Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Index to Financial Statements
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
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Cummins Inc. and its consolidated subsidiaries are hereinafter sometimes referred to as “Cummins,” “we,” “our,” or “us.”
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
Certain parts of this annual report contain forward-looking statements intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those that are based on current expectations, estimates and projections about the industries in which we operate and management’s beliefs and assumptions. Forward-looking statements are generally accompanied by words such as “anticipates,” “expects,” “forecasts,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “could,” “should,” “may” or words of similar meaning. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which we refer to as "future factors," which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some future factors that could cause our results to differ materially from the results discussed in such forward-looking statements are discussed below and shareholders, potential investors and other readers are urged to consider these future factors carefully in evaluating forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. Future factors that could affect the outcome of forward-looking statements include the following:
GOVERNMENT REGULATION
• any adverse consequences resulting from entering into agreements with the U.S. Environmental Protection Agency (EPA), 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 April 2024, (collectively, the Settlement Agreements), including required additional mitigation projects, adverse reputational impacts and potential resulting legal actions;
• increased scrutiny from regulatory agencies, as well as unpredictability in the adoption, implementation and enforcement of emission standards around the world;
• evolving environmental and climate change legislation and regulatory initiatives;
• any adverse consequences from changes in tariffs and other trade disruptions;
• changes in international, national and regional trade laws, regulations and policies;
• emissions deregulation;
• changes in taxation;
• global legal and ethical compliance costs and risks;
• future bans or limitations on the use of diesel-powered products;
BUSINESS CONDITIONS / DISRUPTIONS
• raw material, transportation and labor price fluctuations and supply shortages;
• aligning our capacity and production with our demand;
• the actions of, and income from, joint ventures and other investees that we do not directly control;
• large truck manufacturers' and original equipment manufacturers' customers discontinuing outsourcing their engine supply needs or experiencing financial distress, or change in control;
PRODUCTS AND TECHNOLOGY
• product recalls;
• variability in material and commodity costs;
• the development of new technologies that reduce demand for our current products and services or not successfully developing new technologies and products to effectively address the energy transition;
• lower than expected acceptance of new or existing products or services;
• product liability claims;
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• our sales mix of products;
GENERAL
• climate change, global warming, more stringent climate change regulations, accords, mitigation efforts, greenhouse gas regulations or other legislation designed to address climate change;
• our plan to reposition our portfolio of product offerings through exploration of strategic acquisitions, divestitures or exiting the production of certain product lines or product categories and related uncertainties of such decisions;
• increasing interest rates;
• challenging markets for talent and ability to attract, develop and retain key personnel;
• exposure to potential security breaches or other disruptions to our information technology (IT) environment and data security;
• the use of artificial intelligence (AI) in our business and in our products, services and features, and challenges with properly managing its use;
• political, economic and other risks from operations among, between and within numerous countries including political, economic and social uncertainty and the evolving globalization of our business;
• competitor activity;
• increasing competition, including increased global competition among our customers in emerging markets;
• failure to meet sustainability expectations or standards, or achieve our sustainability goals;
• labor relations or work stoppages;
• foreign currency exchange rate changes;
• the performance of our pension plan assets and volatility of discount rates;
• the price and availability of energy;
• continued availability of financing, financial instruments and financial resources in the amounts, at the times and on the terms required to support our future business; and
• other risk factors described in Item 1A. under the caption “Risk Factors.”
Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this annual report and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
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PART I
ITEM 1. Business
OVERVIEW
We were founded in 1919 as Cummins Engine Company, a corporation in Columbus, Indiana, and one of the first diesel engine manufacturers. In 2001, we changed our name to Cummins Inc. 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 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.
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 EPA, CARB, the 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 April 2024 (collectively, the Settlement Agreements). 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.
REPORTABLE SEGMENTS
We have five complementary reportable segments: Engine, Components, Distribution, Power Systems and Accelera. These segments share technology, customers, strategic partners, brand recognition and our distribution network in order to compete more efficiently and effectively in their respective markets. In each of our reportable segments, we compete worldwide with a number of other manufacturers and distributors that produce and sell similar products. Our products primarily compete on the basis of performance, price, total cost of ownership, fuel economy, emissions compliance, speed of delivery, quality and customer support.
We use segment earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests (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. 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 .
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Engine Segment
Engine segment sales and EBITDA as a percentage of consolidated results were:
Years ended December 31,
Percent of consolidated net sales (1)
Percent of consolidated EBITDA (1)
(1) Measured before intersegment eliminations
The Engine segment manufactures and markets a broad range of diesel, natural gas and gasoline-powered engines under the Cummins brand name, as well as certain customer brand names, for the heavy-duty truck, medium-duty truck and bus, light-duty automotive and off-highway markets. We manufacture a wide variety of engine products including:
• Engines with a displacement range of 2.8 to 15 liters and horsepower ranging from 48 to 715; and
• New and remanufactured parts and engines, which are sold and serviced primarily through our extensive distribution network.
The Engine segment is organized by engine displacement size and serves these end-user markets:
• Heavy-duty truck - We manufacture diesel and natural gas engines that range from 310 to 615 horsepower serving global heavy-duty truck customers worldwide, primarily in North America, China and Australia.
• Medium-duty truck and bus - We manufacture diesel, natural gas and gasoline engines ranging from 130 to 450 horsepower serving medium-duty truck and bus customers worldwide, with key markets including North America, Europe, Latin America, China, Australia and India. Applications include pick-up, delivery, emergency vehicles, regional haul and vocational trucks and school, transit and shuttle buses. We also provide diesel engines for Class A motor homes (RVs), primarily in North America.
• Light-duty automotive (pick-up and light commercial vehicle (LCV)) - We manufacture 105 to 430 horsepower diesel engines, including engines for the pick-up truck market for Stellantis N.V. (Stellantis) in North America and LCV markets in Latin America and China.
• Off-highway (industrial engines) - We manufacture diesel engines that range from 48 to 715 horsepower serving key global markets including construction, agriculture, mining, marine, rail, oil and gas and defense as well as the power generation business for standby, mobile and distributed power generation solutions throughout the world.
The principal customers of our heavy-duty truck engines include truck manufacturers such as PACCAR Inc. (PACCAR), Traton Group (Traton) and Daimler Trucks AG (Daimler). The principal customers of our medium-duty truck and bus engines include truck manufacturers such as Daimler, Traton and PACCAR. The principal customers of our light-duty automotive engines are Stellantis, Anhui Jianghuai Automobile Group Co., Ltd., Volkswagen Caminhões e Ônibus and China National Heavy Duty Truck Group. We sell our industrial engines to manufacturers of construction and agricultural equipment including Hyundai Heavy Industries, Komatsu Ltd. (Komatsu), J.C. Bamford Excavators Ltd., Zoomlion Heavy Industry Science & Technology Co., Ltd, Xuzhou Construction Machinery Group, Guangxi LiuGong Machinery Co., Ltd, JLG Industries, Inc. and SANY Heavy Industry Co., Ltd.
In the Engine segment, our competitors vary from country to country, with local manufacturers generally predominant in each geography. Other independent engine manufacturers include Weichai Power Co., Ltd., Yuchai and Deutz AG. Truck OEMs may also elect to produce their own engines, and we must provide competitive products to win and keep their business. Truck OEMs that currently produce some or all of their own engines include Daimler, PACCAR, Traton, Volvo Powertrain, Ford Motor Company, China First Auto Works, Dongfeng Motor Corporation, CNH Industrial and Isuzu.
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Components Segment
Components segment sales and EBITDA as a percentage of consolidated results were:
Years ended December 31,
Percent of consolidated net sales (1)
Percent of consolidated EBITDA (1)
(1) Measured before intersegment eliminations
The Components segment designs, manufactures and supplies products which complement the Engine and Power Systems segments, including drivetrain and braking systems for commercial diesel, gasoline and natural gas applications, aftertreatment systems, turbochargers, fuel systems, valvetrain technologies, automated transmissions and electronics. We design and develop these products and systems to meet increasingly stringent emission and fuel economy standards.
The Components segment is organized around the following businesses:
• Drivetrain and braking systems - We design, manufacture and supply drivetrain systems, including axles, drivelines, brakes and suspension systems primarily for commercial vehicle and industrial applications. We also market and sell on-highway, off-highway and other products principally for OEM dealers and other independent distributors and service garages within the aftermarket industry. We primarily serve markets in North America, Europe, South America, Asia Pacific, China and India.
• Emission solutions - We design, manufacture and integrate aftertreatment technology and solutions for the commercial on- and off-highway light-duty, medium-duty, heavy-duty and high-horsepower engine markets. Aftertreatment is the mechanism used to convert engine emissions of criteria pollutants, such as particulate matter, nitrogen oxides (NOx), carbon monoxide and unburned hydrocarbons into harmless emissions. Our products include custom engineering systems and integrated controls, oxidation catalysts, particulate filters, selective catalytic reduction systems and engineered components, including dosers. Our emission solutions business primarily serves markets in North America, Europe, China, India, Brazil and Asia Pacific. We serve both OEM first fit and retrofit customers.
• Components and software - We design, manufacture and market turbocharger, fuel system and valvetrain technologies for light-duty, medium-duty, heavy-duty and high-horsepower markets. We also design, develop and supply electronic control modules, sensors and supporting software for on-highway, off-highway and power generation applications. We primarily serve markets in North America, China, Europe and India.
• Automated transmissions - We develop and supply automated transmissions for the heavy-duty commercial vehicle market. Automated transmissions include automated manual transmissions and automatic transmissions for internal combustion engines. The Eaton Cummins Automated Transmission Technologies (ECJV) joint venture is a consolidated 50/50 joint venture between Cummins Inc. and Eaton Corporation plc. and serves markets in North America and China.
• Atmus - 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.
Customers of the Components segment generally include the Engine, Distribution, Power Systems and Accelera segments, joint ventures including Tata Cummins Ltd., Dongfeng Cummins Engine Co., Ltd. and Beijing Foton Cummins Engine Co., Ltd., truck manufacturers and other OEMs, many of which are also customers of the Engine segment, such as PACCAR, Daimler, AB Volvo, Traton, Stellantis and other manufacturers that use our components in their product platforms.
The Components segment competes with other manufacturers of aftertreatment systems, turbochargers, fuel systems, drivetrain systems and transmissions. Our primary competitors in these markets include Robert Bosch GmbH, Garrett Motion, Inc., Borg-Warner Inc., Tenneco Inc., Eberspacher Holding GmbH & Co. KG, Allison Transmission, Knorr-Bremse AG and ZF Friedrichshafen AG.
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Distribution Segment
Distribution segment sales and EBITDA as a percentage of consolidated results were:
Years ended December 31,
Percent of consolidated net sales (1)
Percent of consolidated EBITDA (1)
(1) Measured before intersegment eliminations
The Distribution segment is our primary sales, service and support channel. The segment serves our customers and certified dealers through a worldwide network of wholly-owned, joint venture and independent distribution locations. Wholly-owned locations operate and serve markets in the seven geographic regions noted below. Joint venture locations serve markets in South America, Southeast Asia, Middle East and India while independent distribution locations serve markets in these and other geographies.
Distribution’s mission encompasses the sale and support of a wide range of products and services, including power generation systems, high-horsepower engines, heavy-duty and medium-duty engines designed for on- and off-highway use, application engineering services, custom-designed assemblies, retail and wholesale aftermarket parts and in-shop and field-based repair services. We also provide selected sales and aftermarket support for the Accelera business. Our familiarity with a wide range of market applications allows us to tailor sales, service and support to meet customer-specific needs.
The Distribution segment is organized and managed as seven geographic regions, including North America, Europe, Asia Pacific, China, India, Latin America and Africa and Middle East. Across these regions, our locations compete with distributors or dealers that offer similar products. In many cases, these competing distributors or dealers are owned by, or affiliated with the companies that are listed as competitors of the Engine, Components or Power Systems segments. These competitors vary by geographical location and application market.
Power Systems Segment
Power Systems segment sales and EBITDA as a percentage of consolidated results were:
Years ended December 31,
Percent of consolidated net sales (1)
Percent of consolidated EBITDA (1)
(1) Measured before intersegment eliminations
The Power Systems segment is organized around the following product lines:
• Power generation - We are a global OEM offering standby and prime power generators ranging from 2 kilowatts to 3.5 megawatts, as well as controls, paralleling systems and transfer switches, for customers with data center, consumer, commercial, industrial, health care, prime rental fleet and defense applications. We also provide turnkey solutions for distributed generation and energy management applications using diesel, natural gas, battery energy storage systems and newer alternative sustainable fuels such as hydrotreated vegetable oil and renewable natural gas.
• Industrial - We design, manufacture, sell and support diesel and natural gas high-speed, high-horsepower engines up to 4,400 horsepower for a wide variety of equipment in mining, oil and gas, marine, rail and defense applications throughout the world.
• Generator technologies - We design, manufacture, sell and support A/C generator/alternator products and components for internal consumption and for external generator set assemblers. Our alternator products are sold under the Stamford and AVK brands and range in output from 7.5 kilovolt-amperes (kVA) to 11,200 kVA.
Our customer base for Power Systems offerings is highly diversified, with customer groups varying based on their power needs. China, India, Europe, Asia Pacific, Latin America, the Middle East and Africa are our largest geographic markets outside of North America .
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In the markets served by the Power Systems segment, we compete with a variety of independent engine manufacturers and generator set assemblers as well as OEMs who manufacture engines for their own products around the world. Our primary competitors are Caterpillar, Inc., MTU (Rolls Royce Power Systems Group) and Kohler/SDMO (Kohler Group), but we also compete with INNIO, Generac, Mitsubishi Heavy Industries and numerous regional generator set assemblers. Our alternator business competes globally with Leroy Somer, Marathon Electric and Meccalte, among others.
Accelera Segment
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.
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. 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. See NOTE 22, “ACCELERA ACTIONS,” to our Consolidated Financial Statements for additional information.
We anticipate our customer base for Accelera offerings will be highly diversified, representing multiple end markets with a broad range of application requirements. We will continue to pursue relationships in markets as they adopt electric solutions.
In the markets served by the Accelera segment, we compete with battery companies, powertrain component manufacturers and vertically integrated OEMs. Our primary competitors include Daimler, PACCAR, Traton, BYD Company Limited, Dana Incorporated and BorgWarner Inc.
JOINT VENTURES, ALLIANCES AND NON-WHOLLY-OWNED SUBSIDIARIES
We have a number of joint venture agreements and alliances with business partners around the world. Our joint ventures are either distribution or manufacturing entities. We also own controlling interests in non-wholly-owned manufacturing and distribution subsidiaries.
In the event of a change of control of either party to certain of these joint ventures and other strategic alliances, certain consequences may result including automatic termination and liquidation of the venture, exercise of “put” or “call” rights of ownership by the non-acquired partner, termination or transfer of technology license rights to the non-acquired partner and increases in component transfer prices to the acquired partner. We will continue to evaluate joint venture and partnership opportunities in order to penetrate new markets, develop new products and generate manufacturing and operational efficiencies.
Financial information about our investments in joint ventures and alliances is incorporated by reference from NOTE 3, “INVESTMENTS IN EQUITY INVESTEES,” to our Consolidated Financial Statements.
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Our equity income from these investees was as follows:
Years ended December 31,
In millions
Manufacturing entities
Chongqing Cummins Engine Company, Ltd.
Dongfeng Cummins Engine Company, Ltd.
Beijing Foton Cummins Engine Co., Ltd.
Tata Cummins, Ltd.
All other manufacturers
Distribution entities
Komatsu Cummins Chile, Ltda.
All other distributors
Cummins share of net income (2)
(1) Included a $17 million impairment of our joint ventures in the fourth quarter of 2024 related to our Accelera strategic reorganization actions. See NOTE 22, “ACCELERA ACTIONS,” to our Consolidated Financial Statements for additional information.
(2) This total represents our share of net income of our equity investees and is exclusive of royalties and interest income from our equity investees. To see how this amount reconciles to equity, royalty and interest income from investees in our Consolidated Statements of Net Income , see NOTE 3, “INVESTMENTS IN EQUITY INVESTEES,” to our Consolidated Financial Statements for additional information .
Manufacturing Entities
Our manufacturing joint ventures were generally formed with customers and are primarily intended to allow us to increase our market penetration in geographic regions, reduce capital spending, streamline our supply chain management and develop technologies. Our largest manufacturing joint ventures are based in China and are included in the list below. Our engine manufacturing joint ventures are supplied by our Components segment in the same manner as it supplies our wholly-owned Engine segment and Power Systems segment manufacturing facilities. Our Components segment joint ventures and wholly-owned entities provide drivetrain and braking systems for commercial diesel and natural gas applications, aftertreatment systems, turbochargers, fuel systems, valvetrain technologies, automated transmissions and electronics that are used with our engines as well as some competitors' products. The results and investments in our joint ventures in which we have 50 percent or less ownership interest (except for ECJV, which is consolidated due to our majority voting interest) discussed below are included in equity, royalty and interest income from investees and investments and advances related to equity method investees in our Consolidated Statements of Net Income and Consolidated Balance Sheets , respectively.
• Chongqing Cummins Engine Company, Ltd. - Chongqing Cummins Engine Company, Ltd. is a joint venture in China with Chongqing Machinery and Electric Co. Ltd. This joint venture manufactures several models of our heavy-duty and high-horsepower diesel engines primarily serving the industrial and power generation markets in China.
• Dongfeng Cummins Engine Company, Ltd. - Dongfeng Cummins Engine Company, Ltd. (DCEC) is a joint venture in China with Dongfeng Automotive Co. Ltd., a subsidiary of Dongfeng Motor Corporation and one of the largest medium-duty and heavy-duty truck manufacturers in China. DCEC produces 2.5 liter to 14.5 liter diesel engines with a power range from 80 to 770 horsepower, natural gas engines and automated transmissions. On-highway engines are used in multiple applications in light-duty and medium-duty trucks, special purpose vehicles, buses and heavy-duty trucks with a main market in China. Off-highway engines are used in a variety of construction, power generation, marine and agriculture markets in China.
• Beijing Foton Cummins Engine Co., Ltd. - Beijing Foton Cummins Engine Co., Ltd. is a joint venture in China with Beiqi Foton Motor Co., Ltd., a commercial vehicle manufacturer, which has two distinct lines of business - a light-duty business and a heavy-duty business. The light-duty business produces our families of ISF 2.5 liter to 4.5 liter high performance light-duty diesel engines in Beijing, which are used in light-duty and medium-duty commercial trucks, pick-up trucks, buses, multipurpose and sport utility vehicles with the main market in China. Certain types of small construction equipment and industrial applications are also served by these engine families. The heavy-duty business produces 7.0 liter to 14.5 liter high performance medium-duty and heavy-duty diesel and natural gas engines, which are used in commercial trucks, certain types of construction equipment and industrial applications.
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• Tata Cummins, Ltd. - Tata Cummins, Ltd. is a joint venture in India with Tata Motors Ltd., the largest automotive company in India and a member of the Tata group of companies. This joint venture manufactures Cummins' 3.8 to 8.9 liter diesel and natural gas engines in India with a power range from 75 to 400 horsepower for use in trucks and buses manufactured by Tata Motors, as well as for various on-highway, industrial and power generation applications for Cummins.
Our Amplify Cell Technologies LLC (Amplify) joint venture meets the definition of a variable interest entity since the equity-at-risk is not currently sufficient to support the future operations of the joint venture. Accelera, Daimler Truck and US Holding LLC and PACCAR, Inc. each own 30 percent of the joint venture and have two board positions, while EVE Energy owns 10 percent and has one board position. All significant decisions require majority or super-majority approval of the board. As a result, we are not the primary beneficiary of the joint venture, and it is not consolidated. We account for the joint venture using the equity method. Our Amplify joint venture will manufacture battery cells for electric commercial vehicles and industrial applications. The joint venture was formed in May 2024, but is not expected to begin production until 2028. As of December 31, 2025, we contributed $412 million and our maximum remaining required contribution to the joint venture was $418 million, which could be reduced by future government incentives received by the joint venture. Our investment balance at December 31, 2025, net of operating losses, was $359 million.
Distribution Entity
Komatsu Cummins Chile, Ltda. - Komatsu Cummins Chile, Ltda. is a joint venture with Komatsu America Corporation. The joint venture is a distributor that offers the full range of our products and services to customers and end-users in Chile and Peru. See further discussion of our distribution network under the Distribution segment section above.
Non-Wholly-Owned Subsidiaries
• Eaton Cummins Automated Transmission Technologies - We have a majority voting interest in ECJV by virtue of a tie-breaking vote on the joint venture’s board of directors. ECJV develops and supplies automated transmissions for the heavy-duty commercial vehicle markets in North America and China.
• Cummins India Ltd. - We have a controlling interest in Cummins India Ltd. (CIL), which is a publicly listed company on various stock exchanges in India. CIL produces medium-duty, heavy-duty and high-horsepower diesel engines and generators for the Indian and export markets and natural gas spark-ignited engines for power generation, automotive and industrial applications. CIL also has distribution and power generation operations.
SUPPLY
The performance of the end-to-end supply chain, extending through to our suppliers, is foundational to our ability to meet customers' expectations and support long-term growth. We are committed to having a robust strategy for how we select and manage our suppliers to enable a market focused supply chain. This requires us to continuously evaluate and upgrade our supply base, as necessary, as we strive to ensure we are meeting the needs of our customers.
We use a combination of proactive and reactive methodologies to enhance our understanding of supply base risks, which guide the development of risk monitoring and sourcing strategies. We use a process that groups products or services into categories based on similar characteristics, which helps us align our purchasing goals with overall business objectives (Category Strategy Framework). Our Category Strategy Framework process supports the review of our long-term needs and guides decisions on what we make internally and what we purchase externally. We design and/or manufacture our strategic components used in or with our engines, power generation units, drivetrain and braking systems and Accelera products. For externally purchased items, the strategies also identify the suppliers we should consider for long-term supply agreements to provide the best technology, the lowest total cost and highest supply chain performance. Key suppliers are managed through long-term supply agreements that seek to secure capacity, delivery and quality and to assure cost requirements are met over an extended period.
Other important elements of our sourcing strategy include the following:
• expanding risk management scope to include sub-tier value chain suppliers for critical components;
• broadening dual and multi-sourcing where applicable;
• selecting and managing suppliers to comply with our Supplier Code of Conduct; and
• assuring our suppliers comply with our prohibited and restricted materials policy.
Disruption risk in certain categories of our supply chains exist and could negatively impact our ability to meet customer demand. We continue to monitor the supply chain disruptions utilizing early detection methods complemented by structured supplier risk and resiliency assessments. We increased frequency of formal and informal supplier engagement to address potentially impactful supply base constraints and enhanced collaboration to develop specific countermeasures to mitigate risks.
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PATENTS AND TRADEMARKS
We own or control a significant number of patents and trademarks relating to the products we manufacture. These patents and trademarks were granted and registered over a period of years. Although these patents and trademarks are generally considered beneficial to our operations, we do not believe any patent, group of patents or trademark (other than our leading brand house trademarks) is significant to our business.
SEASONALITY
While individual product lines may experience modest seasonal variation in production, there is no material effect on the demand for the majority of our products on a quarterly basis.
LARGEST CUSTOMERS
We have thousands of customers around the world and have developed long-standing business relationships with many of them. PACCAR is our largest customer, accounting for 13 percent of our consolidated net sales in 2025, 16 percent in 2024 and 16 percent in 2023. We have long-term supply agreements with PACCAR for our heavy-duty and medium-duty engines and aftertreatment, driveline and brake systems. While a significant number of our sales to PACCAR are under long-term supply agreements, these agreements provide for particular engine requirements for specific vehicle models and not a specific volume of engines or aftertreatment systems. PACCAR is our only customer accounting for more than 10 percent of our net sales in 2025. The loss of this customer or a significant decline in the production level of PACCAR vehicles that use our engines would have an adverse effect on our results of operations and financial condition. We have supplied engines to PACCAR for 81 years. A summary of principal customers for each reportable segment is included in our segment discussion.
In addition to our agreement with PACCAR, we have heavy-duty and medium-duty engine and aftertreatment system supply agreements with Traton and Daimler. We also have an agreement with Stellantis to supply engines and aftertreatment products for its pick-up truck applications. Collectively, our net sales to these four customers, including PACCAR, were 31 percent of our consolidated net sales in 2025, 36 percent in 2024 and 37 percent in 2023. Excluding PACCAR, net sales to any single customer were less than 7 percent of our consolidated net sales in 2025, less than 9 percent in 2024 and less than 9 percent in 2023. These agreements contain standard purchase and sale agreement terms covering engine, aftertreatment and engine parts pricing, quality and delivery commitments, as well as engineering product support obligations. The basic nature of our agreements with OEM customers is that they are long-term price and operations agreements that help provide for the availability of our products to each customer through the duration of the respective agreements. Agreements with most OEMs contain bilateral termination provisions giving either party the right to terminate in the event of a material breach, change of control or insolvency or bankruptcy of the other party.
BACKLOG
Disruption risk in certain categories of our supply chains exist and could negatively impact our ability to meet customer demand. We have supply agreements with some truck and off-highway equipment OEM customers; however a large portion of our business is transacted through open purchase orders. Many of these open orders are historically subject to month-to-month releases and are subject to cancellation on reasonable notice without cancellation charges and therefore are not considered firm. We also have strong demand for our data center products extending out six to eight quarters. We continue to work closely with our suppliers and customers to meet the demand.
RESEARCH, DEVELOPMENT AND ENGINEERING
In 2025, we continued to invest in future critical technologies and products. We will continue to make investments to develop new products and improve our 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.
Our research, development and engineering (RD&E) programs are focused on product improvements, product extensions, innovations and cost reductions for our customers. RD&E expenditures include salaries, contractor fees, building costs, utilities, testing, technical IT expenses, administrative expenses and allocation of corporate costs and are expensed, net of contract reimbursements, when incurred. From time to time, we enter into agreements with customers and government agencies to fund a portion of the RD&E costs of a particular project. When not associated with a sales contract, we generally account for these reimbursements as an offset to the related RD&E expenditure. RD&E expenses, net of contract reimbursements, were $1.4 billion each year in 2025, 2024 and 2023. Contract reimbursements were $54 million, $72 million and $81 million in 2025, 2024 and 2023, respectively.
ENVIRONMENTAL SUSTAINABILITY
We are committed to making people's lives better by powering a more prosperous world. That prosperity includes strong communities, robust business and environmental sustainability.
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Our Board of Directors (the Board) and the senior management team oversee our top risks, while the Enterprise Risk Management program gives the Board and senior management a framework to help them understand, identify, assess, manage and monitor risks so we can meet our strategic objectives. The Board is ultimately responsible for assessing and managing climate-related risks and opportunities. Managing risk effectively is on the agenda at every regular board meeting, and the Board reviews the entire Enterprise Risk Management program and the results of our latest enterprise risk assessment each year. As climate-related risks affect all aspects of the business, the enterprise risks incorporate, where relevant, climate-related aspects, with a separate stand-alone enterprise risk on climate change.
The Board’s Safety, Environment and Technology (SET) committee provides overall guidance and insight on major environmental sustainability initiatives such as our environmental sustainability strategy, as well as environmental management at our facilities and operations.
Our business and sustainability strategies are intentionally and intricately aligned through Destination Zero — our company’s commitment to sustainability and helping our customers navigate the energy transition while growing our business. Our comprehensive environmental sustainability strategy focuses on three interconnected priority areas: decarbonization, materials and communities.
The environmental sustainability strategy includes specific goals to achieve by 2030, including science-based greenhouse gas (GHG) reduction targets for facilities and newly sold products. We started reporting progress on these goals, most of which have a baseline year of 2018, in 2022.
In 2025, we completed a planned midpoint review of our 2030 environmental sustainability goals. The review assessed the continued relevance and measurability of the goals in light of external environment shifts (e.g., evolving regulations, changing market dynamics and stakeholder expectations), emerging priorities and insights from our double materiality assessment and significant business developments, such as acquisitions and divestitures.
Key outcomes of the 2030 midpoint goal review include:
• We are on our way to achieving several of our goals relating to GHGs, volatile organic compounds (VOCs) emissions, water consumption and waste in our facilities and operations.
• We are making impactful changes to our metrics to further our influence, including shifting the focus on material circularity from individual parts to new products and integrating the facilities and operations waste goals to strengthen efforts in achieving zero waste growth by 2030.
• We are advancing our product decarbonization strategy by increasing focus on the areas where we can directly deliver meaningful GHG reductions and help customers decrease emissions now and in the long term. This includes innovating lower-emissions technologies across our portfolio and focusing our efforts to reduce emissions from products in use through fuel-efficiency projects and technology upgrades.
• We are adding a new goal to address upstream GHG emissions from key suppliers through supplier engagement.
The updated 2030 environmental sustainability goals are as follows:
• Reduce absolute GHG emissions from facilities and operations by 50 percent.
• Reduce scope three absolute lifetime GHG emissions from newly sold products by 25 percent.
• Reduce upstream scope three GHG emissions by engaging with key suppliers while continuing to deliver on customers’ commitments.
• Achieve zero waste growth and minimize single-use plastics in our facilities and operations.
• Create lifecycle plans for new products capable of ninety percent material circularity.
• Reduce volatile organic compounds emissions from paint and coating operations by 50 percent.
• Reduce absolute water consumption in facilities and operations by 30 percent.
• Produce net water benefits that exceed our annual water use in all our regions.
Our most recent Sustainability Progress Report and Climate Transition Plan are available on our website at www.cummins.com/company/esg/sustainability-progress-reports. Our annual submissions to CDP (formerly Carbon Disclosure Project), Task Force on Climate-Related Financial Disclosures, Global Reporting Initiative, Sustainability Accounting Standards Board and S&P Global
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Corporate Sustainability Assessment are also available on our website. These reports are not incorporated into this Form 10-K by reference.
ENVIRONMENTAL COMPLIANCE
Settlement Agreements
In December 2023, we announced that we reached an agreement in principle with the EPA, CARB, 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 April 2024, (collectively, the Settlement Agreements). As part of the Settlement Agreements, among other things, we agreed to pay civil penalties, complete recall requirements, undertake mitigation projects, provide extended warranties, undertake certain testing, take certain corporate compliance measures and make other payments. Failure to comply with the terms and conditions of the Settlement Agreements subjects us to stipulated penalties. 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. This charge was in addition to the previously announced charges of $59 million for the recalls of model years 2013 through 2018 RAM 2500 and 3500 trucks and model years 2016 through 2019 Titan trucks. We made $1.9 billion of payments required by the Settlement Agreements in the second quarter of 2024. Subsequent to the second quarter of 2024, we have recorded immaterial amounts related to stipulated we determined to be probable and estimable. Any further non-compliance with the Settlement Agreements will likely subject us to further stipulated and other consequences.
We have also been in communication with other non-U.S. regulators regarding matters related to the emission systems in our engines and may also become subject to additional regulatory review in connection with these matters.
In connection with our announcement of our entry into the agreement in principle, we became subject to shareholder, consumer and third-party litigation regarding the matters covered by the Settlement Agreements, and we may become subject to additional litigation in connection with these matters. See NOTE 14, “COMMITMENTS AND CONTINGENCIES,” to our Consolidated Financial Statements.
Product Certification and Compliance
Our products are subject to extensive statutory and regulatory requirements worldwide that directly or indirectly impose standards governing emissions and noise. Over the past several years, we have increased our global environmental compliance presence and expertise to understand and meet emerging product environmental regulations around the world. Our ability to comply with these and future emission standards is an essential element in maintaining our leadership position in regulated markets.
We strive to be a leader in developing and implementing technologies that provide customers with the highest performing products while minimizing the impact on the environment, and we have a long history of working with governments and regulators to achieve these goals. We remain committed to ensuring our products meet all current and future emission standards and delivering value to our customers.
Announced in late 2019 and launched in early 2020, the Product Compliance and Regulatory Affairs team leads both engine emissions certification and compliance and regulatory affairs initiatives and provides updates to the SET Committee of the Board at least annually. This organization is led by the Vice President - Product Compliance and Regulatory Affairs and reports directly to the Chief Administrative Officer and the Chief Executive Officer (CEO) for product emissions matters. The focus of this organization is to strengthen our ability to design great products that help our customers win while complying with increasingly challenging global emission regulations. The organization also works to enhance our collaboration with the agencies setting the direction and regulations of emissions as we strive to meet every expectation today while planning for future changes.
Other Environmental Statutes and Regulations
Expenditures for environmental control activities and environmental remediation projects at our facilities in the U.S. were not a substantial portion of our annual expenses and are not expected to be material in 2026. We believe we are in compliance in all material respects with laws and regulations applicable to our plants and operations.
In the U.S., pursuant to notices received from federal and state agencies and/or defendant parties in site environmental contribution actions, we were identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended or similar state laws, at fewer than 20 manufacturing and waste disposal sites.
Based upon our experiences at similar sites, we believe that our aggregate future remediation costs will not be material. We have established accruals that we believe are adequate for our expected future liability with respect to these sites. In addition, we have several other sites where we are working with governmental authorities on remediation projects. The costs for these remediation projects are not expected to be material.
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HUMAN CAPITAL RESOURCES
At December 31, 2025, we employed approximately 67,400 persons worldwide. Approximately 20,000 of our employees worldwide were represented by various unions under collective bargaining agreements that expire between 2026 and 2030.
Throughout our more than 100-year history, we always have recognized that people drive the strength of our business and our ability to effectively serve our customers and sustain our competitive position. We are focused on harmonizing our approach to talent to provide seamless opportunities and better experiences to our employees around the world. Our workforce strategy aims to cultivate an environment where all employees, regardless of employee type and location, know what is expected of them, are rewarded for their performance based on fair and equitable reviews and have access to differentiated experiences, tools and leadership coaching to help them develop. This strategy is anchored on developing authentic and capable leaders, building effective organizations, driving employee engagement, furthering our company values of caring, integrity, excellence, teamwork and diversity and inclusion, delivering quality experiences and providing benefits that advance the well-being of our people and their families.
Leadership and Talent Development
Developing our human capital resources is a key focus for us. The Board remains resolute in overseeing this focus and providing guidance to our leadership team, through a committed Talent Management Compensation Committee.
We strive to create a leadership culture that begins with self-aware and capable leaders creating an environment in which all employees can thrive and reach their full potential. We encourage leaders to connect our people and their work to our mission, vision, values, brand promise and growth strategy, thus, motivating employees and hopefully helping them feel a higher sense of purpose in their contributions.
We have designed leadership and talent development programs for employees ranging from the manufacturing floor and technicians through to middle management and executives. We are promoting a learning culture by providing employees and their managers with tools and resources to have meaningful development conversations, envision and plan their careers, thrive in their work and navigate in a large global organization. Through our talent strategy, our goal is to provide all employees with equitable access to the development and career opportunities that a global company, like Cummins, enables.
Competitive Pay, Benefits and Well-Being
To attract and retain the best talent, we focus on providing progressive, market-competitive pay, benefits and rewards. Our programs are designed to remain sustainable and responsive to the market while still honoring our core values. We provide benefit programs with the goal of supporting the emotional, financial, physical and social health of our employees throughout their career at Cummins. Some examples include base and variable pay, healthcare programs, global mental health support, paid time off, flexible work, retirement saving plans and employee stock purchase plans.
When designing our base pay ranges, we conduct market analyses to ensure our ranges are competitive and our employees are advancing their earning potential. We also perform annual compensation studies to assess market movement, pay equity and living wages. We review wages globally as we continuously work to ensure we are fair, equitable, competitive and can attract and retain the best talent.
We also provide an array of benefits as part of our total rewards program that are aligned with our values and focused on supporting employees and their families based on their unique needs, some of which include the following: healthcare plans that are tiered by salary, to ensure affordability to all of our employees; paid parental leave for primary and secondary caregivers; travel benefits and advanced medical services to support complex healthcare needs; global employee assistance programs; and a global mental health program, all designed to support employees and their families on the journey to well-being.
We have established a flexible approach to in-person collaboration that reinforces our culture and strengthens employees’ social well-being through engaging and meaningful interactions with their teams. We ask that most employees spend at least 60 percent of their time in our facilities, with customers or with other key stakeholders to support our strategy and the communities we serve.
Employee Safety and Wellness
We are committed to being world-class in health and safety. We are committed to removing conditions that cause personal injury or occupational illness, and we make decisions and promote behaviors that protect employees from risk of injury. We publicly disclose metrics on our rate of recordable injuries, our rate of lost workdays due to injury, rate of ergonomic injuries and rate of potentially serious injuries and fatalities.
Since 2020, we have taken many steps in the employee safety and wellness area including the following:
• Executed robust safety protocols for essential on-site personnel.
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• Implemented employee role classifications and an in-person time policy. The on-site with flexibility and off-site roles provide employees the ability to leverage on-site work for collaboration, problem solving and relationship building while also providing work flexibility. As part of this effort, we provide remote ergonomic evaluations and support to help employees create off-site workspaces that are safe.
• Provided high-quality clinical services at onsite and near-site medical clinics at several locations across the globe to support employee health and well-being.
• Launched a global mental health campaign to destigmatize and normalize conversations about mental health, promote mental well-being, encourage employees and their families to seek help when needed and promote company-provided resources. This campaign has been extended to include physical, emotional, financial and social pillars of well-being.
Diversity and Inclusion
Our commitment to inclusion dates back more than a half-century and continues to be core to our fabric and continued success. We leverage the strength of our broadly diverse, global workforce to drive innovation and business results and deliver superior solutions for our customers and communities. We do this through our commitment to fostering an accountable culture that champions our vision of a workforce mirroring the communities we serve. This commitment starts at the top with our Board and permeates throughout our organization as everyone plays a role in nurturing inclusive environments where all employees can reach their full potential and thrive.
Our strong focus on cultivating an inclusive culture underscores our belief that a diverse and inclusive workforce is a core value and competitive advantage for us. This focus dates back to the early 1970s as reflected in a public statement made by our former Chairman, J. Irwin Miller:
“Character, ability and intelligence are not concentrated in one sex over the other, nor in persons with certain accents or in certain races or in persons holding degrees from universities over others. When we indulge ourselves in such irrational prejudices, we damage ourselves most of all and ultimately assure ourselves of failure in competition with those more open and less biased.”
Our long-standing commitment to diversity and inclusion is consistent with our commitment to follow the law everywhere, including, without limitation, complying with U.S. and global laws and regulations related to civil rights and anti-discrimination. We believe that we are in compliance with such laws and regulations in all material respects.
For more information on the topics above, please go to https://www.sustainability.cummins.com. Information from our sustainability report and sustainability webpage is not incorporated by reference into this filing.
AVAILABLE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information electronically with the Securities and Exchange Commission (SEC). The SEC maintains an internet site that contains annual, quarterly and current reports, proxy and information statements and other information that Cummins files electronically with the SEC. The SEC's internet site is https://www.sec.gov.
Our internet site is https://www.cummins.com. You can access our Investors and Media webpage through our internet site, by hovering on the heading “Company” and selecting “Investor Relations” link under the “About Us” section or directly at https://www.cummins.com/company/investor-relations. We make available, free of charge, on or through our Investors and Media webpage, our proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934 or the Securities Act of 1933, each, as amended, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.
We also have a Corporate Governance webpage. You can access our Governance Documents webpage through our internet site, https://investor.cummins.com/board-esg/governance/governance-documents. Code of Conduct, Committee Charters and other governance documents are included at this site. Our Code of Conduct applies to all employees, regardless of their position or the country in which they work. It also applies to the employees of any entity owned or controlled by us. We will post any amendments to the Code of Conduct and any waivers that are required to be disclosed by the rules of either the SEC or the NYSE, on our internet site. The information on our internet site is not incorporated by reference into this report.
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INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Following are the names and ages of our executive officers, their positions with us at January 31, 2026, and summaries of their backgrounds and business experience:
Name and Age
Present Cummins Inc. position and
year appointed to position
Principal position during the past five years
other than Cummins Inc. position currently held
Jennifer Rumsey (52)
Chair and Chief Executive Officer (2023)
President and Chief Executive Officer (2022-2023)
President and Chief Operating Officer (2021-2022)
Vice President and President—Components (2019-2020)
Marvin Boakye (52)
Vice President—Chief Human Resources Officer (2022)
Chief People and Diversity Officer—Papa John's International (2019-2022)
Jenny M. Bush (51)
Vice President and President—Power Systems (2022)
Vice President—Cummins Sales & Service North America (2017-2022)
Amy R. Davis (56)
Vice President and President—Accelera by Cummins and Components (2023)
Vice President and President—Accelera by Cummins (2020-2023)
Vice President—Cummins Filtration (2018-2020)
Bonnie Fetch (55)
Executive Vice President and President—Operations (2025)
Vice President and President—Distribution Business (2024)
Vice President—Global Supply Chain and Manufacturing (2022-2023)
Vice President—DBU Supply Chain Services (2020-2022)
Executive Director, Supply Chain—DBU (2018-2020)
John Gaidoo (50)
Vice President—Chief Legal Officer (2025)
Vice President - Senior Deputy Counsel (2023-2025)
Deputy General Counsel (2021-2023)
Lead Lawyer - Employment and Labor Relations (2018-2021)
Nicole Y. Lamb-Hale (59)
Vice President—Chief Administrative Officer and Corporate Secretary (2025)
Vice President—Chief Legal Officer and Corporate Secretary (2023-2025)
Vice President—Chief Legal Officer (2022-2023)
Vice President—General Counsel (2021-2022)
Managing Director and Washington, DC City Leader—Kroll (2020-2021)
Brett Merritt (49)
Vice President and President—Engine Business (2024)
Vice President—On-Highway Engine Business and Vice President of Strategic Customer Relations (2023)
Vice President—On-Highway Engine Business (2017-2023)
Mark A. Smith (58)
Vice President—Chief Financial Officer (2019)
Nathan R. Stoner (48)
Vice President—China ABO (2020)
General Manager—Partnerships and EBU China Joint Venture Business (2018-2020)
Jeffrey T. Wiltrout (45)
Vice President—Corporate Strategy (2022)
Executive Director—Corporate Development (2021-2022)
Strategy Director—Power Systems Business Unit (2018-2021)
Jonathan Wood (55)
Vice President—Chief Technical Officer (2023)
Vice President—New Power Engineering (2021-2023)
Vice President—Components Engineering (2018-2021)
Shon Wright (51)
Vice President and President—Distribution Business (2025)
Vice President—Cummins Engine Components (2022-2024)
Vice President and President - Cummins Turbo Technologies (2017-2022)
Our Chair and CEO is elected annually by the Board and holds office until the meeting of the Board at which her election is next considered. Other officers are appointed by the Chair and CEO, are ratified by the Board and hold office for such period as the Chair and CEO or the Board may prescribe.
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ITEM 1A. Risk Factors
Set forth below and elsewhere in this Annual Report on Form 10-K are some of the principal risks and uncertainties that could cause our actual business results to differ materially from any forward-looking statements contained in this Report and could individually, or in combination, have a material adverse effect on our results of operations, financial position and cash flows. These risk factors should be considered in addition to our cautionary comments concerning forward-looking statements in this Report, including statements related to markets for our products and trends in our business that involve a number of risks and uncertainties. Our separate section above, “CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION,” should be considered in addition to the following statements.
GOVERNMENT REGULATION
While we have reached Settlement Agreements with the EPA, CARB, the Environmental and Natural Resources Division of the U.S. Department of Justice 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., we have incurred, and likely will incur, other additional claims, costs and expenses in connection with the matters covered by the Settlement Agreements and other matters related to our compliance with emission standards for our engines, including with respect to additional regulatory action and collateral litigation related to these matters. Those and related expenses and reputational damage could have a material adverse impact on our results of operations, financial condition and cash flows.
In December 2023, we announced that we reached the agreement in principle and recorded a charge of $2.0 billion in the fourth quarter of 2023 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 April 2024. This fourth quarter of 2023 charge was in addition to the previously announced charges of $59 million for the recalls of model years 2013 through 2018 RAM 2500 and 3500 trucks and model years 2016 through 2019 Titan trucks. Failure to comply with the terms and conditions of the Settlement Agreements subjects us to stipulated penalties. Subsequent to the second quarter of 2024, we recorded immaterial amounts related to stipulated penalties we determined to be probable and estimable. Any further non-compliance with the Settlement Agreements will likely subject us to further stipulated penalties and other adverse consequences.
We have also been in communication with other non-U.S. regulators regarding matters related to the emission systems in our engines and may also become subject to additional regulatory review in connection with these matters.
In connection with our announcement of our entry into the agreement in principle, we became subject to shareholder, consumer and third-party litigation regarding the matters covered by the Settlement Agreements, and we may become subject to additional litigation in connection with these matters.
The consequences resulting from the resolution of the foregoing matters are uncertain and the related expenses and reputational damage could have a material adverse impact on our results of operations, financial condition and cash flows. See NOTE 14, "COMMITMENTS AND CONTINGENCIES," to our Consolidated Financial Statements for additional information.
Our products are subject to extensive and evolving statutory and regulatory requirements that can significantly increase our costs and, along with increased scrutiny from regulatory agencies and unpredictability in the adoption, implementation and enforcement of increasingly stringent and fragmented emission standards by multiple jurisdictions around the world, could have a material adverse impact on our results of operations, financial condition and cash flows.
Our engines are subject to extensive and evolving statutory and regulatory requirements governing emissions and noise, including standards imposed by the EPA, the EU, state regulatory agencies (such as the CARB) and other regulatory agencies around the world. Regulatory agencies are making certification and compliance with emissions and noise standards more stringent and subjecting diesel engine products to an increasing level of scrutiny. The discovery of noncompliance issues could have a material adverse impact on our results of operations, financial condition and cash flows.
Developing engines and components to meet more stringent and continuously changing regulatory requirements, with different implementation timelines and emission requirements, makes developing engines efficiently for multiple markets complicated and could result in substantial additional costs that may be difficult to recover in certain markets. While we have met previous deadlines, our ability to comply with existing and future regulatory standards will be essential for us to maintain our competitive position in the engine applications and industries we serve. The successful development and introduction of new and enhanced products in order to comply with new regulatory requirements are subject to other risks, such as delays in product development, cost over-runs and unanticipated technical and manufacturing difficulties.
In addition to these risks, the nature and timing of government implementation and enforcement of increasingly stringent emission standards in our worldwide markets are unpredictable and subject to change. Any delays in implementation or enforcement could
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result in a loss of our competitive advantage and could have a material adverse impact on our results of operations, financial condition and cash flows.
Evolving environmental and climate change legislation and regulatory initiatives may adversely impact our operations, could impact the competitive landscape within our markets and could negatively affect demand for our products.
Our operations are subject to increasingly stringent environmental laws and regulations in all of the countries in which we operate, including laws and regulations governing air emission, carbon content, discharges to water and the generation, handling, storage, transportation, treatment and disposal of waste materials. For example, in October 2023, the EPA published a final rule imposing reporting and recordkeeping requirements on manufacturers and importers of per- and polyfluoroalkyl substances (PFAS). While we believe that we are in compliance in all material respects with these environmental laws and regulations, there can be no assurance that we will not be adversely impacted by costs, liabilities or claims with respect to existing or subsequently acquired operations, under either present laws and regulations or those that may be adopted or imposed in the future. We are also subject to laws requiring the cleanup of contaminated property. If a release of hazardous substances occurs at or from any of our current or former properties or at a landfill or another location where we have disposed of hazardous materials, we may be held liable for the contamination and the amount of such liability could be material.
Concern over climate change has resulted in, and could continue to result in, new legal or regulatory requirements including those designed to reduce or mitigate carbon content or the effects of GHG emissions. We may become subject to further additional legislation, regulations or accords regarding climate change, and compliance with new rules could be difficult and costly, including increased capital expenditures. Our failure to successfully comply with any such legislation, regulation or accord could also impact our ability to compete in our markets and decrease demand for our products.
We operate our business on a global basis and changes in tariffs and other trade disruptions could adversely impact the demand for our products and our competitive position.
We manufacture, sell and service products globally and rely upon a global supply chain to deliver the raw materials, components, systems and parts that we need to manufacture and service our products. There is currently significant uncertainty about the future relationship between the U.S. and various other countries with respect to tariffs and other trade disruptions (such as embargoes, sanctions and export controls). The uncertain tariff environment, marked by the U.S. imposition of tariffs on certain countries, followed by the imposition of retaliatory tariffs on U.S. goods and services by certain countries has introduced significant market volatility and raised concerns about potential economic impacts. The extent to which tariffs and/or other trade disruptions will be enacted and the duration for which enacted tariffs and/or other trade disruptions will be in place remain uncertain and could adversely impact our production costs, customer demand and our relationships with customers and suppliers. Any of these consequences could have a material adverse effect on our results of operations, financial condition and cash flows. In addition, our compliance with any such newly enacted tariffs and/or other trade is likely to require significant resources and data management systems and could increase our cost of doing business, restrict our ability to operate our business or execute our strategies, and could result in and or reputational if we are found to not be in full compliance.
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 could adversely impact the demand for our products and our competitive position.
We manufacture, sell and service products globally and rely upon a global supply chain to deliver the raw materials, components, systems and parts that we need to manufacture and service our products. Changes in laws, regulations and government policies on foreign trade and investment can affect the demand for our products and services, cause non-U.S. customers to shift preferences toward domestically manufactured or branded products and impact the competitive position of our products or prevent us from being able to sell products in certain countries. Our business benefits from international trade agreements, such as the United States-Mexico-Canada Agreement and the U.S. trade relationships including those with China, Brazil, E.U. and the U.K. More restrictive trade policies, such as efforts to withdraw from or substantially modify such agreements or arrangements, including, without limitation, higher tariffs or new barriers to entry could adversely impact our production costs, customer demand and our relationships with customers and suppliers. Any of these consequences could have a material adverse effect on our results of operations, financial condition and cash flows.
Embargoes, sanctions and export controls imposed by the U.S. and other governments restricting or prohibiting transactions with certain persons or entities, including financial institutions, to certain countries or regions, or involving certain products, could limit the sales of our products. Embargoes, sanctions and export control laws are changing rapidly for certain geographies, including with respect to China. In particular, changing U.S. export controls and sanctions on China, as well as other restrictions affecting transactions involving China and Chinese parties, could affect our ability to collect receivables, access cash generated in China, provide aftermarket and warranty support for our products, sell products and otherwise impact our reputation and business, any of which could have a material adverse effect on our results of operations, financial condition and cash flows.
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Deregulation could impair our investments in future products and negatively impact our long-term growth and competitiveness.
Our strategy includes significant investments in the development of new products and technologies, particularly those designed to meet or exceed current and anticipated regulatory requirements related to emissions, safety and environmental performance. Any significant reduction, delay, or elimination of, or failure to adopt or enforce, such regulatory requirements in key markets could reduce or delay demand for our products and services, increase our costs of producing or delay the introduction of new or modified products and services or restrict our existing activities, products, and services. In addition, any discontinuation or reduction of incentives or benefits for the development of technologies limiting the impact of climate change, or significant uncertainty regarding such efforts, may cause demand for certain of our future products to be less than we anticipate. Any such change in regulatory requirements or incentives may ultimately weaken or render obsolete the business case for certain research and development initiatives or capital investments. As a result, we may be required to reassess, scale back or discontinue investments in future products that were originally intended to address more regulatory standards, and may to realize the intended benefits of, or recover the investments we have already made in, developing new products and technologies. In addition, the adoption of new regulations or industry standards which our products and services are not positioned to address, could affect demand for our products and services.
Deregulation or reduction in incentives may also lead to reduced industry-wide innovation, as both we and our competitors could deprioritize or delay the introduction of advanced technologies that are no longer mandated. This could limit our ability to differentiate our products, respond to evolving customer expectations or maintain leadership in markets where regulatory requirements remain in place or are later reinstated. Furthermore, if we have already made substantial investments in anticipation of future regulations that are subsequently rolled back, we may not be able to recover those costs, which could result in asset impairments or reduced returns on investment.
Any of these outcomes could adversely affect our long-term growth prospects, competitive position and financial results.
Unanticipated changes in our effective tax rate, the adoption of new tax legislation or exposure to additional income tax liabilities could adversely affect our profitability.
We are subject to income taxes in the U.S. and numerous international jurisdictions. Our income tax provision and cash tax liability in the future could be adversely affected by changes in tax laws or their interpretations, changes in earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities and the discovery of new information in the course of our tax return preparation process. The carrying value of deferred tax assets, which are predominantly in the U.S., is dependent on our ability to generate future taxable income in the U.S. We are also subject to ongoing tax audits. These audits can involve complex issues, which may require an extended period of time to resolve and can be highly judgmental. Tax authorities may disagree with certain tax reporting positions taken by us and, as a result, assess additional taxes against us. We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax provision. The amounts ultimately paid upon resolution of these or subsequent tax audits could be materially different from the amounts previously included in our income tax provision and, therefore, could have a material impact on our tax provision.
Our global operations are subject to laws and regulations that impose significant compliance costs and create reputational and legal risk.
Due to the international scope of our operations, we are subject to additional regulatory frameworks, including a complex system of commercial and trade regulations, around the world. In some cases, foreign regulatory frameworks are more stringent or complex than similar regimes in the U.S. Recent years have seen an increase in the development and enforcement of laws regarding trade compliance and anti-corruption, such as the U.S. Foreign Corrupt Practices Act and similar laws from other countries and expected global sustainability regulations, as well as new regulatory requirements regarding data privacy, such as the European Union General Data Protection Regulation. These new and emerging regulations are likely to require significant resources and data management systems and could increase our cost of doing business, restrict our ability to operate our business or execute our strategies and could result in fines and penalties or reputational harm if we do not fully comply.
Our numerous foreign subsidiaries, affiliates and joint venture partners are governed by laws, rules and business practices that differ from those of the U.S. The activities of these entities may not comply with U.S. laws or business practices or our Code of Business Conduct. Violations of these laws may result in severe criminal or civil sanctions, could disrupt our business and result in an adverse effect on our reputation, business and results of operations, financial condition and cash flows. We cannot predict the nature, scope or effect of future regulatory requirements to which our operations might be subject or the manner in which existing laws might be administered or interpreted.
Future bans or limitations on the use of diesel-powered vehicles or other applications could have a material adverse impact on our business over the long term.
In an effort to limit GHG emissions and combat climate change, multiple countries and cities have announced that they plan to implement a ban on the use in their countries or cities of diesel-powered products in the near or distant future. These countries include
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China, India and Germany. In addition, California government officials have called for the state to phase out sales of certain diesel-powered vehicles by 2035. To the extent that these types of bans are actually implemented in the future on a broad basis, or in one or more of our key markets, our diesel business over the long-term could experience material adverse impacts.
BUSINESS CONDITIONS / DISRUPTIONS
We are vulnerable to raw material, transportation and labor price fluctuations and supply shortages, which impacted and could continue to impact our results of operations, financial condition and cash flows.
We continue to experience pockets of supply chain disruptions and related challenges throughout the supply chain which are further impacted by the current global tariff environment. We single source a number of parts and raw materials critical to our business operations. Any delay in our suppliers' deliveries may adversely affect our operations at multiple manufacturing locations, forcing us to seek alternative supply sources to avoid serious disruptions. Delays may be caused by factors affecting our suppliers (including, but not limited to, raw material availability, capacity constraints, port congestion, labor disputes or unrest, shortages of labor, economic downturns, availability of credit, impaired financial condition, sanctions/tariffs, restrictions on the sale or distribution of rare earth metals, energy inflation/availability, suppliers' allocations to other purchasers, weather emergencies, natural , acts of government or acts of war or terrorism). The effects of climate change, including extreme weather events, long-term changes in temperature levels and water availability may these risks. Any extended in receiving supplies could our ability to deliver products to our customers and have a material effect on our results of operations, financial condition and cash flows.
In addition, the current economic environment has resulted, and may continue to result, in price volatility and increased levels of inflation of many of our raw material, transportation and other costs. In particular, increased levels of inflation, fluctuating interest rates and concerns regarding a potential economic recession may result in increased operating costs and/or decreased levels of profitability. Further, the labor market for skilled manufacturing remains tight, and our labor costs have increased as a result. Material, transportation, labor and other cost inflation has impacted and could continue to impact our results of operations, financial condition and cash flows.
We face the challenge of accurately aligning our capacity with our demand.
Our markets are cyclical in nature and we face periods when demand fluctuates significantly higher or lower than our normal operating levels, including variability driven by supply chain inconsistency. Accurately forecasting our expected volumes and appropriately adjusting our capacity are important factors in determining our results of operations and cash flows. We manage our capacity by adjusting our manufacturing workforce, capital expenditures and purchases from suppliers. In periods of weak demand, we may face under-utilized capacity and un-recovered overhead costs, while in periods of strong demand, we may experience unplanned costs and could fail to meet customer demand. We cannot guarantee that we will be able to adequately adjust our manufacturing capacity in response to significant changes in customer demand, which could harm our business. For products where we are manufacturing at capacity, we cannot guarantee that we will be able to increase manufacturing capacity to a level that meets demand for our products and services, which could prevent us from meeting increased customer demand and could our business. However, if we our demand and our capacity, we may have significantly assets and we may experience reduced margins. If we do not accurately align our manufacturing capabilities with demand, it could have a material effect on our results of operations, financial condition and cash flows.
We derive significant earnings from investees that we do not directly control, with more than 50 percent of these earnings from our China-based investees.
For 2025, we recognized $469 million of equity, royalty and interest income from investees, compared to $395 million in 2024. In 2025, nearly fifty percent of our equity, royalty and interest income from investees was from three of our 50 percent-owned joint ventures in China - Chongqing Cummins Engine Company, Ltd., Dongfeng Cummins Engine Company, Ltd. and Beijing Foton Cummins Engine Co., Ltd. Although a significant percentage of our net income is derived from these unconsolidated entities, we do not unilaterally control their management or their operations, which puts a substantial portion of our net income at risk from the actions or inactions of these entities. A significant reduction in the level of contribution by these entities to our net income would likely have a material adverse effect on our results of operations and cash flows.
Our truck manufacturers and OEM customers discontinuing outsourcing their engine supply needs, experiencing financial distress or experiencing a change-in-control of one of our large truck OEM customers, could have a material adverse impact on our results of operations, financial condition and cash flows.
We recognize significant sales of engines and components to a few large on-highway truck OEM customers, which have been an integral part of our positive business results for several years. Many are truck manufacturers or OEMs that manufacture engines for some of their own vehicles. Despite their own engine manufacturing abilities, these customers have historically chosen to outsource certain types of engine production to us due to the quality of our engine products, our emission compliance capabilities, our systems
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integration, their customers' preferences, their desire for cost reductions, their desire for eliminating production risks and their desire to maintain company focus. However, there can be no assurance that these customers will continue to outsource, or outsource as much of, their engine production in the future. In addition, increased levels of OEM vertical integration could result from a number of factors, such as shifts in our customers' business strategies, acquisition by a customer of another engine manufacturer, the inability of third-party suppliers to meet product specifications and the emergence of low-cost production opportunities in foreign countries. Any significant reduction in the level of engine production outsourcing from our truck manufacturer or OEM customers, financial distress of one of our large truck OEM customers due to a change-in-control, could likely lead to significant reductions in our sales volumes, commercial disputes, receivable collection issues and other negative consequences that could have a material adverse impact on our results of operations, financial condition and cash flows.
PRODUCTS AND TECHNOLOGY
Our products are subject to recall for performance or safety-related issues.
Our products are subject to recall for performance or safety-related issues. Product recalls subject us to reputational risk, loss of current and future customers, reduced revenue and product recall costs. Product recall costs are incurred when we decide, either voluntarily or involuntarily, to recall a product through a formal campaign to solicit the return of specific products due to known or suspected performance or safety issues. Any significant product recalls could have material adverse effects on our results of operations, financial condition and cash flows. See NOTE 13, "PRODUCT WARRANTY LIABILITY" to our Consolidated Financial Statements for additional information.
Our products are exposed to variability in material and commodity costs.
Our businesses establish prices with our customers in accordance with contractual time frames; however, the timing of material and commodity market price increases may prevent us from passing these additional costs on to our customers through timely pricing actions. While we customarily enter into financial transactions and contractual pricing adjustment provisions with our customers that attempt to address some of these risks, there can be no assurance that commodity price fluctuations will not adversely affect our results of operations and cash flows. While the use of commodity price hedging instruments and contractual pricing adjustments may provide us with some protection from adverse fluctuations in commodity prices, by utilizing these instruments, we potentially forego the benefits that might result from favorable fluctuations in price. As a result, higher material and commodity costs could result in declining margins.
The development of new technologies may materially reduce the demand for our current products and services, and we may not be successful in developing new technologies and products in order to effectively address the energy transition.
We are investing in new products and technologies, including electrified power systems and related components and subsystems. Given the early stages of development of some of these new products and technologies, there can be no guarantee of the future market acceptance and investment returns with respect to our planned products, which will face competition from an array of other technologies and manufacturers. The ongoing energy transition away from fossil fuels and the increased adoption of electrified powertrains in some market segments could result in lower demand for current diesel or natural gas engines and components and, over time, reduce the demand for related parts and service revenues from diesel or natural gas powertrains. Furthermore, it is possible that we may not be successful in developing segment-leading electrified powertrains. We may face technological challenges and evolving government and customer requirements, and we may not succeed in anticipating them and developing the desired technologies and products on a timely basis. Some of our existing customers could choose to develop their own or source from other manufacturers. Additionally, competitors may develop these technologies and products before we do, and they may be viewed by our customers to be superior to technologies and products we may develop.
If the energy transition landscape changes faster than anticipated or in a manner that we do not anticipate, demand for our products and services, as well as our relationships with various stakeholders, could be adversely affected. Alternatively, if the energy transition occurs more slowly than anticipated, demand for our new products and technologies may be lower than expected or we may need to reassess, scale back or discontinue investments in future products, and as a result, we may fail to realize the anticipated benefits of our investments in new products and technologies. Furthermore, if we fail or are perceived to not effectively implement an energy transition strategy, or if investors or financial institutions shift funding away from companies in fossil fuel-related industries, our access to capital or the market for our securities could be negatively impacted.
Any of these factors could have a material adverse impact on our results of operations, financial condition and cash flows.
Lower-than-anticipated market acceptance of our new or existing products or services could have a material adverse impact on our results of operations, financial condition and cash flows.
Although we conduct market research before launching new or refreshed engines and introducing new services, many factors both within and outside our control affect the success of new or existing products and services in the marketplace. Offering engines and
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services that customers desire and value can mitigate the risks of increasing competition and declining demand, but products and services that are perceived to be less than desirable (whether in terms of price, quality, overall value, fuel efficiency or other attributes) can exacerbate these risks. With increased consumer interconnectedness through the internet, social media and other media, mere allegations relating to poor quality, safety, fuel efficiency, corporate responsibility or other key attributes can negatively impact our reputation or market acceptance of our products or services, even if such allegations prove to be inaccurate or unfounded.
Our business is exposed to potential product liability claims.
We face an inherent business risk of exposure to product liability claims in the event that our products' failure to perform to specification results, or is alleged to result, in property damage, bodily injury and/or death. At any given time, we are subject to various and multiple product liability claims, any one of which, if decided adversely to us, may have a material adverse effect on our reported results of operation in the period in which our liability with respect to any such claim is recognized. While we maintain insurance coverage with respect to certain product liability claims, we may not be able to obtain such insurance on acceptable terms in the future, if at all, and any such insurance may not provide adequate coverage against product liability claims. In addition, product liability claims can be expensive to and can the attention of management and other personnel for significant periods of time, regardless of the ultimate outcome. Furthermore, even if we are in a claim relating to our products, of this nature could cause our customers to confidence in our products and us.
GENERAL
We may be adversely impacted by the effects of climate change and may incur increased costs and experience other impacts due to new or more stringent climate change regulations, accords, mitigation efforts, GHG regulations or other legislation designed to address climate change.
The scientific consensus indicates that emissions of GHG continue to alter the composition of Earth’s atmosphere in ways that are affecting, and are expected to continue to affect, the global climate. The potential impacts of climate change on our customers, product offerings, operations, facilities and suppliers are accelerating and uncertain, as they will be particular to local and customer-specific circumstances. These potential impacts may include, among other items, physical long-term changes in freshwater availability and the frequency and severity of weather events as well as customer product changes either through preference or regulation.
Concerns regarding climate change may lead to additional international, national, regional and local legislative and regulatory responses, accords and mitigation efforts. Various stakeholders, including legislators and regulators, shareholders and non-governmental organizations, are continuing to look for ways to reduce GHG emissions, and consumers are increasingly demanding products and services resulting in lower GHG emissions. We could face risks to our brand reputation, investor confidence and market share due to an inability to innovate and develop new products that decrease GHG emissions. Increased input costs, such as fuel, utility, transportation and compliance-related costs, could increase our operating costs and negatively impact customer operations and demand for our products. As the impact of any additional future climate related legislative or regulatory requirements on our global businesses and products is dependent on the timing, scope and design of the mandates or standards, we are currently unable to predict its potential impact, which could have a material adverse effect on our results of operations, financial condition and cash flows.
Climate change may exacerbate the frequency and intensity of natural disasters and adverse weather conditions, which may cause disruptions to our operations, including disrupting manufacturing, distribution and our supply chain.
Our plan to reposition our portfolio of product offerings through exploration of strategic acquisitions, divestitures or exiting the production of certain product lines or product categories may expose us to additional costs and risks.
Part of our strategic plan is to improve our revenue growth, gross margins and earnings by exploring the repositioning of our portfolio of product line offerings through the pursuit of potential strategic acquisitions, divestitures and/or exiting the production of certain product lines or product categories to provide future strategic, financial and operational benefits and improve shareholder value. There can be no assurance that we will be able to identify suitable candidates or consummate these transactions on favorable terms. The successful identification and completion of any strategic transaction depends on a number of factors that are not entirely within our control, including the availability of suitable candidates and our ability to negotiate terms acceptable to all parties involved, conclude satisfactory agreements and obtain all necessary regulatory approvals. Accordingly, we may not be able to successfully negotiate and complete specific transactions. The exploration, negotiation and consummation of strategic transactions may involve significant expenditures by us, which may affect our results of operations at the time such expenses are incurred, and may management’s attention from our existing business. Strategic transactions also may have effects on our existing business relationships with suppliers and customers.
If required, the financing for strategic acquisitions could result in an increase in our indebtedness, dilute the interests of our shareholders or both. Any acquisition may not be accretive to us for a significant period of time following the completion of such acquisition. Also, our ability to effectively integrate any potential acquisition into our existing business and culture may not be successful, which could jeopardize future financial and operational performance for the combined businesses. In addition, if an
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acquisition results in any additional goodwill or increase in other intangible assets on our balance sheet and subsequently becomes impaired, we would be required to record a non-cash impairment charge, which could result in a material adverse effect on our financial condition.
Similarly, any strategic divestiture of a product line or business or exit of a product line or product category may reduce our revenue and earnings, reduce the diversity of our business, result in material costs and expenses and cause disruption to our employees, customers, vendors and communities in which we operate.
Our business and operations are subject to interest rate risks, and changes in interest rates can reduce demand for our products and increase borrowing costs and result in non-cash charges
Rising interest rates could have a dampening effect on overall economic activity and/or the financial condition of our customers, either or both of which could negatively affect customer demand for our products and our customers’ ability to repay obligations to us. Rising interest rates may increase our cost of capital, which could have material adverse effects on our financial condition and cash flows. Rising interest rates could also impact certain goodwill assets requiring non-cash impairment charges, which could have a material adverse impact on our earnings.
We operate in challenging markets for talent and may fail to attract, develop and retain key personnel.
We depend on the skills, institutional knowledge, working relationships, and continued services and contributions of key personnel, including our leadership team and others at all levels of the company, as a critical part of our human capital resources. In addition, our ability to achieve our operating and strategic goals depends on our ability to identify, hire, train and retain qualified individuals. We compete with other companies both within and outside of our industry for talented personnel in a highly competitive labor market, and we may lose key personnel or fail to attract other talented personnel. Any such loss or failure could have material adverse effects on our results of operations, financial condition and cash flows.
Our IT environment and our products are exposed to potential security breaches or other disruptions, which may adversely impact our competitive position, reputation, results of operations, financial condition and cash flows.
We rely on the capacity, reliability and security of our IT environment and data security infrastructure in connection with various aspects of our business activities. We also rely on our ability to expand and continually update these technologies and related infrastructure in response to the changing needs of our business. As we implement new technologies, they may not perform as expected. We face the challenge of supporting our older technologies and implementing necessary upgrades. In addition, some of these technologies are managed by third-party service providers and are not under our direct control. If we experience a problem with an important technology, including during upgrades and/or new implementations of technologies, the resulting disruptions could have an adverse effect on our business and reputation. As customers adopt and rely on cloud-based digital technologies and services we offer, any disruption of the confidentiality, integrity or availability of those services could have an adverse effect on our business and reputation.
The data handled by our technologies is vulnerable to security threats. Our operations routinely involve receiving, storing, processing and transmitting sensitive information pertaining to our business, customers, dealers, suppliers, employees and other sensitive matters. As such, our IT environment faces information technology security threats, such as security breaches, computer malware, ransomware attacks and other "cyber attacks," which are increasing in both frequency and sophistication, along with power outages or hardware failures. Increasing use of AI may increase these risks. These threats could result in unauthorized public disclosures of information, create financial liability, subject us to legal or regulatory sanctions, disrupt our ability to conduct our business, result in the loss of intellectual property or damage our reputation with customers, dealers, suppliers and other stakeholders. As the result of changing market conditions, a large percentage of our salaried employees continue to work remotely full or part-time. This remote working environment may pose a heightened risk for security or other of our IT environment.
In addition, our products, including our engines, contain interconnected and increasingly complex technologies that control various processes, and these technologies are potentially subject to "cyber attacks" and disruption. The impact of a significant IT event on either our IT environment or our products could have a material adverse effect on our competitive position, reputation, results of operations, financial condition and cash flows.
We are using AI in our business and in our products, services and features, and challenges with properly managing its use could result in reputational harm, competitive harm and legal liability, and adversely affect our results of operations.
We are incorporating AI solutions into our business, products, services and features, and we are leveraging AI, including generative AI, machine learning and similar tools and technologies, in our product development, operations and software programming. There is inherent risk and uncertainty involved in using AI. The use of AI in the development of our products and services could cause loss or theft of intellectual property, as well as subject us to risks related to intellectual property infringement or misappropriation, data privacy and cybersecurity. The use of AI by us, our vendors or our suppliers can lead to unintended consequences, including
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generating content that appears correct but is factually inaccurate, misleading or otherwise flawed, or that results in unintended biases and discriminatory outcomes, which could harm our stakeholders, our reputation and our business and expose us to risks related to inaccuracies or errors in the output of such technologies. If the AI tools that we use are deficient, inaccurate or controversial, we could incur operational inefficiencies, competitive harm, legal liability, brand or reputational harm, or other adverse impacts on our business and financial results. If we do not have sufficient rights to use the data or other material or content on which the AI tools we use rely, we also may incur liability through the of applicable laws and regulations, third-party intellectual property, data privacy, or other rights or contracts to which we are a party. In addition, our personnel could, unbeknownst to us, utilize AI and machine learning-technology while carrying out their responsibilities.
If we fail to keep pace with rapidly evolving technological developments in AI, our competitive position and business results may suffer. Our competitors or other third parties may incorporate AI into their products or operational processes more quickly or more successfully than us, which could have a material adverse effect on our competitive position, reputation and results of operations.
In addition, there are significant risks involved in developing and deploying AI, and there can be no assurance that the usage of AI will enhance our products or services or be beneficial to our business, including our efficiency or profitability. The rapid evolution of AI, including the regulation of AI by government or other regulatory agencies, will require significant resources to develop, test and maintain our platforms, offerings, services and features to implement AI ethically and minimize any unintended harmful impacts.
We are exposed to political, economic and other risks that arise from operating a multinational business. Greater political, economic and social uncertainty, among, between and within countries, and the evolving globalization of businesses could significantly change the dynamics of our competition, customer base and product offerings and impact our growth globally.
Our business is subject to the political, economic and other risks that are inherent in operating in numerous countries. These risks include:
• economic and political instability, including international conflicts, war, acts of terrorism or the threat thereof, political or labor unrest, civil unrest, riots, insurrections or trade wars;
• potential changes to, uncertainty around or repeal of certain environmental laws and regulations, potentially slowing adoption of technologies we are investing in and developing;
• the difficulty of enforcing agreements and collecting receivables through foreign legal systems;
• trade protection measures and import or export licensing requirements;
• the imposition of taxes on foreign income and tax rates in certain foreign countries that exceed those in the U.S.;
• the imposition of tariffs, exchange controls or other restrictions;
• difficulty in staffing and managing widespread operations and the application of foreign labor regulations;
• public health crises, including the spread of a contagious disease, such as future pandemics or epidemics, quarantines or shutdowns related to public health crises, and other catastrophic events;
• required compliance with a variety of foreign laws and regulations; and
• changes in general economic and political conditions, including changes in relationship with the U.S., in countries where we operate, particularly in China and emerging markets.
As we continue to operate and grow our business globally, our success will depend, in part, on our ability to anticipate and effectively manage these and other related risks. There can be no assurance that the consequences of these and other factors relating to our multinational operations will not have a material adverse effect upon us.
In addition, there continues to be significant uncertainty about the future relationships between the U.S. and China, including with respect to trade policies, treaties, government regulations and tariffs. Any increased trade barriers or restrictions on global trade, especially trade with China, could adversely impact our competitive position, results of operations, financial condition and cash flows.
We face significant competition in the regions we serve.
The markets in which we operate are highly competitive. We compete worldwide with a number of other manufacturers and distributors that produce and sell similar products. We primarily compete with diesel engines and related diesel products; however, new technologies continue to be developed for gasoline, natural gas, hydrogen, electrification and other technologies, and we will continue to face new competition from these expanding technologies. Our products primarily compete on the basis of performance, price, total cost of ownership, fuel economy, emissions compliance, speed of delivery, quality and customer support. We also face competitors in some emerging regions who have established local practices and long standing relationships with participants in these
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markets. Additionally, we face increasing competition to develop innovative products that result in lower emissions. There can be no assurance that our products will be able to compete successfully with the products of other companies and in other markets.
Increasing global competition among our customers may affect our existing customer relationships and restrict our ability to benefit from some of our customers' growth.
As our customers in emerging markets continue to grow in size and scope, they are increasingly seeking to export their products to other countries. This has meant greater demand for our advanced engine technologies to help these customers meet the more stringent emissions requirements of developed markets, as well as greater demand for access to our distribution systems for purposes of equipment servicing. As these emerging market customers enter into, and begin to compete in more developed markets, they may increasingly begin to compete with our existing customers in these markets. Our further aid to emerging market customers could adversely affect our relationships with developed market customers. In addition, to the extent the competition does not correspond to overall growth in demand, we may see little or no benefit from this type of expansion by our emerging market customers.
Failure to meet sustainability expectations or standards, or to achieve our sustainability goals, could adversely affect our business, results of operations and financial condition.
In recent years, there has been an increased focus from stakeholders on sustainability matters, including GHG emissions and climate-related risks, renewable energy, water stewardship, waste management, diversity, equity and inclusion, responsible sourcing and supply chain, human rights and social responsibility. Given our commitment to certain sustainability principles, we actively manage these issues and have established and publicly announced certain goals, commitments and targets which we may refine, or even expand further, in the future. These goals, commitments and targets reflect our current plans and aspirations and are not guarantees that we will be able to achieve them. Evolving stakeholder expectations and our efforts to manage these issues, report on them and accomplish our goals present numerous operational, regulatory, reputational, financial, legal and other risks, any of which could have a material adverse impact, including on our reputation.
Such risks and uncertainties include:
• reputational harm, including damage to our relationships with customers, suppliers, investors, governments or other stakeholders;
• adverse impacts on our ability to sell and manufacture products;
• the success of our collaborations with third parties;
• increased risk of litigation, investigations or regulatory enforcement actions;
• unfavorable sustainability ratings or investor sentiment;
• diversion of resources and increased costs to control, assess and report on sustainability metrics;
• our ability to achieve our goals, commitments and targets within the timeframes announced;
• access to and increased cost of capital and
• adverse impacts on our stock price.
Any failure, or perceived failure, to meet evolving stakeholder expectations and industry standards or achieve our sustainability goals, commitments and targets could have a material adverse effect on our business, results of operations and financial condition.
We may be adversely impacted by work stoppages and other labor matters.
At December 31, 2025, we employed approximately 67,400 persons worldwide. Approximately 20,000 of our employees worldwide were represented by various unions under collective bargaining agreements that expire between 2026 and 2030.While we have no reason to believe that we will be materially impacted by work stoppages or other labor matters, there can be no assurance that future issues with our labor unions will be resolved favorably or that we will not encounter future strikes, work stoppages, or other types of conflicts with labor unions or our employees. Any of these consequences may have an adverse effect on us or may limit our flexibility in dealing with our workforce. In addition, many of our customers and suppliers have unionized work forces. Work stoppages or slowdowns experienced by us, our customers or suppliers could result in slowdowns or closures that would have a material adverse effect on our results of operations, financial condition and cash flow.
We are subject to foreign currency exchange rate and other related risks.
We conduct operations in many areas of the world involving transactions denominated in a variety of currencies. We are subject to foreign currency exchange rate risk to the extent that our costs are denominated in currencies other than those in which we earn
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revenues. In addition, since our financial statements are denominated in U.S. dollars, changes in foreign currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, an impact on our results of operations, financial condition and cash flows.
We also face risks arising from the imposition of foreign exchange controls and currency devaluations. Foreign exchange controls may limit our ability to convert foreign currencies into U.S. dollars or to remit dividends and other payments by our foreign subsidiaries or businesses located in or conducted within a country imposing controls. Currency devaluations result in a diminished value of funds denominated in the currency of the country instituting the devaluation. See Management's Discussion and Analysis for additional information.
Significant declines in future financial and stock market conditions could diminish our pension plan asset performance and adversely impact our results of operations, financial condition and cash flow.
We sponsor both funded and unfunded domestic and foreign defined benefit pension and other retirement plans. Our pension cost and the required contributions to our pension plans are directly affected by the value of plan assets, the projected and actual rates of return on plan assets and the actuarial assumptions we use to measure our defined benefit pension plan obligations, including the discount rate at which future projected and accumulated pension obligations are discounted to a present value. We could experience increased pension cost due to a combination of factors, including the decreased investment performance of pension plan assets, decreases in the discount rate and changes in our assumptions relating to the expected return on plan assets.
Significant declines in current and future financial and stock market conditions could cause material losses in our pension plan assets, which could result in increased pension cost in future years and adversely impact our results of operations, financial condition and cash flow. Depending upon the severity and length of market declines and government regulatory changes, we may be legally obligated to make pension payments in the U.S. and perhaps other countries, and these contributions could be material.
We are exposed to risks arising from the price and availability of energy.
The level of demand for our products and services is influenced in multiple ways by the price and availability of energy. High energy costs generally drive greater demand for better fuel economy in almost all countries in which we operate. Some of our engine products have been developed with a primary purpose of offering fuel economy improvements, and if energy costs decrease or increase less than expected, demand for these products may likewise decrease. The relative unavailability of electricity in some emerging market countries also influences demand for our electricity generating products, such as our diesel generators. If these countries add energy capacity by expanding their power grids at a rate equal to or faster than the growth in demand for energy, the demand for our generating products could also decrease or increase less than would otherwise be the case.
ITEM 1B. Unresolved Staff Comments
None.
ITEM 1C. Cybersecurity
Material Cybersecurity Risks, Threats and Incidents
To date, we have not experienced a cybersecurity incident that has materially impacted our business. The risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially affected and are not reasonably likely to materially affect us , including our business strategy, results of operations or financial condition. Additional information on cybersecurity risks we face is discussed in Part I, Item 1A “Risk Factors” under the heading “General,” which should be read in conjunction with the foregoing information.
Cybersecurity Governance
We are committed to protecting our IT assets and the data stored within these assets. This commitment includes the protection of cyber assets relevant to our operations, stakeholder data (including employee, customer and supplier data), intellectual property and our products.
The Enterprise Cybersecurity function, which is responsible for the administration of our enterprise cybersecurity program, is led by the Chief Information Security Officer, who holds a degree in Management Information Systems (MIS) and a Certified Information Security Manager (CISM) designation, and has more than 20 years of IT, cybersecurity, audit and risk management experience in the industrial manufacturing industry. The Chief Information Security Officer reports to our Chief Information Officer. These leaders provide regular updates, at least quarterly, to the Audit Committee of the Board on cybersecurity risks. Through these updates, the Audit Committee receives a cybersecurity dashboard illustrating cybersecurity priorities and the status of key initiatives.
The Product Cybersecurity function, which is responsible for the administration of our product cybersecurity program, is led by the Principal Engineer – Product Cybersecurity, who is a Cybersecurity Certified Automotive Engineer (CSCAE) and has more than 40
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years of embedded electronic systems design experience. The Principal Engineer – Product Cybersecurity works directly with the Chief Technical Officer. These leaders provide regular updates to the SET Committee of the Board on product-related cybersecurity risks. Through these updates, the SET Committee receives a report discussing product-level vulnerability management, product-level incident management and the status of relevant product cybersecurity activities.
Our processes for oversight of cybersecurity risks are integrated into our Enterprise Risk Management (ERM) program , which is led by the Executive Director, Global Risk. To govern the ERM program, we established an Executive Risk Council that meets regularly to review and monitor our most significant enterprise risks, and our prevention, detection and mitigation plans, including with respect to cybersecurity. The Executive Risk Council is comprised of senior leaders with cross-functional experience and responsibilities.
Our Board and its committees are engaged in the oversight of our most significant enterprise risks, including cybersecurity risks. We assign a member of our executive management team to report material information to our Board regarding these risks. The Audit Committee, working with the Chief Information Officer, provides oversight of the enterprise cybersecurity program. The SET Committee, working with the Chief Technical Officer, provides oversight of the product cybersecurity program.
Our Board, Audit Committee and SET Committee receive reports and information from our senior leaders who have functional responsibility for the mitigation of enterprise cybersecurity and product cybersecurity risks. These leaders meet with the committees on a regular basis and provide dashboards or reports, which summarize cybersecurity risks and action plans. The committees elevate matters to the Board as appropriate.
Cybersecurity Risk Management and Strategy
We have an Enterprise Cybersecurity Management Review Group (Enterprise Cybersecurity MRG), which functions as a steering committee to provide oversight and strategic direction for the enterprise cybersecurity program. The Enterprise Cybersecurity MRG is comprised of senior leaders with cross-functional experience and responsibilities. This MRG meets regularly with our Chief Information Security Officer to review the enterprise cybersecurity program and related risks. The MRG receives updates on the status of key cybersecurity initiatives and is responsible for our response to material cybersecurity incidents. For material cybersecurity incidents, our process is to escalate through the MRG to the Audit Committee and Board.
We have a Product Cybersecurity Management Review Group (Product Cybersecurity MRG), which functions as a steering committee to provide oversight and strategic direction for the product cybersecurity program. The Product Cybersecurity MRG is comprised of senior leaders with cross-functional experience and responsibilities. The Product Cybersecurity MRG meets regularly with the Principal Engineer – Product Cybersecurity to review the product cybersecurity program, including risks and the status of key initiatives.
Both the Enterprise and Product Cybersecurity functions administer policies related to cybersecurity in consultation with other stakeholders at the company. Our risk-based cybersecurity program is designed to protect, detect and respond to cybersecurity threats and incidents. This program, developed alongside the National Institute of Standards and Technology Cybersecurity Framework, aims to protect the confidentiality, integrity and availability of our IT assets and the data stored thereon. We also have a third-party risk management process, which is designed to assess and manage cybersecurity risks posed by third parties. This process is administered by the Enterprise Cybersecurity function, and through this program, the company evaluates the type of data that is shared with certain vendors with the goal of conducting risk-informed assessments. These assessments provide insights which the Enterprise Cybersecurity function uses to better manage third-party risks.
A cybersecurity operations team is in place to regularly monitor the environment for cybersecurity threats and incidents. We have incident response plans to assess and manage cybersecurity incidents. These plans include escalation procedures based on the nature and severity of the incident. The most critical incidents, which could be material to us, are escalated to executive management and the Enterprise Cybersecurity MRG. In addition, cyber insurance is in place, which may mitigate the impact of cybersecurity incidents.
We engage outside experts where appropriate to aid in maturing, implementing and testing the cybersecurity program and to review our cybersecurity operations. This includes incident response testing through tabletop exercises facilitated by external consultants. We have implemented training and awareness programs to educate our employees on cybersecurity risks, which includes regular educational phishing campaigns, and our Internal Audit function performs regular assessments of the design and operational effectiveness of the program’s key processes and controls. We will continue to develop and mature our cybersecurity operations to respond to the dynamic cybersecurity landscape.
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ITEM 2. Properties
Manufacturing Facilities
Our principal manufacturing facilities by segment are as follows:
Segment
U.S. Facilities
Facilities Outside the U.S.
Engine
Indiana: Columbus
Brazil: Sao Paulo
New York: Lakewood
India: Phaltan
North Carolina: Whitakers
Mexico: San Luis Potosi
U.K.: Darlington
Components
Indiana: Columbus
Brazil: Sao Paulo
North Carolina: Fletcher, Laurinburg
China: Wuxi
South Carolina: Charleston, York
India: Phaltan
Wisconsin: Mineral Point
Italy: Cameri
Mexico: Ciudad Juarez, Monterrey, San Luis Potosi
Netherlands: Roermond
Sweden: Lindesberg
U.K.: Darlington, Huddersfield
Power Systems
Indiana: Elkhart, Seymour
Brazil: Sao Paulo
Minnesota: Fridley
China: Wuhan, Wuxi
New Mexico: Clovis
India: Ahmednagar, Phaltan, Pune, Ranjangaon
Wisconsin: Kenosha
Mexico: San Luis Potosi
Romania: Craiova
U.K.: Daventry
Accelera
Indiana: Columbus
Belgium: Oevel
Minnesota: Fridley
Canada: Mississauga
North Carolina: Fletcher, Forest City
China: Tianjin
Germany: Herten
Spain: Guadalajara
In addition, engines and engine components are manufactured by joint ventures or independent licensees at manufacturing plants in the U.S., China, India, Japan, Sweden, U.K. and Mexico.
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Distribution Facilities
The principal distribution facilities that serve our segments are as follows:
U.S. Facilities
Facilities Outside the U.S.
Arizona: Avondale
Australia: Mackay, Perth
Colorado: Henderson
Canada: Fort McMurray, Sparwood
Kentucky: Florence (1)
China: Beijing
New Jersey: Kearny
India: Pune
Utah: West Valley City
South Africa: Johannesburg
U.K.: Wellingborough
(1) Florence is a Components distribution facility.
Supply Chain Facilities
The principal supply chain facilities that serve our segments are as follows:
U.S. Facilities
Facilities Outside the U.S.
Georgia: Atlanta
Belgium: Rumst
Indiana: Columbus, Indianapolis, Whiteland
Brazil: Guarulhos
Nevada: Las Vegas
China: Beijing, Shanghai, Wuhan
Oregon: Portland
India: Phaltan, Pithampur
Pennsylvania: Harrisburg
Mexico: San Luis Potosi
Tennessee: Memphis
Singapore: Pandan Avenue
Texas: Dallas
South Africa: Johannesburg
U.K.: Daventry
Other Facilities
We operate numerous management, research and development, marketing and administrative facilities globally.
ITEM 3. Legal Proceedings
The matters described under “Legal Proceedings” in NOTE 14, “COMMITMENTS AND CONTINGENCIES,” to our Consolidated Financial Statements are incorporated herein by reference.
ITEM 4. Mine Safety Disclosures
Not Applicable.
PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the NYSE under the symbol “CMI.” For other matters related to our common stock and shareholders’ equity, see NOTE 15, “CUMMINS INC. SHAREHOLDERS' EQUITY,” to our Consolidated Financial Statements .
At December 31, 2025, there were 2,136 holders of record of Cummins Inc.'s $2.50 par value common stock.
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The following information is provided pursuant to Item 703 of Regulation S-K:
Issuer Purchases of Equity Securities
Period
Total
Number of
Shares
Purchased
Average
Price Paid
per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced
Plans or Programs
Approximate
Dollar Value of Shares
that May Yet Be
Purchased Under the
Plans or Programs
(in millions) (1)
October 1 - October 31
November 1 - November 30
December 1 - December 31
Total
(1) Shares repurchased under our Key Employee Stock Investment Plan only occur in the event of a participant default, which cannot be predicted, and were excluded from this column.
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. During the three months 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.
Our Key Employee Stock Investment Plan allows certain employees, other than officers, to purchase shares of common stock on an installment basis up to an established credit limit. We hold participants’ shares as security for the loans and would, in effect, repurchase shares only if the participant defaulted in repayment of the loan. Shares associated with participants' sales are sold as open-market transactions via a third-party broker.
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Performance Graph (Unaudited)
The following Performance Graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any of our future filings under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.
The following graph compares the cumulative total shareholder return on our common stock for the last five years with the cumulative total return on the S&P 500 Index and an index of peer companies selected by us. Our peer group includes AB Volvo, BorgWarner Inc., Caterpillar, Inc., Daimler Truck Holding AG, Dana Inc., Deere & Company, Eaton Corporation, Emerson Electric Co., Honeywell International, Illinois Tool Works Inc., PACCAR, Parker-Hannifin Corporation and Textron Inc. Daimler Truck Holding AG is excluded from the peer index in the following graph due to the corporate split and public filing in December 2021. Each of the measures of cumulative total return assumes reinvestment of dividends. The comparisons in this table are required by the SEC and are not intended to forecast or be indicative of possible future performance of our stock.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
AMONG CUMMINS INC., S&P 500 INDEX AND CUSTOM PEER GROUP
ASSUMES $100 INVESTED ON DECEMBER 31, 2020
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING DECEMBER 31, 2025
ITEM 6. [Reserved]
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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 and operating cash flows during 2025. Continued and increasing tariff costs, the effectiveness of our mitigation efforts and the resulting market could materially and 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
Net sales
Net income attributable to Cummins Inc.
Earnings per common share attributable to Cummins Inc.
Basic
Diluted
(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,
In millions
Amount
Percent
Amount
Percent
United States and Canada
International
Total net sales
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 ,” 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
Percent change
Percent
of Total
Percent
of Total
In millions
Sales
EBITDA
Sales
EBITDA
Sales
EBITDA
Engine
Components
Distribution
Power Systems
Accelera
Total segments
Intersegment eliminations
Total
“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,
In millions (except per share amounts)
Amount
Percent
Amount
Percent
NET SALES
Cost of sales
GROSS MARGIN
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses
Research, development and engineering expenses
Equity, royalty and interest income from investees
Other operating expense, net
OPERATING INCOME
Interest expense
Other income, net
INCOME BEFORE INCOME TAXES
Income tax expense
CONSOLIDATED NET INCOME
Less: Net income attributable to noncontrolling interests
NET INCOME ATTRIBUTABLE TO CUMMINS INC .
Diluted earnings per common share attributable to Cummins Inc.
“NM” - not meaningful information
Favorable/(Unfavorable) Percentage Points
Percent of sales
Gross margin
Selling, general and administrative expenses
Research, development and engineering expenses
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
Accelera actions (1)
Amortization of intangible assets
Loss on write-off of assets
Royalty income, net
Other, net
Total other operating expense, net
(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
Interest income
Non-service pension and OPEB income
Gain on corporate owned life insurance
Gain on sale of marketable securities, net
Foreign currency gain (loss), net
Gain related to divestiture of Atmus (1)
Other, net
Total other income, net
(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.
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,
In millions
Translation adjustment
Primary currency driver vs. U.S. dollar
Translation adjustment
Primary currency driver vs. U.S. dollar
Wholly-owned subsidiaries
Euro, British pound and Brazilian real
Brazilian real, Chinese renminbi, Euro and Indian rupee
Equity method investments
Chinese renminbi, partially offset by Indian rupee
Chinese renminbi and Brazilian real, partially offset by Indian rupee
Consolidated subsidiaries with a noncontrolling interest
Indian rupee, partially offset by Euro
Indian rupee
Total
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,
In millions
Amount
Percent
Amount
Percent
External sales
Intersegment sales
Total sales
Research, development and engineering expenses
Equity, royalty and interest income from investees
Interest income
Segment EBITDA
Percentage Points
Percentage Points
Segment EBITDA as a percentage of total sales
"NM" - not meaningful information
Sales for our Engine segment by market were as follows:
Favorable/(Unfavorable)
Years ended December 31,
In millions
Amount
Percent
Amount
Percent
Heavy-duty truck
Medium-duty truck and bus
Light-duty automotive
Total on-highway
Off-highway
Total sales
Percentage Points
Percentage Points
On-highway sales as percentage of total sales
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,
Amount
Percent
Amount
Percent
Heavy-duty
Medium-duty
Light-duty
Total unit shipments
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,
In millions
Amount
Percent
Amount
Percent
External sales
Intersegment sales
Total sales
Research, development and engineering expenses
Equity, royalty and interest income from investees
Interest income
Segment EBITDA
Percentage Points
Percentage Points
Segment EBITDA as a percentage of total sales
(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,
In millions
Amount
Percent
Amount
Percent
Drivetrain and braking systems
Emission solutions
Components and software
Automated transmissions
Atmus
Total sales
(1) Included sales through the March 18, 2024 divestiture.
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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,
In millions
Amount
Percent
Amount
Percent
External sales
Intersegment sales
Total sales
Research, development and engineering expenses
Equity, royalty and interest income from investees
Interest income
Segment EBITDA
Percentage Points
Percentage Points
Segment EBITDA as a percentage of total sales
Sales for our Distribution segment by region, were as follows:
Favorable/(Unfavorable)
Years ended December 31,
In millions
Amount
Percent
Amount
Percent
North America
Europe
Asia Pacific
China
India
Latin America
Africa and Middle East
Total sales
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Sales for our Distribution segment by product line were as follows:
Favorable/(Unfavorable)
Years ended December 31,
In millions
Amount
Percent
Amount
Percent
Power generation
Parts
Service
Engines
Total sales
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,
In millions
Amount
Percent
Amount
Percent
External sales
Intersegment sales
Total sales
Research, development and engineering expenses
Equity, royalty and interest income from investees
Interest income
Segment EBITDA
Percentage Points
Percentage Points
Segment EBITDA as a percentage of total sales
"NM" - not meaningful information
Sales for our Power Systems segment by product line were as follows:
Favorable/(Unfavorable)
Years ended December 31,
In millions
Amount
Percent
Amount
Percent
Power generation
Industrial
Generator technologies
Total sales
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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,
In millions
Amount
Percent
Amount
Percent
External sales
Intersegment sales
Total sales
Research, development and engineering expenses
Equity, royalty and interest loss from investees
Interest income
Segment EBITDA
“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.
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,
December 31,
Working capital (1)
Current ratio
Accounts and notes receivable, net
Days' sales in receivables
Inventories
Inventory turnover
Accounts payable (principally trade)
Days' payable outstanding
Total debt
Total debt as a percent of total capital
(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
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
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.
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
International
Primary location of international balances
Cash and cash equivalents
Singapore, China, Australia, Mexico, Belgium, Romania, France, Germany
Marketable securities (1)
India
Total
Available credit capacity
Revolving credit facilities (2)
International and other uncommitted domestic credit facilities
(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
First quarter
Second quarter
Third quarter
Fourth quarter
Total
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
Defined benefit pension contributions
Defined contribution pension plans
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)
Operating leases (1)
Capital expenditures
Purchase commitments for inventory
Other purchase commitments
Other postretirement benefits
International and other domestic letters of credit
Performance and excise bonds
Guarantees and other commitments
Total
(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
Stable
Moody’s Investors Service, Inc.
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 programs, the liability for such programs is recorded when management commits to a action or when a 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
Liability matching
Risk seeking
Total
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
U.S. plans
U.K. plans
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
Net periodic pension cost
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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
U.S. plans
U.K. plans
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
0.25 percent decrease
Expected rate of return on assets
1 percent increase
1 percent decrease
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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