Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 quarterly 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 from changes in tariffs and other trade disruptions;

• any adverse consequences resulting from entering into agreements with the U.S. Environmental Protection Agency, California Air Resources Board, the Environmental and Natural Resources Division of the 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., 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;

• changes in international, national and regional trade laws, regulations and policies;

• 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;

• lower than expected acceptance of new or existing products or services;

• product liability claims;

• our sales mix of products;

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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 in our business and in our products and challenges with properly managing its use;

• political, economic and other risks from operations in 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 Part II, Item 1A in this quarterly report and our 2024 Form 10-K, Part I, 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 quarterly 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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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 Management's Discussion and Analysis of Financial Condition and Results of Operations section of our 2024 Form 10-K. Our MD&A is presented in the following sections:

• EXECUTIVE SUMMARY AND FINANCIAL HIGHLIGHTS

• RESULTS OF OPERATIONS

• OPERATING SEGMENT RESULTS

• OUTLOOK

• LIQUIDITY AND CAPITAL RESOURCES

• APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

• RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

EXECUTIVE SUMMARY AND FINANCIAL HIGHLIGHTS

Overview

We are a global power solutions leader comprised of five business segments - Engine, Components, Distribution, Power Systems and Accelera - supported by our global manufacturing and extensive service and support network, skilled workforce and vast technical expertise. Our products range from advanced diesel, natural gas, electric and hybrid powertrains and powertrain-related components including aftertreatment, turbochargers, fuel systems, valvetrain technologies, controls systems, air handling systems, automated transmissions, axles, drivelines, brakes, suspension systems, electric power generation systems, electrified power systems with innovative components and subsystems, including battery, fuel cell and electric power technologies and hydrogen production technologies. 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 North America and Stellantis N.V. We serve our customers through a service network of approximately 650 wholly-owned, joint venture and independent distributor locations and more than 19,000 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, fuel cell and electric powertrain technologies as well as hydrogen production 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 and our electrolyzers for hydrogen production. We continue to serve all our markets as they adopt electrification and alternative power technologies, meeting the needs of our OEM partners and end customers.

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

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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, the economy of any single country or customer on our consolidated results.

Escalating Tariff Environment

As disclosed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2024, 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 and trade disruptions (such as embargoes, sanctions and export controls), could adversely impact the demand for our products and our competitive position. The escalating 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. This volatility accelerated late in the first quarter of 2025. 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. This escalation in market volatility did not have a material impact on our first quarter results, but may materially and adversely affect our results of operations, financial condition and cash flows in the future. We will continue work to minimize the related impacts to our business to the extent possible. See the "OUTLOOK" section for a discussion of the potential tariff impacts for the remainder of 2025.

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 $1.3 billion. See NOTE 14, "ATMUS DIVESTITURE," to our Condensed Consolidated Financial Statements for additional information.

2025 First Quarter Results

A summary of our results is as follows:

						Three months ended
						March 31,
In millions, except per share amounts						2025						2024			(1)
Net sales						$	8,174					$	8,403
Net income attributable to Cummins Inc.						824						1,993
Earnings per common share attributable to Cummins Inc.
Basic						$	5.99					$	14.10
Diluted						5.96						14.03
(1) Net income and earnings per common share included the $1.3 billion non-taxable gain associated with the divestiture of Atmus for the three months ended March 31, 2024. See NOTE 14, "ATMUS DIVESTITURE," to our Condensed Consolidated Financial Statements for additional information.

Net income attributable to Cummins Inc. was $824 million, or $5.96 per diluted share, on sales of $8.2 billion for the three months ended March 31, 2025, versus the comparable prior year period net income attributable to Cummins Inc. of $2.0 billion, or $14.03 per diluted share, on sales of $8.4 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, partially offset by improved gross margin. The increase in gross margin was primarily due to favorable pricing and lower material costs, partially offset by the absence of Atmus sales, lower sales and unfavorable mix. See NOTE 14, "ATMUS DIVESTITURE," to our Condensed Consolidated Financial Statements for additional information.

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

						Three months ended												Favorable/
						March 31,												(Unfavorable)
In millions						2025						2024						Amount						Percent
United States and Canada						$	5,054					$	5,111					$	(57)					(1)		%
International						3,120						3,292						(172)						(5)		%
Total net sales						$	8,174					$	8,403					$	(229)					(3)		%

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Worldwide revenues decreased by 3 percent in the three months ended March 31, 2025, compared to the same period in 2024, primarily due to the divestiture of Atmus and weaker demand in on-highway truck markets, partially offset by higher demand in power generation markets, especially data center and commercial markets. International sales (excludes the U.S. and Canada) declined 5 percent primarily due to lower sales in Latin America and Asia Pacific, partially offset by higher sales in China. The decrease in international sales was primarily due to the divestiture of Atmus and lower drivetrain and braking systems sales driven by a weaker European truck market, partially offset by higher power generation demand. Net sales in the U.S. and Canada declined 1 percent primarily due to the divestiture of Atmus and lower demand in on-highway truck markets, partially offset by higher sales in power generation markets, especially data center and commercial markets. Unfavorable foreign currency fluctuations impacted international sales by 4 percent (primarily the Brazilian real, Euro and Indian rupee). See NOTE 14, "ATMUS DIVESTITURE," to our Condensed Consolidated Financial Statements for additional information.

The following table contains sales and EBITDA (defined as earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests) by operating segment for the three months ended March 31, 2025 and 2024. See NOTE 15, "OPERATING SEGMENTS," to our Condensed Consolidated Financial Statements for additional information and a reconciliation of our segment information to the corresponding amounts in our Condensed Consolidated Statements of Net Income.

						Three months ended March 31,
Operating Segments						2025																		2024																		Percent change
												Percent																		Percent												2025 vs. 2024
In millions						Sales						of Total						EBITDA						Sales						of Total						EBITDA						Sales						EBITDA
Engine						$	2,771					28		%				$	458					$	2,928					28		%				$	414					(5)		%				11		%
Components						2,670						26		%				382						3,332						32		%				473						(20)		%				(19)		%
Distribution						2,907						29		%				376						2,535						25		%				294						15		%				28		%
Power Systems						1,649						16		%				389						1,389						14		%				237						19		%				64		%
Accelera						103						1		%				(86)						93						1		%				(101)						11		%				15		%
Total segments						10,100						100		%				1,519						10,277						100		%				1,317						(2)		%				15		%
Intersegment eliminations						(1,926)												(59)						(1,874)												1,255			(1)			3		%				NM
Total						$	8,174											$	1,460					$	8,403											$	2,572		(1)			(3)		%				(43)		%
"NM" - not meaningful information
(1) Intersegment eliminations and total EBITDA included a $1.3 billion gain related to the divestiture of Atmus and total EBITDA included $35 million of costs associated with the divestiture of Atmus for the three months ended March 31, 2024. See NOTE 14, "ATMUS DIVESTITURE," to our Condensed Consolidated Financial Statements for additional information.

2025 Highlights

We used $3 million of cash in operations for the three months ended March 31, 2025, compared to generating $276 million for the comparable period in 2024. See the section titled "Cash Flows" in the "LIQUIDITY AND CAPITAL RESOURCES" section for a discussion of items impacting cash flows.

Our debt to capital ratio (total capital defined as debt plus equity) at March 31, 2025, was 38.5 percent, compared to 38.4 percent at December 31, 2024. The increase was primarily due to higher debt balances at March 31, 2025, partially offset by increased equity balances from strong earnings since December 31, 2024. At March 31, 2025, we had $2.2 billion in cash and marketable securities on hand and access to our $4.0 billion credit facilities (net of $1.7 billion of commercial paper outstanding), if necessary, to meet working capital, investment, acquisition and funding needs.

In the first quarter of 2025, we settled the remaining $350 million of interest rate swaps, at their expiration date, on our debt due in 2025. See NOTE 13, "DERIVATIVES," to our Condensed Consolidated Financial Statements for additional information.

In the first quarter of 2025, we entered into a series of interest rate lock agreements including 5-year and 10-year locks, with notional amounts totaling $200 million and $400 million, respectively, to reduce variability of cash flows of interest payments on debt forecast to be issued in 2025 to replace our senior notes at maturity and for other general purposes. See NOTE 13, "DERIVATIVES," to our Condensed Consolidated Financial Statements for additional information.

In the first three months of 2025, the investment gain on our U.S. pension trusts was 1.6 percent, while our U.K. pension trusts' loss was 1.3 percent. We anticipate making additional defined benefit pension contributions during the remainder of 2025 of $39 million for our U.S. and U.K. qualified and non-qualified pension plans. We expect our 2025 annual net periodic pension cost to approximate $79 million.

As of the date of this filing, our credit ratings and outlooks from the credit rating agencies remain unchanged.

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RESULTS OF OPERATIONS

															Three months ended												Favorable/
															March 31,												(Unfavorable)
						In millions, except per share amounts									2025						2024						Amount						Percent
						NET SALES									$	8,174					$	8,403					$	(229)					(3)		%
						Cost of sales									6,019						6,362						343						5		%
						GROSS MARGIN									2,155						2,041						114						6		%
						OPERATING EXPENSES AND INCOME
						Selling, general and administrative expenses									771						839						68						8		%
						Research, development and engineering expenses									344						369						25						7		%
						Equity, royalty and interest income from investees									131						123						8						7		%
						Other operating expense, net									37						33						(4)						(12)		%
						OPERATING INCOME									1,134						923						211						23		%
						Interest expense									77						89						12						13		%
						Other income, net									60						1,387						(1,327)						(96)		%
						INCOME BEFORE INCOME TAXES									1,117						2,221						(1,104)						(50)		%
						Income tax expense									267						193						(74)						(38)		%
						CONSOLIDATED NET INCOME									850						2,028						(1,178)						(58)		%
						Less: Net income attributable to noncontrolling interests									26						35						9						26		%
						NET INCOME ATTRIBUTABLE TO CUMMINS INC.									$	824					$	1,993					$	(1,169)					(59)		%
						Diluted Earnings Per Common Share Attributable to Cummins Inc.									$	5.96					$	14.03					$	(8.07)					(58)		%

						Three months ended												Favorable/ (Unfavorable)
						March 31,
Percent of sales						2025						2024						Percentage Points
Gross margin						26.4		%				24.3		%				2.1
Selling, general and administrative expenses						9.4		%				10.0		%				0.6
Research, development and engineering expenses						4.2		%				4.4		%				0.2

Net Sales

Net sales for the three months ended March 31, 2025, decreased by $229 million versus the comparable period in 2024. The primary drivers were as follows:

• Components segment sales decreased 20 percent mainly due to the Atmus divestiture on March 18, 2024. See NOTE 14, "ATMUS DIVESTITURE," to our Condensed Consolidated Financial Statements for additional information.

• Engine segment sales decreased 5 percent largely due to lower demand in North American heavy-duty truck markets.

These decreases were partially offset by the following:

• Distribution segment sales increased 15 percent principally due to higher demand in power generation markets, especially in North America.

• Power Systems segment sales increased 19 percent primarily due to higher demand in power generation markets, especially in China and North America.

• Unfavorable foreign currency fluctuations of 2 percent of total sales, primarily in the Brazilian real, Euro and Indian rupee.

Sales to international markets (excludes the U.S. and Canada), based on location of customers, for the three months ended March 31, 2025, were 38 percent of total net sales compared with 39 percent of total net sales for the comparable period in 2024. A more detailed discussion of sales by segment is presented in the “OPERATING 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.

Gross Margin

Gross margin increased $114 million for the three months ended March 31, 2025, and increased 2.1 points as a percentage of net sales versus the comparable period in 2024. The increases in gross margin and gross margin as a percentage of sales were primarily due to favorable pricing and lower material costs, partially offset by the absence of Atmus sales, lower sales and unfavorable mix. See NOTE 14, "ATMUS DIVESTITURE," to our Condensed Consolidated Financial Statements for additional information.

The provision for base warranties issued as a percent of sales for the three months ended March 31, 2025, was 1.9 percent compared to 1.9 percent for the comparable period in 2024.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $68 million for the three months ended March 31, 2025, and decreased 0.6 points as a percentage of net sales versus the comparable period in 2024. The decreases were mainly due to lower compensation and consulting expenses, primarily due to the divestiture of Atmus. Compensation and related expenses included salaries, fringe benefits and variable compensation. See NOTE 14, "ATMUS DIVESTITURE," to our Condensed Consolidated Financial Statements for additional information.

Research, Development and Engineering Expenses

Research, development and engineering expenses decreased $25 million for the three months ended March 31, 2025, and decreased 0.2 points as a percentage of net sales versus the comparable period in 2024. The decreases were mainly due to lower compensation expenses, primarily due to the divestiture of Atmus. Compensation and related expenses included salaries, fringe benefits and variable compensation. See NOTE 14, "ATMUS DIVESTITURE," to our Condensed Consolidated Financial Statements for additional information.

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 and hydrogen production technologies.

Equity, Royalty and Interest Income from Investees

Equity, royalty and interest income from investees increased $8 million for the three months ended March 31, 2025, versus the comparable period in 2024, primarily due to higher royalty and interest income from investees and increased earnings at Chongqing Cummins Engine Co., Ltd., partially offset by the absence of joint venture earnings from the divestiture of Atmus and lower earnings at Sistemas Automotrices de Mexico S.A. de C.V. See NOTE 4, "EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES," and NOTE 14, "ATMUS DIVESTITURE," to our Condensed Consolidated Financial Statements for additional information.

Other Operating Expense, Net

Other operating expense, net was as follows:

						Three months ended
						March 31,
In millions						2025						2024
Amortization of intangible assets						$	(32)					$	(32)
Other, net						(5)						(1)
Total other operating expense, net						$	(37)					$	(33)

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Interest Expense

Interest expense was $77 million for the three months ended March 31, 2025, versus $89 million for the comparable period in 2024. The $12 million decrease was primarily due to lower average debt balances and lower weighted-average interest rates.

Other Income, Net

Other income, net was as follows:

						Three months ended
						March 31,
In millions						2025									2024
Interest income						$	26								$	29
Non-service pension and OPEB income						17									30
Gain on corporate owned life insurance						10									2
Gain on sale of marketable securities, net						4									4
Gain related to divestiture of Atmus (1)						—									1,333
Foreign currency loss, net						(5)									(11)
Other, net						8									—
Total other income, net						$	60								$	1,387
(1) See NOTE 14, "ATMUS DIVESTITURE," to our Condensed Consolidated Financial Statements for additional information.

Income Tax Expense

Our effective tax rate for 2025, excluding discrete items, is expected to approximate 24.5 percent.

Our effective tax rates for the three months ended March 31, 2025 and 2024, were 23.9 percent and 8.7 percent, respectively.

The three months ended March 31, 2025, contained net favorable discrete tax items of $7 million, primarily due to $8 million of favorable share-based compensation tax benefits, partially offset by $1 million of other unfavorable tax items.

The three months ended March 31, 2024, contained favorable discrete tax items primarily due to the $1.3 billion non-taxable gain on the Atmus split-off. Other discrete tax items were $21 million favorable primarily due to adjustments related to audit settlements. See NOTE 14, "ATMUS DIVESTITURE," to our Condensed Consolidated Financial Statements for additional information.

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 for the three months ended March 31, 2025, decreased $9 million versus the comparable period in 2024, primarily due to the inclusion of noncontrolling interest associated with Atmus through March 18, 2024, and lower earnings at Cummins India Limited. See NOTE 14, "ATMUS DIVESTITURE," to our Condensed Consolidated Financial Statements for additional information.

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Comprehensive Income - Foreign Currency Translation Adjustment

The foreign currency translation adjustment was a net gain of $117 million for the three months ended March 31, 2025, compared to a net loss of $60 million for the three months ended March 31, 2024, driven by the following:

						Three months ended
						March 31,
						2025												2024
In millions						Translation adjustment						Primary currency driver vs. U.S. dollar						Translation adjustment						Primary currency driver vs. U.S. dollar
Wholly-owned subsidiaries						$	110					Brazilian real, British pound, Euro						$	(54)					Chinese renminbi, Euro
Equity method investments						5						Chinese renminbi						(3)						Chinese renminbi, partially offset by Indian rupee
Consolidated subsidiaries with a noncontrolling interest						2						Indian rupee, Euro						(3)						Indian rupee, Chinese renminbi, Euro
Total						$	117											$	(60)

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OPERATING SEGMENT RESULTS

Our reportable operating 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 operating 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 15, "OPERATING SEGMENTS," to our Condensed Consolidated Financial Statements for additional information and a reconciliation of our segment information to the corresponding amounts in our Condensed Consolidated Statements of Net Income.

Following is a discussion of results for each of our operating segments.

Engine Segment Results

Financial data for the Engine segment was as follows:

						Three months ended												Favorable/
						March 31,												(Unfavorable)
In millions						2025						2024						Amount						Percent
External sales						$	2,040					$	2,240					$	(200)					(9)		%
Intersegment sales						731						688						43						6		%
Total sales						2,771						2,928						(157)						(5)		%
Research, development and engineering expenses						155						154						(1)						(1)		%
Equity, royalty and interest income from investees						73						57						16						28		%
Interest income						10						7						3						43		%
Segment EBITDA						458						414						44						11		%
																		Percentage Points
Segment EBITDA as a percentage of total sales						16.5		%				14.1		%										2.4

Sales for our Engine segment by market were as follows:

						Three months ended												Favorable/
						March 31,												(Unfavorable)
In millions						2025						2024						Amount						Percent
Heavy-duty truck						$	921					$	1,059					$	(138)					(13)		%
Medium-duty truck and bus						986						995						(9)						(1)		%
Light-duty automotive						421						438						(17)						(4)		%
Total on-highway						2,328						2,492						(164)						(7)		%
Off-highway						443						436						7						2		%
Total sales						$	2,771					$	2,928					$	(157)					(5)		%
																		Percentage Points
On-highway sales as percentage of total sales						84		%				85		%										(1)

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

						Three months ended												Favorable/
						March 31,												(Unfavorable)
						2025						2024						Amount						Percent
Heavy-duty						26,700						33,600						(6,900)						(21)		%
Medium-duty						75,200						75,800						(600)						(1)		%
Light-duty						39,100						54,800						(15,700)						(29)		%
Total unit shipments						141,000						164,200						(23,200)						(14)		%

Sales

Engine segment sales for the three months ended March 31, 2025, decreased $157 million versus the comparable period in 2024. The primary driver by market was a decrease in heavy-duty truck sales of $138 million mainly due to weaker demand, especially in North America with heavy-duty engine shipments down 24 percent.

Segment EBITDA

Engine segment EBITDA for the three months ended March 31, 2025, increased $44 million versus the comparable period in 2024, primarily due to favorable pricing related to the launch of updated products in light-duty markets, partially offset by lower volumes and unfavorable mix.

Components Segment Results

Financial data for the Components segment was as follows:

						Three months ended												Favorable/
						March 31,												(Unfavorable)
In millions						2025						2024						Amount						Percent
External sales						$	2,270					$	2,842					$	(572)					(20)		%
Intersegment sales						400						490						(90)						(18)		%
Total sales						2,670						3,332						(662)						(20)		%
Research, development and engineering expenses						75						84						9						11		%
Equity, royalty and interest income from investees						7						26						(19)						(73)		%
Interest income						7						8						(1)						(13)		%
Segment EBITDA						382						473			(1)			(91)						(19)		%
																		Percentage Points
Segment EBITDA as a percentage of total sales						14.3		%				14.2		%										0.1
(1) Included $21 million of costs associated with the divestiture of Atmus for the three months ended March 31, 2024.

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Sales for our Components segment by business were as follows:

						Three months ended												Favorable/
						March 31,												(Unfavorable)
In millions						2025						2024						Amount						Percent
Drivetrain and braking systems						$	1,056					$	1,232					$	(176)					(14)		%
Emission solutions						902						971						(69)						(7)		%
Components and software						595						611						(16)						(3)		%
Automated transmissions						117						165						(48)						(29)		%
Atmus						—						353			(1)			(353)						(100)		%
Total sales						$	2,670					$	3,332					$	(662)					(20)		%
(1) Included sales through the March 18, 2024, divestiture. See NOTE 14, "ATMUS DIVESTITURE," to our Condensed Consolidated Financial Statements for additional information.

Sales

Components segment sales for the three months ended March 31, 2025, decreased $662 million versus the comparable period in 2024. The following were the primary drivers by business:

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

• Drivetrain and braking systems sales decreased $176 million primarily due to lower demand in North America and Western Europe.

• Unfavorable foreign currency fluctuations, primarily in the Brazilian real and Euro.

Segment EBITDA

Components segment EBITDA for the three months ended March 31, 2025, decreased $91 million versus the comparable period in 2024, mainly due to lower volumes and the divestiture of Atmus, partially offset by decreased product coverage costs and lower material costs.

Distribution Segment Results

Financial data for the Distribution segment was as follows:

						Three months ended												Favorable/
						March 31,												(Unfavorable)
In millions						2025						2024						Amount						Percent
External sales						$	2,902					$	2,529					$	373					15		%
Intersegment sales						5						6						(1)						(17)		%
Total sales						2,907						2,535						372						15		%
Research, development and engineering expenses						14						14						—						—		%
Equity, royalty and interest income from investees						28						24						4						17		%
Interest income						5						11						(6)						(55)		%
Segment EBITDA						376						294						82						28		%
																		Percentage Points
Segment EBITDA as a percentage of total sales						12.9		%				11.6		%										1.3

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Sales for our Distribution segment by region were as follows:

						Three months ended												Favorable/
						March 31,												(Unfavorable)
In millions						2025						2024						Amount						Percent
North America						$	2,100					$	1,723					$	377					22		%
Europe						270						240						30						13		%
Asia Pacific						240						285						(45)						(16)		%
China						114						102						12						12		%
India						74						71						3						4		%
Africa and Middle East						59						54						5						9		%
Latin America						50						60						(10)						(17)		%
Total sales						$	2,907					$	2,535					$	372					15		%

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

						Three months ended												Favorable/
						March 31,												(Unfavorable)
In millions						2025						2024						Amount						Percent
Power generation						$	1,090					$	707					$	383					54		%
Parts						1,031						1,001						30						3		%
Service						416						406						10						2		%
Engines						370						421						(51)						(12)		%
Total sales						$	2,907					$	2,535					$	372					15		%

Sales

Distribution segment sales for the three months ended March 31, 2025, increased $372 million versus the comparable period in 2024. The primary drivers by region were an increase in North American sales of $377 million principally due to higher demand in power generation markets, especially data center and commercial markets, partially offset by a decrease in Asia Pacific sales of $45 million mainly due to lower demand across all product lines.

Segment EBITDA

Distribution segment EBITDA for the three months ended March 31, 2025, increased $82 million versus the comparable period in 2024, primarily due to increased power generation volumes in North America.

Power Systems Segment Results

Financial data for the Power Systems segment was as follows:

						Three months ended												Favorable/
						March 31,												(Unfavorable)
In millions						2025						2024						Amount						Percent
External sales						$	872					$	708					$	164					23		%
Intersegment sales						777						681						96						14		%
Total sales						1,649						1,389						260						19		%
Research, development and engineering expenses						57						60						3						5		%
Equity, royalty and interest income from investees						29						19						10						53		%
Interest income						4						3						1						33		%
Segment EBITDA						389						237						152						64		%
																		Percentage Points
Segment EBITDA as a percentage of total sales						23.6		%				17.1		%										6.5

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

						Three months ended												Favorable/
						March 31,												(Unfavorable)
In millions						2025						2024						Amount						Percent
Power generation						$	1,001					$	853					$	148					17		%
Industrial						498						420						78						19		%
Generator technologies						150						116						34						29		%
Total sales						$	1,649					$	1,389					$	260					19		%

Sales

Power Systems segment sales for the three months ended March 31, 2025, increased $260 million versus the comparable period in 2024. The following were the primary drivers by product line:

• Power generation sales increased $148 million mainly due to higher demand in China, North America and Western Europe.

• Industrial sales increased $78 million primarily due to stronger demand in global mining markets (including higher aftermarket sales) and improved defense sales in North America.

Segment EBITDA

Power Systems segment EBITDA for the three months ended March 31, 2025, increased $152 million versus the comparable period in 2024, mainly due to higher volumes and favorable pricing.

Accelera Segment Results

Financial data for the Accelera segment was as follows:

						Three months ended												Favorable/
						March 31,												(Unfavorable)
In millions						2025						2024						Amount						Percent
External sales						$	90					$	84					$	6					7		%
Intersegment sales						13						9						4						44		%
Total sales						103						93						10						11		%
Research, development and engineering expenses						43						55						12						22		%
Equity, royalty and interest loss from investees						(6)						(3)						(3)						(100)		%
Segment EBITDA						(86)						(101)						15						15		%

Accelera segment sales for the three months ended March 31, 2025, increased $10 million versus the comparable period in 2024 primarily due to improved sales of electrified powertrains and electrolyzers.

OUTLOOK

The increase in tariffs has impacted the global movement of goods and introduced uncertainty around future demand for capital goods. Given the breadth, severity and uncertainty about the duration of global tariffs it is not possible to confidently predict market demand for the remainder of this year. 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.

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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						March 31, 2025						December 31, 2024
Working capital (1)						$	3,965					$	3,518
Current ratio						1.34						1.31
Accounts and notes receivable, net						$	5,680					$	5,181
Days' sales in receivables						61						58
Inventories						$	6,123					$	5,742
Inventory turnover						4.0						4.4
Accounts payable (principally trade)						$	4,311					$	3,951
Days' payable outstanding						60						60
Total debt						$	7,488					$	7,059
Total debt as a percent of total capital						38.5		%				38.4		%
(1) Working capital included cash and cash equivalents.

Cash Flows

Cash and cash equivalents were impacted as follows:

						Three months ended
						March 31,
In millions						2025						2024						Change
Net cash (used in) provided by operating activities						$	(3)					$	276					$	(279)
Net cash used in investing activities						(246)						(406)						160
Net cash provided by financing activities						92						499						(407)
Effect of exchange rate changes on cash and cash equivalents						18						(7)						25
Net (decrease) increase in cash and cash equivalents						$	(139)					$	362					$	(501)

Net cash used in operating activities increased $279 million for the three months ended March 31, 2025, versus the comparable period in 2024, primarily due to higher working capital requirements of $375 million. The higher working capital requirements resulted in a cash outflow of $981 million compared to a cash outflow of $606 million in the comparable period of 2024, mainly due to unfavorable changes in accounts and notes receivable.

Net cash used in investing activities decreased $160 million for the three months ended March 31, 2025, versus the comparable period in 2024, primarily due to the absence of cash associated with the Atmus divestiture.

Net cash provided by financing activities decreased $407 million for the three months ended March 31, 2025, versus the comparable period in 2024, primarily due to lower proceeds from borrowings of $2.3 billion (principally related to our 2024 note issuance), partially offset by increased net borrowings of commercial paper of $1.4 billion and lower payments on borrowings and finance lease obligations of $604 million (largely related to early payments of $650 million on our term loan, due 2025, in the prior year).

The effect of exchange rate changes on cash and cash equivalents for the three months ended March 31, 2025, versus the comparable period in 2024, changed $25 million primarily due to favorable fluctuations in the British pound and Chinese renminbi.

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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:

						March 31, 2025
In millions						Total						U.S.						International						Primary location of international balances
Cash and cash equivalents						$	1,532					$	501					$	1,031					Singapore, Australia, China, United Kingdom, Mexico, Belgium
Marketable securities (1)						626						75						551						India
Total						$	2,158					$	576					$	1,582
Available credit capacity
Revolving credit facilities (2)						$	2,260
International and other uncommitted domestic credit facilities						$	718
(1) The majority of marketable securities could be liquidated into cash within a few days.
(2) The five-year credit facility for $2.0 billion and the 364-day credit facility for $2.0 billion, maturing June 2029 and June 2025, respectively, are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. At March 31, 2025, we had $1.7 billion of commercial paper outstanding, which effectively reduced our available capacity under our revolving credit facilities to $2.3 billion.

Cash, Cash Equivalents and Marketable Securities

A significant portion of our cash flow is 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

Our committed credit facilities provide access up to $4.0 billion from our $2.0 billion 364-day credit facility that expires on June 2, 2025 and our $2.0 billion 5-year facility that expires on June 3, 2029. 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. There were no outstanding borrowings under these facilities at March 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 of Directors (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 March 31, 2025, we had $1.7 billion of commercial paper outstanding, which effectively reduced our available capacity under our revolving credit facilities to $2.3 billion. See NOTE 9, "DEBT," to our Condensed Consolidated Financial Statements for additional information.

In the first quarter of 2025, we entered into a series of interest rate lock agreements including 5-year and 10-year locks, with notional amounts totaling $200 million and $400 million, respectively, to reduce variability of cash flows of interest payments on debt forecast to be issued in 2025 to replace our senior notes at maturity and for other general purposes. See NOTE 13, "DERIVATIVES," to our Condensed Consolidated Financial Statements for additional information.

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As a well-known seasoned issuer, we filed an automatic shelf registration for an undetermined amount of debt and equity securities with the Securities and Exchange Commission 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 $551 million. 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 Condensed Consolidated Balance Sheets. Amounts due to the financial intermediaries reflected in accounts payable at March 31, 2025, were $164 million.

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 three months ended March 31, 2025. See NOTE 1, "NATURE OF OPERATIONS AND BASIS OF PRESENTATION," to our Condensed Consolidated Financial Statements for additional information.

Uses of Cash

Dividends

We paid dividends of $251 million during the three months ended March 31, 2025.

Capital Expenditures

Capital expenditures for the three months ended March 31, 2025, were $162 million versus $169 million in the comparable period in 2024. We continue to invest in new product lines and targeted capacity expansions. We plan to spend an estimated $1.4 billion to $1.5 billion in 2025 on capital expenditures with over 65 percent of these expenditures expected to be invested in North America.

Current Maturities of Short and Long-Term Debt

We had $1.7 billion of commercial paper outstanding at March 31, 2025, that matures in less than one year. The maturity schedule of our existing long-term debt includes $500 million of cash outflows in 2025 when our 0.75 percent senior notes are due. Required annual long-term debt principal payments range from $72 million to $649 million over the next five years (including the remainder of 2025). We intend to retain our strong investment credit ratings. See NOTE 9, "DEBT," to our Condensed Consolidated Financial Statements for additional information.

Pensions

Our global pension plans, including our unfunded and non-qualified plans, were 115 percent funded at December 31, 2024. Our U.S. defined benefit plans (qualified and non-qualified), which represented approximately 70 percent of the worldwide pension obligation, were 117 percent funded, and our U.K. defined benefit plans were 109 percent funded at December 31, 2024. 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 the first three months of 2025, the investment gain on our U.S. pension trusts was 1.6 percent, while our U.K. pension trusts' loss was 1.3 percent. We anticipate making additional defined benefit pension contributions during the remainder of 2025 of $39 million for our U.S. and U.K. qualified and non-qualified 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 expect our 2025 annual net periodic pension cost to approximate $79 million.

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. We did not make any repurchases of common stock in the first three months of 2025. The dollar value remaining available for future purchases under the 2019 program at March 31, 2025, was $218 million.

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Amplify Cell Technologies LLC Joint Venture

As of March 31, 2025, we contributed $255 million to our Amplify Cell Technologies LLC joint venture and our maximum remaining required contribution was $551 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 4, "EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES," to our Condensed 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 and Poor’s Rating Services						A												A1												Stable
Moody’s Investors Service, Inc.						A2												P1												Stable
(1) Credit ratings are not recommendations to buy, are subject to change, and each rating should be evaluated independently of any other rating. In addition, we undertake no obligation to update disclosures concerning our credit ratings, whether as a result of new information, future events or otherwise.

Management's Assessment of Liquidity

Our financial condition and liquidity remain strong. Our solid balance sheet and credit ratings enable us to have ready access to credit and the capital markets. We assess our liquidity in terms of our ability to generate adequate cash to fund our operating, investing and financing activities in combination with access to our revolving credit facilities and commercial paper programs as noted above. We believe our access to the capital markets, our existing cash and marketable securities, operating cash flow and revolving credit facilities provide us with the financial flexibility needed to fund targeted capital expenditures, dividend payments, debt service obligations, projected pension obligations, common stock repurchases, joint venture contributions and acquisitions through 2025 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 the Notes to the Consolidated Financial Statements of our 2024 Form 10-K, which discusses accounting policies that we have selected from acceptable alternatives.

Our Condensed Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles that often require 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 Condensed 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. Our critical accounting estimates disclosed in the Form 10-K address estimating liabilities for warranty programs, fair value of intangible assets, assessing goodwill impairment, accounting for income taxes and pension benefits.

A discussion of our critical accounting estimates may be found in the “Management’s Discussion and Analysis” section of our 2024 Form 10-K under the caption “APPLICATION OF CRITICAL ACCOUNTING ESTIMATES.” Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in different policies or estimates being reported in the first three months of 2025.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

See NOTE 16, "RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS," in the Notes to our Condensed Consolidated Financial Statements for additional information.

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