluted earnings per common share attributable to Cummins Inc.

$

20.50 

$

28.37 

$

5.15 

$

(7.87)

(28)

%

$

23.22 

NM

“NM” - not meaningful information

Favorable/(Unfavorable) Percentage Points

Percent of sales

2025

2024

2023

2025 vs. 2024

2024 vs. 2023

Gross margin

25.3 

%

24.7 

%

24.2 

%

0.6 

0.5 

Selling, general and administrative expenses

9.3 

%

9.6 

%

9.8 

%

0.3 

0.2 

Research, development and engineering expenses

4.1 

%

4.3 

%

4.4 

%

0.2 

0.1 

2025 vs. 2024

Net Sales

Net sales decreased $432 million, primarily driven by the following:

•Component segment sales decreased 13 percent mainly due to lower demand in North American heavy-duty and medium-duty truck markets and the divestiture of Atmus on March 18, 2024. See NOTE 21, “ATMUS DIVESTITURE,” to our Consolidated Financial Statements for additional information.

•Engine segment sales decreased 7 percent mainly due to lower demand in North American heavy-duty and medium-duty truck markets.

These decreases were partially offset by the following:

•Power Systems segment sales increased 16 percent primarily due to higher demand in power generation markets, especially in North America and China.

•Distribution segment sales increased 9 percent primarily due to higher demand in power generation markets, especially in North America.

Sales to international markets (excluding the U.S. and Canada), based on location of customers, were 40 percent of total net sales in 2025, compared with 39 percent of total net sales in 2024. A more detailed discussion of sales by segment is presented in the “REPORTABLE SEGMENT RESULTS” section.

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Cost of Sales

The types of expenses included in cost of sales are the following: parts and material consumption, including direct and indirect materials; compensation and related expenses, including variable compensation, salaries and fringe benefits; depreciation on production equipment and facilities and amortization of technology intangibles; estimated costs of warranty programs and campaigns; production utilities; production-related purchasing; warehousing, including receiving and inspection; freight costs; engineering support costs; repairs and maintenance; production and warehousing facility property insurance and rent for production facilities and other production overhead. Cost of sales in 2025 and 2024 included $157 million and $112 million, respectively of inventory write-downs, contract termination costs and severance in our Accelera segment. See NOTE 22, “ACCELERA ACTIONS,” to our Consolidated Financial Statements for additional information.

Gross Margin

Gross margin increased $77 million and increased 0.6 points as a percentage of sales. The increases were mainly due to strong growth in power generation markets, especially data center and commercial markets, as well as favorable non-tariff related pricing mainly due to the launch of updated engine products in light-duty automotive markets, partially offset by lower demand in on-highway commercial truck markets and the absence of Atmus sales. The net impact of tariff costs and related recoveries was immaterial for the year ended December 31, 2025. The provision for base warranties issued as a percentage of sales was 1.9 percent in 2025 and 1.9 percent in 2024.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $150 million and decreased 0.3 points as a percentage of sales. The decreases were primarily due to lower compensation expenses. Compensation and related expenses include salaries, fringe benefits and variable compensation.

Research, Development and Engineering Expenses

Research, development and engineering expenses decreased $67 million and decreased 0.2 points as a percentage of sales. The decreases were mainly due to lower compensation expenses. Compensation and related expenses include salaries, fringe benefits and variable compensation.

Research activities continue to focus on development of new products and improvements of current technologies to meet future emission standards around the world, improvements in fuel economy performance of diesel and natural gas-powered engines and related components, as well as development activities around electrified power systems with innovative components and systems including battery and electric power technologies.

Equity, Royalty and Interest Income From Investees

Equity, royalty and interest income from investees increased $74 million, primarily due to increased earnings at Chongqing Cummins Engine Co., Ltd. and Beijing Foton Cummins Engine Co., Ltd. and the absence of a joint venture consolidated in the first quarter of 2025 with prior year losses, partially offset by lower earnings at Sistemas Automotrices de Mexico S.A. de C.V. See NOTE 3, “INVESTMENTS IN EQUITY INVESTEES,” to our Consolidated Financial Statements for additional information.

Other Operating Expense, Net

Other operating expense, net was as follows:

Years ended December 31,

In millions

2025

2024

Accelera actions (1)

$

(292)

$

(171)

Amortization of intangible assets

(133)

(129)

Loss on write-off of assets

(17)

(17)

Royalty income, net

11 

8 

Other, net

(8)

(37)

Total other operating expense, net

$

(439)

$

(346)

(1) See NOTE 22, “ACCELERA ACTIONS,” to our Consolidated Financial Statements for additional information.

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Interest Expense

Interest expense decreased $41 million, primarily due to lower weighted-average interest rates, partially offset by higher average debt balances.

Other Income, Net

Other income, net was as follows:

Years ended December 31,

In millions

2025

2024

Interest income

$

106 

$

87 

Non-service pension and OPEB income

66 

112 

Gain on corporate owned life insurance

38 

6 

Gain on sale of marketable securities, net

22 

8 

Foreign currency gain (loss), net

5 

(41)

Gain related to divestiture of Atmus (1)

— 

1,333 

Other, net

30 

18 

Total other income, net

$

267 

$

1,523 

(1) See NOTE 21, “ATMUS DIVESTITURE,” to our Consolidated Financial Statements for additional information.

Income Tax Expense

On July 4, 2025, The Act was signed into law, enacting significant changes to U.S. federal income tax rules affecting corporations, such as the ability to immediately deduct domestic research and development costs, restoration of elective 100 percent bonus depreciation for qualified property and changes to the international tax provisions. Implementation of The Act resulted in an increase to tax expense of $39 million in the second half of 2025, primarily due to a reduction in the foreign income deduction and changes to the research and development tax credit. Additionally, certain provisions of The Act resulted in lower U.S. tax-related cash payments in 2025 and should result in lower U.S. tax-related payments for the next several fiscal years.

Our effective tax rate for 2025 was 25.4 percent compared to 17.0 percent for 2024.

The year ended December 31, 2025, contained net favorable discrete tax items of $75 million, primarily due to $51 million of favorable adjustments for uncertain tax positions, $15 million of favorable adjustments for share-based compensation tax benefits, $7 million of favorable return to provision adjustments and $2 million of other favorable adjustments.

The year ended December 31, 2024, contained net favorable discrete tax items primarily due to the $1.3 billion non-taxable gain on the Atmus split-off. Other discrete tax items were net favorable by $59 million, primarily due to $52 million of favorable return to provision adjustments, $22 million of favorable share-based compensation tax benefits, $21 million of favorable adjustments related to audit settlements and $20 million of favorable adjustments from tax return amendments, partially offset by $50 million of unfavorable adjustments related to Accelera strategic reorganization actions and a net $6 million of other unfavorable adjustments. See NOTE 21, "ATMUS DIVESTITURE," and NOTE 22, "ACCELERA ACTIONS" to our Consolidated Financial Statements for additional information.

The change in the effective tax rate for the year ended December 31, 2025, versus year ended December 31, 2024, was primarily due to the absence of the non-taxable gain on the Atmus split-off, the impact of the Act and additional tax expense from the Accelera actions. See NOTE 22, "ACCELERA ACTIONS" to our Consolidated Financial Statements for additional information.

Our effective tax rate for 2026 is expected to approximate 24.0 percent, excluding any discrete tax items that may arise.

Net Income Attributable to Noncontrolling Interests

Noncontrolling interests eliminate the income or loss attributable to non-Cummins ownership interests in our consolidated entities. Noncontrolling interests in income of consolidated subsidiaries decreased $8 million primarily due to losses from a former joint venture consolidated in the first quarter of 2025, the divestiture of Atmus and lower earnings at our other joint ventures, partially offset by higher earnings at Cummins India Limited.

2024 vs. 2023

For all prior year segment results comparisons to 2023 see the Results of Operations section of our 2024 Form 10-K.

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Comprehensive Income - Foreign Currency Translation Adjustment

The foreign currency translation adjustment was a net gain of $244 million and net loss of $276 million for the years ended December 31, 2025 and 2024, respectively. The details were as follows:

Years ended December 31,

2025

2024

In millions

Translation adjustment

Primary currency driver vs. U.S. dollar

Translation adjustment

Primary currency driver vs. U.S. dollar

Wholly-owned subsidiaries

$

227 

Euro, British pound and Brazilian real

$

(245)

Brazilian real, Chinese renminbi, Euro and Indian rupee

Equity method investments

30 

Chinese renminbi, partially offset by Indian rupee

(15)

Chinese renminbi and Brazilian real, partially offset by Indian rupee

Consolidated subsidiaries with a noncontrolling interest

(13)

Indian rupee, partially offset by Euro

(16)

Indian rupee

Total

$

244 

$

(276)

For all prior year foreign currency translation adjustment results comparisons to 2023 see the Results of Operations section of our 2024 Form 10-K.

REPORTABLE SEGMENT RESULTS

Our reportable segments consist of the Engine, Components, Distribution, Power Systems and Accelera segments. This reporting structure is organized according to the products and markets each segment serves. We use segment EBITDA as the basis for the Chief Operating Decision Maker to evaluate the performance of each of our reportable segments. We believe EBITDA is a useful measure of our operating performance as it assists investors and debt holders in comparing our performance on a consistent basis without regard to financing methods, capital structure, income taxes or depreciation and amortization methods, which can vary significantly depending upon many factors. Segment amounts exclude certain expenses not specifically identifiable to segments. See NOTE 24, “REPORTABLE SEGMENTS,” to our Consolidated Financial Statements for additional information and a reconciliation of our segment information to the corresponding amounts in our Consolidated Statements of Net Income.

Tariff related costs and recoveries in 2025 were evaluated independently of all other drivers included in the disclosures below and all references to "price" and "material cost" variances exclude these separately evaluated tariff costs and recoveries. The net impact of tariff costs and related recoveries were immaterial to each reportable segment's EBITDA, unless specifically noted.

Following is a discussion of results for each of our reportable segments. For all prior year segment results comparisons to 2023 see the Results of Operations section of our 2024 Form 10-K.

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Engine Segment Results

Financial data for the Engine segment was as follows:

Favorable/(Unfavorable)

Years ended December 31,

2025 vs. 2024

2024 vs. 2023

In millions

2025

2024

2023

Amount

Percent

Amount

Percent

External sales

$

8,104

$

8,987

$

8,874

$

(883)

(10)

%

$

113 

1 

%

Intersegment sales

2,771

2,725

2,810

46 

2 

%

(85)

(3)

%

Total sales

10,875

11,712

11,684

(837)

(7)

%

28 

— 

%

Research, development and engineering expenses

624

616

614

(8)

(1)

%

(2)

— 

%

Equity, royalty and interest income from investees

254

212

251

42 

20 

%

(39)

(16)

%

Interest income

37

17

19

20 

NM

(2)

(11)

%

Segment EBITDA

1,382

1,653

1,630

(271)

(16)

%

23 

1 

%

Percentage Points

Percentage Points

Segment EBITDA as a percentage of total sales

12.7 

%

14.1 

%

14.0 

%

(1.4)

0.1 

"NM" - not meaningful information

Sales for our Engine segment by market were as follows:

Favorable/(Unfavorable)

Years ended December 31,

2025 vs. 2024

2024 vs. 2023

In millions

2025

2024

2023

Amount

Percent

Amount

Percent

Heavy-duty truck

$

3,489

$

4,244

$

4,399

$

(755)

(18)

%

$

(155)

(4)

%

Medium-duty truck and bus

3,613

4,166

3,670

(553)

(13)

%

496 

14 

%

Light-duty automotive

1,930

1,595

1,762

335 

21 

%

(167)

(9)

%

Total on-highway

9,032

10,005

9,831

(973)

(10)

%

174 

2 

%

Off-highway

1,843

1,707

1,853

136 

8 

%

(146)

(8)

%

Total sales

$

10,875

$

11,712

$

11,684

$

(837)

(7)

%

$

28 

— 

%

Percentage Points

Percentage Points

On-highway sales as percentage of total sales

83 

%

85 

%

84 

%

(2)

1 

Unit shipments by engine classification (including unit shipments to Power Systems and off-highway engine units included in their respective classification) were as follows:

Favorable/(Unfavorable)

Years ended December 31,

2025 vs. 2024

2024 vs. 2023

2025

2024

2023

Amount

Percent

Amount

Percent

Heavy-duty

101,900 

132,900 

141,900 

(31,000)

(23)

%

(9,000)

(6)

%

Medium-duty

280,500 

310,300 

294,100 

(29,800)

(10)

%

16,200 

6 

%

Light-duty

171,800 

189,400 

211,500 

(17,600)

(9)

%

(22,100)

(10)

%

Total unit shipments

554,200 

632,600 

647,500 

(78,400)

(12)

%

(14,900)

(2)

%

2025 vs. 2024

Sales

Engine segment sales decreased $837 million. The following were the primary drivers by market:

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•Heavy-duty truck sales decreased $755 million principally due to lower demand, especially in North America with shipments down 27 percent.

•Medium-duty truck and bus sales decreased $553 million primarily due to lower truck demand, especially in North America with shipments down 31 percent.

These decreases were partially offset by the following increases:

•Light-duty automotive sales increased $335 million primarily due to non-tariff pricing mainly related to the launch of updated engine products.

•Off-highway sales increased $136 million primarily due to higher international construction demand, especially in China.

Segment EBITDA

Engine segment EBITDA decreased $271 million primarily due to lower volumes, unfavorable mix, increased product coverage costs and higher material costs, partially offset by favorable pricing. Unfavorable material costs and favorable pricing were primarily related to the launch of updated products in light-duty automotive markets.

Components Segment Results

On March 18, 2024, we completed the divestiture of our remaining 80.5 percent ownership of Atmus common stock through a tax-free split-off. See NOTE 21, “ATMUS DIVESTITURE,” to our Consolidated Financial Statements for additional information.

Financial data for the Components segment was as follows:

Favorable/(Unfavorable)

Years ended December 31,

2025 vs. 2024

2024 vs. 2023

In millions

2025

2024

2023

Amount

Percent

Amount

Percent

External sales

$

8,643

$

9,894

$

11,531

$

(1,251)

(13)

%

$

(1,637)

(14)

%

Intersegment sales

1,506

1,785

1,878

(279)

(16)

%

(93)

(5)

%

Total sales

10,149

11,679

13,409

(1,530)

(13)

%

(1,730)

(13)

%

Research, development and engineering expenses

280

328

387

48 

15 

%

59 

15 

%

Equity, royalty and interest income from investees

31

64

97

(33)

(52)

%

(33)

(34)

%

Interest income

29

25

31

4 

16 

%

(6)

(19)

%

Segment EBITDA

1,398

1,591

(1)

1,840

(1)

(193)

(12)

%

(249)

(14)

%

Percentage Points

Percentage Points

Segment EBITDA as a percentage of total sales

13.8 

%

13.6 

%

13.7 

%

0.2 

(0.1)

(1) Included $21 million and $78 million of costs associated with the divestiture of Atmus for the years ended December 31, 2024 and 2023, respectively.

Sales for our Components segment by business were as follows:

Favorable/(Unfavorable)

Years ended December 31,

2025 vs. 2024

2024 vs. 2023

In millions

2025

2024

2023

Amount

Percent

Amount

Percent

Drivetrain and braking systems

$

3,986 

$

4,733 

$

4,822 

$

(747)

(16)

%

$

(89)

(2)

%

Emission solutions

3,457 

3,601 

3,835 

(144)

(4)

%

(234)

(6)

%

Components and software

2,283 

2,404 

2,409 

(121)

(5)

%

(5)

— 

%

Automated transmissions

423 

588 

714 

(165)

(28)

%

(126)

(18)

%

Atmus

— 

353 

(1)

1,629 

(353)

(100)

%

(1,276)

(78)

%

Total sales

$

10,149 

$

11,679 

$

13,409 

$

(1,530)

(13)

%

$

(1,730)

(13)

%

(1) Included sales through the March 18, 2024 divestiture.

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Table of Contents

2025 vs. 2024

Sales

Components segment sales decreased $1.5 billion across all businesses. The following were the primary drivers by business:

•Drivetrain and braking systems sales decreased $747 million primarily due to lower demand in North America and lower sales in India due to changes in the business model.

•Sales decreased $353 million due to the Atmus divestiture on March 18, 2024.

Segment EBITDA

Components segment EBITDA decreased $193 million, primarily due to lower volumes, partially offset by decreased compensation expenses, lower product coverage costs and reduced material costs.

Distribution Segment Results

Financial data for the Distribution segment was as follows:

Favorable/(Unfavorable)

Years ended December 31,

2025 vs. 2024

2024 vs. 2023

In millions

2025

2024

2023

Amount

Percent

Amount

Percent

External sales

$

12,386

$

11,352

$

10,199

$

1,034 

9 

%

$

1,153 

11 

%

Intersegment sales

19

32

50

(13)

(41)

%

(18)

(36)

%

Total sales

12,405

11,384

10,249

1,021 

9 

%

1,135 

11 

%

Research, development and engineering expenses

53

55

57

2 

4 

%

2 

4 

%

Equity, royalty and interest income from investees

105

90

97

15 

17 

%

(7)

(7)

%

Interest income

23

37

34

(14)

(38)

%

3 

9 

%

Segment EBITDA

1,808

1,378

1,209

430 

31 

%

169 

14 

%

Percentage Points

Percentage Points

Segment EBITDA as a percentage of total sales

14.6 

%

12.1 

%

11.8 

%

2.5 

0.3 

Sales for our Distribution segment by region, were as follows:

Favorable/(Unfavorable)

Years ended December 31,

2025 vs. 2024

2024 vs. 2023

In millions

2025

2024

2023

Amount

Percent

Amount

Percent

North America

$

8,629 

$

7,625 

$

7,081 

$

1,004 

13 

%

$

544 

8 

%

Europe

1,186 

1,184 

853 

2 

— 

%

331 

39 

%

Asia Pacific

1,152 

1,245 

1,096 

(93)

(7)

%

149 

14 

%

China

514 

478 

430 

36 

8 

%

48 

11 

%

India

365 

317 

270 

48 

15 

%

47 

17 

%

Latin America

291 

267 

225 

24 

9 

%

42 

19 

%

Africa and Middle East

268 

268 

294 

— 

— 

%

(26)

(9)

%

Total sales

$

12,405 

$

11,384 

$

10,249 

$

1,021 

9 

%

$

1,135 

11 

%

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Sales for our Distribution segment by product line were as follows:

Favorable/(Unfavorable)

Years ended December 31,

2025 vs. 2024

2024 vs. 2023

In millions

2025

2024

2023

Amount

Percent

Amount

Percent

Power generation

$

4,932 

$

3,972 

$

2,509 

$

960 

24 

%

$

1,463 

58 

%

Parts

4,083 

3,980 

4,071 

103 

3 

%

(91)

(2)

%

Service

1,798 

1,753 

1,672 

45 

3 

%

81 

5 

%

Engines

1,592 

1,679 

1,997 

(87)

(5)

%

(318)

(16)

%

Total sales

$

12,405 

$

11,384 

$

10,249 

$

1,021 

9 

%

$

1,135 

11 

%

2025 vs. 2024

Sales

Distribution segment sales increased $1.0 billion, due to increased sales in North America of $1.0 billion principally from higher demand in power generation markets, especially data center and commercial markets.

Segment EBITDA

Distribution segment EBITDA increased $430 million, primarily due to increased power generation volumes in North America, improved mix, favorable pricing, decreased compensation expenses, lower material costs and improved operational leverage.

Power Systems Segment Results

Financial data for the Power Systems segment was as follows:

Favorable/(Unfavorable)

Years ended December 31,

2025 vs. 2024

2024 vs. 2023

In millions

2025

2024

2023

Amount

Percent

Amount

Percent

External sales

$

4,114

$

3,500

$

3,125

$

614 

18 

%

$

375 

12 

%

Intersegment sales

3,349

2,908

2,548

441 

15 

%

360 

14 

%

Total sales

7,463

6,408

5,673

1,055 

16 

%

735 

13 

%

Research, development and engineering expenses

253

236

237

(17)

(7)

%

1 

— 

%

Equity, royalty and interest income from investees

109

79

53

30 

38 

%

26 

49 

%

Interest income

16

7

9

9 

NM

(2)

(22)

%

Segment EBITDA

1,694

1,180

836

514 

44 

%

344 

41 

%

Percentage Points

Percentage Points

Segment EBITDA as a percentage of total sales

22.7 

%

18.4 

%

14.7 

%

4.3 

3.7 

"NM" - not meaningful information

Sales for our Power Systems segment by product line were as follows:

Favorable/(Unfavorable)

Years ended December 31,

2025 vs. 2024

2024 vs. 2023

In millions

2025

2024

2023

Amount

Percent

Amount

Percent

Power generation

$

4,731 

$

3,985 

$

3,340 

$

746 

19 

%

$

645 

19 

%

Industrial

2,063 

1,932 

1,854 

131 

7 

%

78 

4 

%

Generator technologies

669 

491 

479 

178 

36 

%

12 

3 

%

Total sales

$

7,463 

$

6,408 

$

5,673 

$

1,055 

16 

%

$

735 

13 

%

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2025 vs. 2024

Sales

Power Systems segment sales increased $1.1 billion, primarily due to higher power generation sales of $746 million, mainly from improved demand in North America and China.

Segment EBITDA

Power Systems segment EBITDA increased $514 million, primarily due to favorable pricing and higher volumes, partially offset by net tariff costs.

Accelera Segment Results

During 2025, due to the continued rapid deterioration in our electrolyzer markets and overall hydrogen markets, along with significant uncertainty in the alternative power markets resulting from reductions in government incentives, we fully impaired all of the goodwill for our electrolyzer business and wrote off certain inventory in the third quarter of 2025, totaling $240 million. These conditions prompted a further strategic review of this business in the fourth quarter of 2025. As a result of market conditions and the current business outlook, we intend to stop new commercial activity in the electrolyzer space, subject to information and consultation in accordance with local legal requirements. We will continue to fulfill existing customer commitments. As a result of these actions, we recorded several additional charges in the fourth quarter of 2025, totaling $218 million. Total charges for all Accelera actions in 2025 were $458 million. See NOTE 22, “ACCELERA ACTIONS,” to our Consolidated Financial Statements for additional information.

Financial data for the Accelera segment was as follows:

Favorable/(Unfavorable)

Favorable/(Unfavorable)

Years ended December 31,

2025 vs. 2024

2024 vs. 2023

In millions

2025

2024

2023

Amount

Percent

Amount

Percent

External sales

$

423

$

369

$

336

$

54 

15 

%

$

33 

10 

%

Intersegment sales

37

45

18

(8)

(18)

%

27 

NM

Total sales

460

414

354

46 

11 

%

60 

17 

%

Research, development and engineering expenses

186

(1)

226

(2)

203

40 

18 

%

(23)

(11)

%

Equity, royalty and interest loss from investees

(30)

(50)

(2)

(15)

20 

40 

%

(35)

NM

Interest income

1

1

2

— 

— 

%

(1)

(50)

%

Segment EBITDA

(896)

(1)

(764)

(2)

(443)

(132)

(17)

%

(321)

(72)

%

“NM” - not meaningful information

(1) Included $7 million of charges in research, development and engineering expenses and $458 million of charges in EBITDA for 2025 Accelera actions. See NOTE 22, “ACCELERA ACTIONS,” to our Consolidated Financial Statements for additional information.

(2) Included $2 million of charges in research, development and engineering expenses, $17 million of charges in equity, royalty and interest loss from investees and $312 million of charges in EBITDA, all related to strategic reorganization actions in the fourth quarter of 2024. See NOTE 22, “ACCELERA ACTIONS,” to our Consolidated Financial Statements for additional information.

2025 vs. 2024

Sales

Accelera segment sales increased $46 million mainly due to improved sales of electrified powertrains.

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OUTLOOK

The uncertain global trade environment, characterized by tariffs, export controls and broader geopolitical tensions, has created significant market volatility while introducing uncertainty around future demand for capital goods as well as potential impacts to our supply chain and our related product costs. Given the breadth, severity and uncertain duration of these global trade measures, our outlook presented below could be negatively impacted by policy-driven volatility. We are proactively taking steps in our supply chain to mitigate impacts where possible and we are working with our customers to pass through incremental costs.

2026 Outlook

Our outlook reflects the following positive trends and challenges to our business that could impact our revenue and earnings potential in 2026.

Positive Trends

•We expect demand within markets served by our Power Systems business to remain strong, including the power generation and industrial markets.

•We anticipate our aftermarket business will remain stable, driven primarily by demand in our Engine and Power Systems businesses.

Challenges

•We expect demand for medium-duty and heavy-duty trucks in North America to remain weak in the first half of 2026.

•Increases in costs, tariffs, as well as other inflationary pressures, could negatively impact earnings.

•The potential for trade disruption, including embargoes, sanctions and export controls, could cause production disruptions and negatively impact earnings.

•The slower adoption of zero-emission solutions reduced Accelera’s near-term revenue outlook, prompting significant restructuring actions and a refined strategic investment approach. While we anticipate these actions will gradually improve the cost structure, we expect ongoing investments in priority technologies to result in continued near-term operating losses.

Current Regulatory Challenges for 2026 and Beyond

•Changes in government policies (such as reduced incentives, delayed infrastructure mandates or revised emissions standards) may impact Accelera’s ability to compete, scale or recover investments in zero-emission technologies including:

◦The reduction of government incentives in the U.S. to support the adoption of hydrogen fuel, along with slower than expected market development in some international markets, has contributed to lower expectations for demand for our electrolyzer products. In the third quarter, we recorded non-cash charges for goodwill impairment and inventory write-downs related to the electrolyzer business, and in the fourth quarter of 2025 we recorded an additional $218 million of charges for Accelera actions. See NOTE 22, “ACCELERA ACTIONS,” to our Consolidated Financial Statements for additional information.

◦The Board for our Amplify Cell Technologies LLC joint venture is reviewing the timing of investments as the result of changing market adoption projections.

•Our engines are subject to extensive statutory and regulatory requirements governing emissions, including greenhouse gas (GHG) standards set by the EPA and fuel consumption standards set by the National Highway Traffic Safety Administration (NHTSA). To comply with these regulations, we utilize banking and trading of regulatory compliance credits. In June 2025, NHTSA published an interpretive rule questioning the current regulatory framework of allowing credits as a compliance vehicle. In July 2025, the EPA published a proposed rule that would repeal GHG emissions standards and thus remove the requirement for vehicle and engine manufacturers to measure, control and report these emissions from vehicles. If both regulatory agencies finalize their indicated proposals, we will no longer utilize emission compliance credits on future engines sales and the credits would have minimal, if any, value to us. While the rules will likely be subject to legal challenges, in the period the rule is finalized, we could be required to incur a non-cash expense up to the value of our existing credits, which was $127 million at December 31, 2025.

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LIQUIDITY AND CAPITAL RESOURCES

Key Working Capital and Balance Sheet Data

We fund our working capital with cash from operations and short-term borrowings, including commercial paper, when necessary. Various assets and liabilities, including short-term debt, can fluctuate significantly from month-to-month depending on short-term liquidity needs. As a result, working capital is a prime focus of management's attention. Working capital and balance sheet measures are provided in the following table:

Dollars in millions

December 31,

2025

December 31,

2024

Working capital (1)

$

7,315 

$

3,518 

Current ratio

1.76 

1.31 

Accounts and notes receivable, net

$

5,818 

$

5,181 

Days' sales in receivables

60 

58 

Inventories

$

5,822 

$

5,742 

Inventory turnover

4.2 

4.4 

Accounts payable (principally trade)

$

3,800 

$

3,951 

Days' payable outstanding

58 

60 

Total debt

$

7,552 

$

7,059 

Total debt as a percent of total capital

36.0 

%

38.4 

%

(1) Working capital includes cash and cash equivalents.

Cash Flows

Cash and cash equivalents were impacted as follows:

Years ended December 31,

Change

In millions

2025

2024

2023

2025 vs. 2024

2024 vs. 2023

Net cash provided by operating activities

$

3,621 

$

1,487 

$

3,966 

$

2,134 

$

(2,479)

Net cash used in investing activities

(1,731)

(1,782)

(1,643)

51 

(139)

Net cash used in financing activities

(772)

(173)

(2,177)

(599)

2,004 

Effect of exchange rate changes on cash and cash equivalents

56 

(40)

(68)

96 

28 

Net increase (decrease) in cash and cash equivalents

$

1,174 

$

(508)

$

78 

$

1,682 

$

(586)

2025 vs. 2024

Net cash provided by operating activities increased $2.1 billion, primarily due to lower working capital requirements of $1.3 billion and strong earnings. The lower working capital requirements resulted in a cash outflow of $0.9 billion compared to a cash outflow of $2.2 billion in the comparable period in 2024, mainly due to the absence of $1.9 billion of payments in 2024 required by the Settlement Agreements, partially offset by unfavorable changes in accounts and notes receivable. See NOTE 14, “COMMITMENTS AND CONTINGENCIES,” to our Consolidated Financial Statements for additional information on the Settlement Agreements.

Net cash used in investing activities decreased $51 million, primarily due to the absence of cash associated with the Atmus divestiture of $174 million partially offset by higher net investments in marketable securities of $137 million.

Net cash used in financing activities increased $599 million, primarily due to increased commercial paper payments of $669 million and lower borrowing proceeds of $385 million, partially offset by lower payments on borrowings and finance lease obligations of $593 million, largely related to the absence of early payments of $1.1 billion on our term loan, due 2025, during 2024, partially offset by repayment of $500 million of our senior notes in 2025.

The effect of exchange rate changes on cash and cash equivalents increased $96 million, primarily due to favorable fluctuations in the Chinese renminbi, Euro and British pound.

2024 vs. 2023

For prior year liquidity comparisons see the Liquidity and Capital Resources section of our 2024 Form 10-K.

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Sources of Liquidity

We typically generate significant ongoing cash flow and cash provided by operations is generally our principal source of liquidity. Our sources of liquidity include the following:

December 31, 2025

In millions

Total

U.S.

International

Primary location of international balances

Cash and cash equivalents

$

2,845 

$

1,280 

$

1,565 

Singapore, China, Australia, Mexico, Belgium, Romania, France, Germany

Marketable securities (1)

764 

85 

679 

India

Total

$

3,609 

$

1,365 

$

2,244 

Available credit capacity

Revolving credit facilities (2)

$

3,647 

International and other uncommitted domestic credit facilities

$

798 

(1) The majority of marketable securities could be liquidated into cash within a few days.

(2) The 5-year credit facility for $2.0 billion and the 3-year credit facility for $2.0 billion, maturing June 2030 and June 2028, respectively, are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. At December 31, 2025, we had $353 million of commercial paper outstanding, which effectively reduced our available capacity under our revolving credit facilities to $3.6 billion.

Cash, Cash Equivalents and Marketable Securities

A significant portion of our cash flows are generated outside the U.S. We manage our worldwide cash requirements considering available funds among the many subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. As a result, we do not anticipate any local liquidity restrictions to preclude us from funding our operating needs with local resources.

If we distribute our foreign cash balances to the U.S. or to other foreign subsidiaries, we could be required to accrue and pay withholding taxes, for example, if we repatriated cash from certain foreign subsidiaries whose earnings we asserted are completely or partially permanently reinvested. Foreign earnings for which we assert permanent reinvestment outside the U.S. consist primarily of earnings of our China, India, Canada (including underlying subsidiaries) and Netherlands domiciled subsidiaries. At present, we do not foresee a need to repatriate any earnings for which we assert permanent reinvestment. However, to help fund cash needs of the U.S. or other international subsidiaries as they arise, we repatriate available cash from certain foreign subsidiaries whose earnings are not completely permanently reinvested when cost effective to do so.

Debt Facilities and Other Sources of Liquidity

On June 2, 2025, we entered into an amended and restated 5-year credit agreement that allows us to borrow up to $2.0 billion of unsecured funds at any time prior to June 2, 2030. The credit agreement amended and restated the prior $2.0 billion 5-year credit agreement that would have matured on June 3, 2029. We also entered into a new 3-year credit agreement that allows us to borrow up to $2.0 billion of unsecured funds at any time prior to June 2, 2028. The credit agreement replaced the prior $2.0 billion 364-day credit facility that matured on June 2, 2025.

Our committed credit facilities provide access up to $4.0 billion from our $2.0 billion 3-year credit facility and our $2.0 billion 5-year facility. These revolving credit facilities are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. We intend to maintain credit facilities at the current or higher aggregate amounts by renewing or replacing these facilities at or before expiration. The credit agreements include various financial covenants, including, among others, maintaining a net debt to capital ratio of no more than 0.65 to 1.0. At December 31, 2025, our net leverage ratio was 0.22 to 1.0. There were no outstanding borrowings under these facilities at December 31, 2025.

Our committed credit facilities also provide access up to $4.0 billion of unsecured, short-term promissory notes (commercial paper) pursuant to the Board authorized commercial paper programs. These programs facilitate the private placement of unsecured short-term debt through third-party brokers. We intend to use the net proceeds from the commercial paper borrowings for general corporate purposes. The total combined borrowing capacity under the revolving credit facilities and commercial paper programs should not exceed $4.0 billion. At December 31, 2025, we had $353 million of commercial paper outstanding, which effectively reduced our available capacity under our revolving credit facilities to $3.6 billion. See NOTE 12, “DEBT,” to our Consolidated Financial Statements for additional information.

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In December 2025, we entered into a series of interest rate swaps to effectively convert $150 million of our senior notes, due in 2054, from a fixed rate of 5.45 percent to a floating rate equal to the daily USD SOFR plus a spread through February 2041. See NOTE 20, “DERIVATIVES,” to our Consolidated Financial Statements for additional information.

As a well-known seasoned issuer, we filed an automatic shelf registration for an undetermined amount of debt and equity securities with the SEC on February 13, 2025. Under this shelf registration we may offer, from time-to-time, debt securities, common stock, preferred and preference stock, depositary shares, warrants, stock purchase contracts and stock purchase units.

Supply Chain Financing

We currently have supply chain financing programs with financial intermediaries, which provide certain vendors the option to be paid by financial intermediaries earlier than the due date on the applicable invoice. When a vendor utilizes the program and receives an early payment from a financial intermediary, they take a discount on the invoice. We then pay the financial intermediary the face amount of the invoice on the original due date, which generally have 60 to 90 day payment terms. The maximum amount that we could have outstanding under these programs was $574 million at December 31, 2025. We do not reimburse vendors for any costs they incur for participation in the program, their participation is completely voluntary and there are no assets pledged as security or other forms of guarantees provided for the committed payment to the finance provider or intermediary. As a result, all amounts owed to the financial intermediaries are presented as accounts payable in our Consolidated Balance Sheets. Amounts due to the financial intermediaries reflected in accounts payable at December 31, 2025, were $153 million. See NOTE 1, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,” to our Consolidated Financial Statements for additional information.

Accounts Receivable Sales Program

In May 2024, we entered into an accounts receivable sales agreement with Wells Fargo Bank, N.A., to sell certain accounts receivable up to the Board approved limit of $500 million. There was no activity under the program during the year ended December 31, 2025. See NOTE 1, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,” to our Consolidated Financial Statements for additional information.

Uses of Cash

Dividends

Total dividends paid to common shareholders in 2025, 2024 and 2023 were $1.1 billion, $1.0 billion and $0.9 billion, respectively. Declaration and payment of dividends in the future depends upon our income and liquidity position, among other factors, and is subject to declaration by the Board, who meets quarterly to consider our dividend payment. We expect to fund dividend payments with cash from operations.

In July 2025, the Board authorized an increase to our quarterly dividend of approximately 10 percent from $1.82 per share to $2.00 per share. Cash dividends per share paid to common shareholders and the Board authorized increases for the last three years were as follows:

Quarterly Dividends

2025

2024

2023

First quarter

$

1.82 

$

1.68 

$

1.57 

Second quarter

1.82 

1.68 

1.57 

Third quarter

2.00 

1.82 

1.68 

Fourth quarter

2.00 

1.82 

1.68 

Total

$

7.64 

$

7.00 

$

6.50 

Capital Expenditures

Capital expenditures were $1.2 billion each year in 2025, 2024 and 2023. We continue to invest in new product lines and targeted capacity expansions. We plan to spend an estimated $1.35 billion to $1.45 billion in 2026 on capital expenditures with over 65 percent of these expenditures expected to be invested in North America.

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Debt Payments

In September 2025, we repaid our $500 million 0.75 percent senior notes, due in 2025, using cash on hand. See NOTE 12, “DEBT,” to our Consolidated Financial Statements for additional information.

Current Maturities of Short and Long-Term Debt

We had $353 million of commercial paper outstanding at December 31, 2025, that matures in less than one year. Required annual long-term debt principal payments range from $94 million to $863 million over the next five years. We intend to retain our strong investment credit ratings. See NOTE 12, “DEBT,” to our Consolidated Financial Statements for additional information.

Pensions

Our global pension plans, including our unfunded and non-qualified plans, were 112 percent funded at December 31, 2025. Our U.S. defined benefit plans (qualified and non-qualified), which represented approximately 70 percent of the worldwide pension obligation, were 115 percent funded, and our U.K. defined benefit plans were 105 percent funded at December 31, 2025. The funded status of our pension plans is dependent upon a variety of variables and assumptions including return on invested assets, market interest rates and levels of voluntary contributions to the plans. In 2025, the investment gain on our U.S. pension trusts was 10.1 percent, while our U.K. pension trusts' loss was 0.8 percent.

We sponsor funded and unfunded domestic and foreign defined benefit pension plans. Contributions to the U.S. and U.K. plans were as follows:

Years ended December 31,

In millions

2025

2024

2023

Defined benefit pension contributions

$

50 

$

71 

$

115 

Defined contribution pension plans

125 

126 

130 

These contributions may be made from trusts or company funds either to increase pension assets or to make direct benefit payments to plan participants. We anticipate making total contributions of approximately $51 million to our global defined benefit pension plans in 2026. Expected contributions to our defined benefit pension plans in 2026 will meet or exceed the current funding requirements.

Stock Repurchases

In December 2021, the Board authorized the acquisition of up to $2.0 billion of additional common stock upon completion of the $2.0 billion repurchase plan authorized in 2019. For the year ended December 31, 2025, we did not make any repurchases of common stock. The dollar value remaining available for future purchases under the 2019 program at December 31, 2025, was $218 million, leaving a total of $2.2 billion available under all plans.

We intend to repurchase outstanding shares from time to time to enhance shareholder value.

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Amplify Cell Technologies LLC Joint Venture

As of December 31, 2025, we contributed $412 million to our Amplify Cell Technologies LLC joint venture and our maximum remaining required contribution was $418 million, which could be reduced by future government incentives received by the joint venture. The majority of the contribution is expected to be made by the end of 2028. See NOTE 3, “INVESTMENTS IN EQUITY INVESTEES,” to our Consolidated Financial Statements for additional information.

Future Uses of Cash

A summary of our contractual obligations and other commercial commitments at December 31, 2025, are as follows:

Contractual Cash Obligations

Payments Due by Period

In millions

Current

Long-Term

Long-term debt and finance lease obligations (1)

$

411 

$

10,822 

Operating leases (1)

163 

486 

Capital expenditures

639 

— 

Purchase commitments for inventory

989 

20 

Other purchase commitments

581 

331 

Other postretirement benefits

14 

90 

International and other domestic letters of credit

76 

59 

Performance and excise bonds

100 

121 

Guarantees and other commitments

28 

18 

Total

$

3,001 

$

11,947 

(1) Included principal payments and expected interest payments based on the terms of the obligations.

The contractual obligations reported above exclude our unrecognized tax benefits of $272 million as of December 31, 2025, which includes $180 million of current tax liabilities and $92 million of long-term deferred tax liabilities. We are not able to reasonably estimate the period in which cash outflows relating to uncertain tax contingencies could occur. See NOTE 4, “INCOME TAXES,” to our Consolidated Financial Statements for additional information.

Credit Ratings

Our rating and outlook from each of the credit rating agencies as of the date of filing are shown in the table below:

Long-Term

Short-Term

Credit Rating Agency (1)

Senior Debt Rating

Debt Rating

Outlook

Standard & Poor’s Rating Services

A

A1

Stable

Moody’s Investors Service, Inc.

A2

P1

Stable

(1) Credit ratings are not recommendations to buy, are subject to change, and each rating should be evaluated independently of any other rating. In addition, we undertake no obligation to update disclosures concerning our credit ratings, whether as a result of new information, future events or otherwise.

Management's Assessment of Liquidity

Our financial condition and liquidity remain strong. Our solid balance sheet and credit ratings enable us to have ready access to credit and the capital markets. We assess our liquidity in terms of our ability to generate adequate cash to fund our operating, investing and financing activities in combination with access to our revolving credit facilities and commercial paper programs as noted above. We believe our access to the capital markets, our existing cash and marketable securities, operating cash flow and revolving credit facilities provide us with the financial flexibility needed to fund targeted capital expenditures, dividend payments, debt service obligations, projected pension obligations, common stock repurchases, joint venture contributions and acquisitions through 2026 and beyond.

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

A summary of our significant accounting policies is included in NOTE 1, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,” of our Consolidated Financial Statements which discusses accounting policies that we selected from acceptable alternatives.

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Our Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles in the U.S. which often requires management to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts presented and disclosed in the financial statements. Management reviews these estimates and assumptions based on historical experience, changes in business conditions and other relevant factors they believe to be reasonable under the circumstances. In any given reporting period, our actual results may differ from the estimates and assumptions used in preparing our Consolidated Financial Statements.

Critical accounting estimates are defined as follows: the estimate requires management to make assumptions about matters that were highly uncertain at the time the estimate was made; different estimates reasonably could have been used; or if changes in the estimate are reasonably likely to occur from period to period and the change would have a material impact on our financial condition or results of operations. Our senior management has discussed the development and selection of our accounting policies, related accounting estimates and the disclosures set forth below with the Audit Committee of the Board. We believe our critical accounting estimates include estimating liabilities for warranty programs, assessing goodwill impairments and accounting for income taxes and pension benefits.

Warranty Programs

We estimate and record a liability for base warranty programs at the time our products are sold. Our estimates are based on historical experience and reflect management's best estimates of costs to be incurred over the warranty period. Adjustments may be required to the liability when actual or projected costs differ. Variations in component failure rates, repair costs and the point of failure within the product life cycle are key drivers that impact our periodic re-assessment of the warranty liability. Future events and circumstances related to these factors could materially change our estimates and require adjustments to our liability. New product launches require a greater use of judgment in developing estimates until historical experience becomes available. We generally estimate warranty accruals for new products using a methodology that includes the preceding product's warranty history and a multiplicative factor derived from prior product launch experience and new product assessments until sufficient new product data is available for warranty estimation. We then use a blend of actual new product experience and preceding product historical experience for several subsequent quarters and new product specific experience thereafter. Product specific experience is typically available five or six quarters after product launch, with a clear experience trend evident eight quarters after launch. As a result of the uncertainty surrounding the nature and frequency of product recall programs, the liability for such programs is recorded when management commits to a recall action or when a recall becomes probable and estimable. NOTE 13, “PRODUCT WARRANTY LIABILITY,” to our Consolidated Financial Statements contains a summary of the activity in our warranty liability account for 2025, 2024 and 2023 including adjustments to pre-existing warranties.

Goodwill Impairment

We are required to make certain subjective and complex judgments in assessing whether a goodwill impairment event has occurred, including assumptions and estimates used to determine the fair value of our reporting units. We test for goodwill impairment at the reporting unit level and our reporting units are the reportable segments or the components of reportable segments that constitute businesses for which discrete financial information is available and is regularly reviewed by management. 

We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether it is necessary to perform an annual quantitative goodwill impairment test. We have elected this option on certain reporting units. The following events and circumstances are considered when evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount:

•Macroeconomic conditions, such as a deterioration in general economic conditions, fluctuations in foreign exchange rates and/or other developments in equity and credit markets;

•Industry and market considerations, such as a deterioration in the environment in which an entity operates, material loss in market share and significant declines in product pricing;

•Cost factors, such as an increase in raw materials, labor or other costs;

•Overall financial performance, such as negative or declining cash flows or a decline in actual or forecasted revenue;

•Other relevant entity-specific events, such as material changes in management or key personnel and

•Events affecting a reporting unit, such as a change in the composition or carrying amount of its net assets including acquisitions and dispositions.

The examples noted above are not all-inclusive, and we consider other relevant events and circumstances that affect the fair value of a reporting unit in determining whether to perform the quantitative goodwill impairment test.

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Our goodwill recoverability assessment is based on our annual strategic planning process. This process includes an extensive review of expectations for the long-term growth of our businesses and forecasted future cash flows. In order to determine the fair value of our reporting units, we primarily use the income approach. Our income approach method uses a discounted cash flow model in which cash flows anticipated over several periods, plus a terminal value at the end of that time horizon, are discounted to their present value using an appropriate rate of return. Our estimates are based upon our historical experience, our current knowledge from our commercial relationships and available external information about future trends.

The discounted cash flow model requires us to make projections of revenue, gross margin, operating expenses, working capital investment and fixed asset additions for the reporting units over a multi-year period. Additionally, management must estimate a weighted-average cost of capital, which reflects a market rate, for each reporting unit for use as a discount rate. The discounted cash flows are compared to the carrying value of the reporting unit and, if less than the carrying value, the difference is recorded as a goodwill impairment loss. In addition, we also perform sensitivity analyses to determine how much our forecasts can fluctuate before the fair value of a reporting unit would be lower than its carrying amount. Future changes in the judgments, assumptions and estimates that are used in our goodwill impairment testing, including discount rates or future operating results and related cash flow projections, could result in significantly different estimates of the fair values in the future. An increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated fair values, which may result in impairment charges that could materially affect our financial statements in any given year. We perform the annual goodwill impairment assessment as of October 31 each year.

During the third quarter of 2025, in our Accelera segment, we observed rapidly deteriorating conditions in our electrolyzer markets and overall hydrogen markets, along with significant uncertainty in the alternative power markets resulting from reductions in government incentives. As a result, we determined that a triggering event occurred for our electrolyzer reporting unit, warranting an interim impairment test of goodwill. We determined that on a fair value basis our goodwill was fully impaired and recorded a charge of $210 million in other operating expense, net. See NOTE 22, “ACCELERA ACTIONS,” to our Consolidated Financial Statements for additional information.

We completed our annual impairment testing as of October 31, 2025, and noted no additional impairments.

Accounting for Income Taxes

We determine our income tax expense using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax effects of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Future tax benefits of net operating loss and credit carryforwards are also recognized as deferred tax assets. We evaluate the recoverability of our deferred tax assets each quarter by assessing the likelihood of future profitability and available tax planning strategies that could be implemented to realize our net deferred tax assets. At December 31, 2025, we recorded a net deferred tax asset of $675 million. The net deferred tax assets included $1.0 billion for the value of net operating loss and credit carryforwards. A valuation allowance of $954 million was recorded to reduce the tax assets to the net value management believed was more likely than not to be realized. In the event our operating performance deteriorates, future assessments could conclude that a larger valuation allowance will be needed to further reduce the deferred tax assets.

In addition, we operate within multiple taxing jurisdictions and are subject to tax audits in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. We accrue for the estimated additional tax and interest that may result from tax authorities disputing uncertain tax positions. We believe we made adequate provisions for income taxes for all years that are subject to audit based upon the latest information available. A more complete description of our income taxes and the future benefits of our net operating loss and credit carryforwards is disclosed in NOTE 4, “INCOME TAXES,” to our Consolidated Financial Statements.

Pension Benefits

We sponsor a number of pension plans globally, with the majority of assets in the U.S. and the U.K. In the U.S. and the U.K., we have major defined benefit plans that are separately funded. We account for our pension programs in accordance with employers' accounting for defined benefit pension plans, which requires that amounts recognized in financial statements be determined using an actuarial basis. As a result, our pension benefit programs are based on a number of statistical and judgmental assumptions that attempt to anticipate future events and are used in calculating the expense and liability related to our plans each year at December 31. These assumptions include discount rates used to value liabilities, assumed rates of return on plan assets, future compensation increases, inflation, employee turnover rates, actuarial assumptions relating to retirement age, mortality rates and participant withdrawals. The actuarial assumptions we use may differ significantly from actual results due to changing economic conditions, participant life span and withdrawal rates. These differences may result in a material impact to the amount of net periodic pension cost to be recorded in our Consolidated Financial Statements in the future.

The expected long-term return on plan assets is used in calculating the net periodic pension cost. We considered several factors in developing our expected rate of return on plan assets. The long-term rate of return considers historical returns and expected returns on

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current and projected asset allocations. Projected returns are based primarily on broad, publicly traded passive fixed income and equity indices and forward-looking estimates of the value added by active investment management. Based upon our target asset allocations, historical returns and forward-looking return expectations for capital markets, it is anticipated that our U.S. investment policy will generate an average annual return over the 30-year projection period equal to or in excess of 7.5 percent, including the additional positive returns expected from active investment management. The one-year return for our U.S. plans was a 10.1 percent gain for 2025. Our U.S. plan assets averaged annualized returns of 6.8 percent over the prior ten years and resulted in approximately $213 million of actuarial losses in accumulated other comprehensive loss (AOCL) in the same period.

The methodology used to determine the rate of return on pension plan assets in the U.K. was based on establishing an equity-risk premium over current long-term bond yields adjusted based on target asset allocations. Based upon our target asset allocations and forward-looking return expectations, it is anticipated that our U.K. investment policy will generate an average annual return over the 20-year projection period equal to or in excess of 5.6 percent. The one-year return for our U.K. plans was a 0.8 percent loss for 2025. We generated average annualized losses of 1.5 percent over ten years, resulting in approximately $941 million of actuarial losses in AOCL.

Our target allocation for 2026 and pension plan asset allocations, at December 31, 2025 and 2024 are as follows:

U.S. Plan

U.K. Plan

Target Allocation

Percentage of Plan Assets at December 31,

Target Allocation

Percentage of Plan Assets at December 31,

Investment description

2026

2025

2024

2026

2025

2024

Liability matching

60.0 

%

60.2 

%

69.5 

%

83.0 

%

82.9 

%

79.4 

%

Risk seeking

40.0 

%

39.8 

%

30.5 

%

17.0 

%

17.1 

%

20.6 

%

Total

100.0 

%

100.0 

%

100.0 

%

100.0 

%

100.0 

%

100.0 

%

The differences between the actual return on plan assets and expected long-term return on plan assets are recognized in the asset value

used to calculate net periodic cost over five years. The table below sets forth our expected rate of return for 2026 and the expected

return assumptions used to develop our pension cost for the period 2023-2025.

Long-term Expected Return Assumptions

2026

2025

2024

2023

U.S. plans

7.50 

%

7.00 

%

7.25 

%

7.00 

%

U.K. plans

5.60 

%

5.00 

%

5.00 

%

5.00 

%

Pension accounting offers various acceptable alternatives to account for the differences that eventually arise between the estimates used in the actuarial valuations and the actual results. It is acceptable to delay or immediately recognize these differences. Under the delayed recognition alternative, changes in pension obligations (including those resulting from plan amendments) and changes in the value of assets set aside to meet those obligations are not recognized in net periodic pension cost as they occur but are recognized initially in AOCL and subsequently amortized as components of net periodic pension cost systematically and gradually over future periods. In addition to this approach, we may also adopt immediate recognition of actuarial gains or losses. Immediate recognition introduces volatility in financial results. We have chosen to delay recognition and amortize actuarial differences over future periods. If we adopted the immediate recognition approach, we would record a loss of $1.2 billion ($0.9 billion after-tax) from cumulative actuarial net losses for our U.S. and U.K. pension plans.

The difference between the expected return and the actual return on plan assets is deferred from recognition in our results of operations and under certain circumstances, such as when the difference exceeds 10 percent of the greater of the market value of plan assets or the projected benefit obligation, the difference is amortized over future years of service. This is also true of changes to actuarial assumptions. Under the delayed recognition alternative, the actuarial gains and losses are recognized and recorded in AOCL. As our losses related to the U.S. and U.K. pension plans exceed 10 percent of their respective plan assets, the excess is amortized over the average remaining service lives of participating employees. Net actuarial losses incurred in 2025 decreased our shareholders' equity by $90 million after-tax, primarily due to unfavorable changes in discount rates.

The table below sets forth the net periodic pension cost for the years ended December 31 and our expected cost for 2026.

In millions

2026

2025

2024

2023

Net periodic pension cost

$

73 

$

78 

$

34 

$

1 

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We expect 2026 net periodic pension cost to decrease compared to 2025, primarily due to higher expected rates of return on plan assets, partially offset by increased recognition of net actuarial losses and higher service costs. The increase in net periodic pension cost in 2025 compared to 2024 was primarily due to unfavorable asset returns in the U.K. and a lower expected rate of return in the U.S., partially offset by higher discount rates in the U.S. and U.K. The increase in net periodic pension cost in 2024 compared to 2023 was primarily due to unfavorable asset returns in the U.K., lower discount rates in the U.S. and U.K. and increased headcount from recent acquisitions, partially offset by a higher expected rate of return on assets in the U.S.

The weighted-average discount rates used to develop our net periodic pension cost are set forth in the table below.

Discount Rates

2026

2025

2024

2023

U.S. plans

5.60 

%

5.69 

%

5.15 

%

5.55 

%

U.K. plans

5.58 

%

5.62 

%

4.72 

%

4.99 

%

The discount rate enables us to state expected future cash payments for benefits as a present value on the measurement date. The guidelines for setting this rate suggest the use of a high-quality corporate bond rate. We used bond information provided by Moody's Investor Services, Inc. and Standard & Poor's Rating Services. The bond data is collected from Bloomberg. All bonds used to develop our hypothetical portfolio in the U.S. and U.K. were deemed high-quality, non-callable bonds (Aa or better) at December 31, 2025, by at least one of the bond rating agencies.

In the U.S. a hypothetical bond portfolio is constructed using a model that matches the present value of the plan's projected benefit payments to the market value of the theoretical settlement bond portfolio. The model calls for projected payments until near extinction. A single equivalent discount rate is determined to align the present value of the required cash flow with the value of the bond portfolio. The resulting discount rate is reflective of both the current interest rate environment and the plan’s distinct liability characteristics.

In the U.K. the discount rates are calculated using a corporate bond yield curve. The yield curve is constructed using U.K. corporate bonds from the universe defined above, excluding bonds with actual or implied government backing. A single equivalent discount rate is determined such that the present value of the required cash flow based on this rate equals the present value discounted using the yield curve. The resulting discount rate is reflective of both the current interest rate environment and the plan’s distinct liability characteristics.

The table below sets forth the estimated impact on our 2026 net periodic pension cost relative to a change in the discount rate and a change in the expected rate of return on plan assets.

In millions

Impact on Pension Cost Increase/(Decrease)

Discount rate used to value liabilities

0.25 percent increase

$

(6)

0.25 percent decrease

6 

Expected rate of return on assets

1 percent increase

(56)

1 percent decrease

56 

The above sensitivities reflect the impact of changing one assumption at a time. A higher discount rate decreases the plan obligations and decreases our net periodic pension cost. A lower discount rate increases the plan obligations and increases our net periodic pension cost. It should be noted that economic factors and conditions often affect multiple assumptions simultaneously and the effects of changes in key assumptions are not necessarily linear. NOTE 10, “PENSIONS AND OTHER POSTRETIREMENT BENEFITS,” to our Consolidated Financial Statements provides a summary of our pension benefit plan activity, the funded status of our plans and the amounts recognized in our Consolidated Financial Statements.

RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

See NOTE 1, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,” to our Consolidated Financial Statements for additional information.

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