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Item 7. Management’s Discussion and Analysis

2026-02-20 compared with 2025-02-21 · 221 added, 265 removed, 197 unchanged (71% of the section changed)

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Risk Factors” of this Form 10-K.

Genuine Parts Company ("GPC") is a global service organization with a long history of growth and innovation dating back to our founding in Atlanta, Georgia, in 1928.

Over nearly a century, we’ve built a reputation for delivering excellent customer service, profitable growth, leading distribution capabilities and strong cash flow.

Genuine Parts Company ("GPC") is a leading global service provider of automotive and industrial replacement parts and value-added solutions.

We have a long history of growth and innovation dating back to our founding in Atlanta, Georgia, in 1928.

Over nearly a century, we’ve built a reputation for delivering excellent customer service, profitable growth and strong cash flow generation.

In 2025, we conducted business in North America, Europe and Australasia from more than 10,800 locations.

Our Automotive business operated in the U.S., Canada, Mexico, France, the U.K., Ireland, Germany, Poland, the Netherlands, Belgium, Spain, Portugal, Australia and New Zealand and accounted for 63% of total revenues for the year.

Our Industrial business operated in the U.S., Canada, Mexico, Australia, New Zealand, Indonesia and Singapore and accounted for 37% of total revenues.

Our mission is to be the employer, supplier, and investment of choice, while also being a valued corporate citizen in the communities we serve.

This mission drives our strategic financial objectives:

outpacing market revenue growth, improving operating margins, maintaining a strong balance sheet and cash flows, and allocating capital effectively.

Our Automotive businesses operated in the U.S., Canada, Mexico, France, the U.K., Ireland, Germany, Poland, the Netherlands, Belgium, Spain, Portugal, Australia and New Zealand and accounted for 63% of total revenues for the year.

Our Industrial business operated in the U.S., Canada, Australia, New Zealand, Indonesia and Singapore and accounted for 37% of total revenues.

We are focused on being the preferred employer, supplier, and partner while delivering values to our shareholders.

This focus drives our strategic financial objectives which are growing revenue in excess of the market, improving operating margins, maintaining a healthy balance sheet, generating strong cash flows, and allocating capital effectively.

As we look to the future, we are leaning into modernizing our supply chain and technology through digital innovation, and data-driven strategies to enhance our competitive edge.

By leveraging technology and optimizing supply chains, we are empowering our teams with cutting-edge tools to focus on delivering exceptional customer service and driving sustainable growth.

At the heart of it all is our commitment to excellence, supported by a culture of continuous improvement and a legacy of strong leadership that has guided us for nearly 100 years.

By optimizing supply chains and leveraging technology, we are empowering our teams with cutting-edge tools to continue our focus on delivering exceptional customer service and driving sustainable growth.

At the heart of it all is our commitment to excellence, supported by a culture of continuous improvement and a legacy of strong leadership that has guided us for nearly a century.

In the fourth quarter of 2025, we disaggregated our automotive aftermarket business into two reportable segments.

There were no changes to our Industrial segment.

We believe this expanded segmentation will provide our investors with additional information to better understand our performance.

Concurrent with the change in reportable segments, we revised our prior period financial information to be consistent with the current period presentation.

There was no impact on consolidated net sales, total operating expenses, net income or diluted EPS as a result of these changes.

Refer to the Segment Data Footnote in the Notes to Consolidated Financial Statements for additional information.

KEY PERFORMANCE INDICATORS

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Comparable Sales

Comparable sales refer to period-over-period comparisons of our net sales excluding the impact of acquisitions, divestitures, foreign currency and other.

Our calculation of comparable sales is computed using total business days for the period and is inclusive of both company-owned stores and sales to our independent owner's stores.

We consider this metric useful to investors because it provides greater transparency into management’s view and assessment of our core ongoing operations.

This metric is widely used by analysts, investors and competitors in our industry, however our calculation of the metric is not comparable to similar measures disclosed by other companies, because not all companies and analysts calculate this metric in the same manner.

Comparable sales is a key metric that refers to period-over-period comparisons of our net sales excluding the impact of acquisitions, foreign currency and other.

Our calculation of comparable sales is computed using total business days for the period and is inclusive of sales from our company-owned stores and sales to our independent owners.

The company considers this metric useful to investors because it provides greater transparency into management’s view and assessment of the company’s core ongoing operations.

This is a metric that is widely used by analysts, investors and competitors in our industry, however our calculation of the metric may not be comparable to similar measures disclosed by other companies, because not all companies and analysts calculate this metric in the same manner.

Gross Profit and Gross Margin

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SG&A includes all personnel and personnel-related costs at our corporate offices, segment headquarters, distribution centers, stores and branches.

Additional costs in SG&A include our facilities, freight and delivery, marketing, advertising, technology, digital, legal and professional costs.

Additional costs in SG&A include our facilities, freight and delivery,

marketing, advertising, technology, digital, legal and professional costs.

Freight and delivery costs are the shipping and handling costs incurred related to delivering merchandise to our customers.

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Segment EBITDA and Segment EBITDA Margin

excludes amounts reflected in Corporate EBITDA, net interest expense, depreciation and amortization and other unallocated costs.

Segment EBITDA is the measure we use to assess the profitability of our company’s business segments and it is calculated as net sales less cost of goods sold and total other operating expenses of the business segment, and it excludes amounts reflected in Corporate EBITDA, net interest expense, depreciation and amortization and other unallocated costs.

Segment EBITDA as a percentage of Segment Net Sales is referred to as Segment EBITDA margin.

We changed our segment profit and segment profit margin measures in the fourth quarter of 2024 to Segment EBITDA and Segment EBITDA margin, respectively.

We believe that Segment EBITDA and Segment EBITDA margin are useful measures because they allow management, analysts, investors, and other interested parties to evaluate the profitability of our segments and they align with how management evaluates performance and sets compensation plans.

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Discussions of 2023 results and year-to-year comparisons between 2024 and 2023 results that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

In 2024, our net sales of $23.5 billion increased 1.7% year-over-year.

Our sales growth was driven primarily by acquisitions in our Automotive segment and two additional selling days.

Sales growth was partially offset by the negative impact of weak market conditions in both segments, as persistent high interest rates and economic uncertainty led to lower customer demand which resulted in flat Automotive comparable sales and declines in Industrial comparable sales in 2024.

Economic activity in the U.S.

manufacturing sector, measured by the Purchasing Mangers' Index ("PMI"), contracted through most of 2024, negatively impacting purchases from our Industrial customers.

In 2024, net income totaled $904 million, down 31.3%, driven by costs associated with our global restructuring program, which was designed to better align our assets and cost structure to the current economic environment.

During the year, we incurred $221 million in restructuring and other costs under this program, and a charge of $62 million to cost of goods sold to write down certain existing inventory associated with a new global rebranding and relaunch of a key tool and equipment offering.

Our earnings in 2024 were also negatively impacted by higher SG&A costs, which were driven by increases in personnel and rent costs due to inflationary pressure and planned investments in technology to modernize our systems and digital platforms.

The investments we are making in technology, as well as new supply chain capabilities, are driving higher year-over-year depreciation and interest expense.

These costs were partially offset by improved gross margin due to the benefits from acquired businesses and ongoing initiatives around pricing and sourcing and from our global restructuring program.

Our results in 2025 reflect continued headwinds in global market conditions, persistent cost inflation, changes in tariffs and global trade regulations and costs associated with investments in our technology and supply chain capabilities to drive growth.

In 2025, net sales were $24.3 billion, an increase of 3.5%, primarily driven by acquisitions and slight comparable sales growth in all three segments .

Gross margin improved 50 basis points due to benefits from ongoing strategic pricing and sourcing initiatives and acquisitions.

Net income totaled $66 million, down 92.7% compared to the prior year period.

Our results include discrete charges for our pension settlement of $742 million, credit losses from the bankruptcy of First Brands Group of $151 million, and asbestos-related product liability remeasurement of $103 million.

Our lower net income was also driven by lower pension income and higher SG&A expenses from inflationary pressures on salaries, healthcare costs, freight, and rent, as well as planned investments in technology to modernize our systems and digital platforms.

These technology investments, along with enhancements to our supply chain capabilities, also contributed to higher depreciation and interest from additional borrowings year over year.

These costs were partially offset by increased cost savings of approximately $175 million associated with our global restructuring program, which was designed to better align our assets and cost structure to the current economic environment.

Impact of Tariffs on Our Business

We continue to monitor the global trade environment, including the tariffs on merchandise inventories sourced directly or indirectly from several countries, such as China, Canada, and Mexico and their impact on our operations.

During 2025, tariffs drove higher prices to our customers and cost inflation that impacted our gross margin and SG&A expenses.

We managed these challenges through strategic pricing and sourcing initiatives, leveraging global

supplier relationships and technology tools.

While the ongoing economic volatility continues to add uncertainty to our operating environment, we expect our balanced portfolio and global diversification will help mitigate potential disruptions.

See Part I, Item 1A.

Risk Factors for further discussion regarding tariff-related risks.

Our results of operations are summarized below for the years ended December 31, 2025 and 2024.

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Interest expense, net 163,506 0.7 % 96,827 0.4 % 66,679 68.9 %

Pension settlement charge 741,967 3.1 % — — % 741,967 100.0 %

Other 3,010 — % (43,579) (0.2) % 46,589 (106.9) %

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Income before income taxes 52,168 0.2 % 1,175,968 5.0 % (1,123,800) (95.6) %

Income taxes 271,892 1.2 % 425,824 1.8 % (153,932) (36.1) %

Income tax expense (benefit) (13,777) (0.1) % 271,892 1.2 % (285,669) (105.1) %

Net income $ 65,945 0.3 % $ 904,076 3.8 % $ (838,131) (92.7) %

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Adjusted diluted EPS $ 7.37 $ 8.16 $ (0.79) (9.7) %

Automotive segment EBITDA $ 1,283,531 $ 1,339,134 $ (55,603) (4.2) %

North America Automotive segment EBITDA $ 672,182 $ 715,530 $ (43,348) (6.1) %

International Automotive segment EBITDA $ 544,173 $ 568,001 $ (23,828) (4.2) %

Industrial segment EBITDA $ 1,146,422 $ 1,102,188 $ 44,234 4.0 %

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Adjusted EBITDA $ 2,005,602 $ 1,996,502 $ 9,100 0.5 %

Automotive segment EBITDA margin 8.7 % 9.4 %

North America Automotive segment EBITDA margin 7.1 % 7.8 %

International Automotive segment EBITDA margin 9.3 % 10.2 %

Industrial segment EBITDA margin 12.9 % 12.6 %

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Adjusted EBITDA margin 8.3 % 8.5 %

Our consolidated net sales increase of 1.7% includes a 2.6% benefit from acquisitions, which was partially offset by a 0.8% comparable sales decrease as described in the following segment discussions.

Net sales for Automotive were $14.8 billion in 2024, a 3.7% increase from 2023, driven by acquisitions, particularly in our U.S.

Automotive business.

In 2024, we completed strategic acquisitions of more than 500 stores in the U.S., mostly from our independent owners, including the acquisition of our two largest, Motor Parts & Equipment Corporation ("MPEC") and Walker Automotive Supply, Inc.

These store acquisitions were in strategic markets and enable us to capture commercial benefits, leverage synergies and further drive revenue growth.

In 2024, our comparable sales were flat due to softer demand, as macro-economic headwinds such as high interest rates and persistent cost inflation continued to impact customer buying behavior.

The impact on net sales from foreign currency translation was negligible.

Net sales for Industrial were $8.7 billion in 2024, a 1.4% decrease from 2023, driven by a 2.1% decrease in comparable sales and a 0.1% unfavorable impact of currency translation.

This was partially offset by a 0.8% contribution from acquisitions.

Our comparable sales decreased as we experienced softness in industrial production and an ongoing moderation in demand in many customer end markets.

We continued to experience an adverse macro-economic environment when compared to 2023, as persistently high interest rates and economic uncertainty led customers to delay discretionary capital expenditures.

Net sales increased 3.5% in 2025 primarily due to a 2.2% benefit from acquisitions and a 0.9% increase in comparable sales.

We estimate that comparable sales benefited from approximately 2.0% of price inflation, including tariff related impacts.

We continue to be affected by softer consumer demand, as macro-economic headwinds such as high interest rates and persistent cost inflation continued to impact our customers, particularly in Europe.

Economic activity in the U.S.

manufacturing sector, measured by PMI, remained contractionary through most of 2024.

manufacturing sector, measured by PMI, remained contractionary through the

end of 2025 which continued to pressure Industrial net sales.

The impact on net sales from foreign currency translation was negligible.

North America Automotive net sales were $9.5 billion in 2025, a 3.3% increase from 2024, primarily driven by a 2.6% contribution from acquisitions.

International Automotive net sales were $5.9 billion in 2025, a 5.4% increase from 2024, primarily driven by a 3.3% contribution from acquisitions.

Industrial net sales were $8.9 billion in 2025, a 2.3% increase from 2024, primarily driven by a 1.5% increase in comparable sales and a 1.2% contribution from acquisitions.

In 2025, we completed over 50 strategic acquisitions resulting in over 250 additional locations globally.

The majority of our completed transactions were in our North America Automotive business, primarily through the acquisition of independent NAPA stores in the U.S.

In addition, we made a strategic acquisition of Benson Auto Parts, expanding our store footprint in our key Canadian markets and providing a diversified product offering to better serve our customers in Ontario and Quebec.

Gross Profit & Gross Margin

Gross profit increased $233 million, or approximately 2.8%, from 2023 due primarily to an increase in net sales.

This was partially offset by a charge of $62 million to write down certain existing inventory associated with a new global rebranding and relaunch of a key tool and equipment offering.

Gross margin increased to 36.3% from 35.9% in 2023, a 40 basis point improvement, which was primarily driven by the benefit of acquired businesses.

Inventory Rebranding Strategic Initiative

We are implementing a strategic realignment of our global tools and equipment inventory strategy.

This strategy targets a new generation of installers by reducing our global product offerings to two primary tiers and launching a new global branding initiative in 2025, which we expect to enhance market penetration across all regions.

As part of this initiative, we have elected to liquidate certain otherwise marketable tools and equipment inventory in 2025 to accelerate the realization of the program benefits, thereby improving operational efficiency and enhancing the projected financial outcomes.

By streamlining our product range in this key category, we enhance warehouse space for new inventory and enable our sales force to focus on the new strategy, facilitating earlier market capture.

Accordingly, we have recognized a $62 million non-cash charge reflected in cost of goods sold to write down the inventory to its market value, assuming liquidation.

Gross profit increased $417 million, or approximately 4.9%, from 2024, driven primarily by an increase in net sales.

Gross profit improved partly because a $62 million charge to write down certain existing inventory associated with a global rebranding did not recur in 2025.

The increase in gross profit was partially offset primarily by a nonrecurring $151 million charge to reserve for expected credit losses on amounts due from First Brands, a key global automotive parts supplier whose business significantly deteriorated in the fourth quarter following its Chapter 11 bankruptcy filing in September 2025.

Gross margin increased to 36.8% from 36.3% in 2024, a 50 basis point improvement, driven by our strategic pricing and sourcing initiatives and acquisitions.

Selling, Administrative and Other Expenses

SG&A expenses increased $508 million, or 7.6%, from 2024.

Approximately 50% of the increase was driven by personnel expense and 10% by higher rent expense, reflecting inflationary pressures on annual wage increases and lease renewals and higher operating costs due to acquisitions, primarily from the addition of more U.S.

automotive stores.

Additionally, 10% of the increase was attributable to our investments in technology as we continue to enhance our digital capabilities to improve the customer experience, increase automation in distribution centers, and modernize payment platforms.

The remainder of the increase was attributable to other SG&A categories, as we incurred higher operating costs from acquired businesses, and we continued to invest in our supply chain to optimize product assortment and positioning, which helps reduce distribution costs.

Partially offsetting the increase were $43 million in real estate sale gains, primarily from sale-leaseback transactions to enhance our financial operational flexibility on properties we continue to use in our ongoing operations.

SG&A as a percentage of sales increased to 28.3% in 2024 from 26.7% in 2023.

The 160 basis point increase was primarily driven by approximately 80 basis points from inflationary pressures on certain operating expenses, 40 basis points from increased operating expenses from acquisitions and 25 basis points from fixed cost deleverage.

Comparable sales were flat for Automotive and down for Industrial, which drove fixed cost deleveraging.

The growth in SG&A expenses was largely attributable to elevated operating expenses linked to acquisitions of approximately $225 million and a $103 million increase in our asbestos-related product liability due to adverse trends in claim counts and costs.

The remaining increase was driven by inflationary wage pressures, rising healthcare costs and higher rent expense due to lease renewals.

We also continue to make investments in technology to enhance our supply chain and digital capabilities as we improve the customer experience, increase automation in distribution centers, and modernize payment platforms.

Partially offsetting these increases was approximately $175 million of cost savings associated with our global restructuring program, which was designed to better align our assets and cost structure to the current economic environment.

Restructuring and Other Costs

In February 2024, we approved and announced a global restructuring designed to better align our assets and further improve the profitability of the business.

This initiative included an announced voluntary retirement offer in the U.S., along with a rationalization and optimization of certain distribution centers, stores and other facilities.

We incurred a $62 million inventory charge, described above, and $221 million of restructuring and other costs related to the initiative, which includes $91 million of severance costs.

This initiative included severance, an announced voluntary retirement offer in the U.S.

during 2024, and rationalization and optimization of certain distribution centers, stores and other facilities.

In 2025, we incurred $254 million of restructuring and other costs related to the initiative.

We recognized approximately $175 million in cost savings related to this global restructuring initiative for 2025.

In 2025, we are expanding our restructuring initiatives and expect to incur additional restructuring and other costs in the range of $150 to $180 million.

These global restructuring initiatives are expected to generate approximately $100 to $125 million in savings for 2025.

The estimated charges that we expect to incur are subject to a number of assumptions, and actual amounts may differ materially from such estimates.

We may also incur additional charges not currently contemplated due to unanticipated events that may occur, including in connection with the implementation of these initiatives.

We expect to substantially complete the initiative by the end of 2025.

When fully annualized in 2026, we expect that our 2024 and 2025 restructuring efforts and cost actions will deliver approximately $200 million of cost savings.

Refer to the Restructuring Footnote in the Notes to Consolidated Financial Statements for more information on our global restructuring initiative.

Depreciation and Amortization

Depreciation and amortization expenses increased $57 million related to ongoing investments in technology and supply chain initiatives.

Depreciation and amortization increased $130 million in 2025 compared to 2024, as a result of the ongoing enhancements to our technology platforms, such as proprietary digital tools that improve customer experience and operational transparency, as well as supply chain initiatives designed to increase efficiency and service levels.

These targeted investments are critical components of our strategy to strengthen our competitive position, support customer needs amid evolving market conditions, and drive long-term value creation.

Additionally, approximately $40 million of the increase is attributable to a nonrecurring adjustment related to asset retirement obligations.

Non-Operating Expenses and Income

We incurred $53 million in net non-operating expenses in 2024, a $48.5 million increase from $5 million in net non-operating expenses in 2023.

This category primarily includes net interest expense, pension and investment income, foreign currency gains and losses, and fees associated with our Accounts Receivable Sales Agreement ("A/R Sales Agreement").

The $49 million expense increase includes the effects of a $32 million increase in net interest expense in 2024, due to increased borrowings, including the senior notes issued in August 2024, and a $16 million decrease in other non-operating income driven by decreased pension income, foreign currency gains, and income from cash surrender value of life insurance policies.

In 2025, we incurred $908 million in net non-operating expenses, a $855 million increase from $53 million in net non-operating expenses in 2024.

This category primarily encompasses a one-time pension settlement charge and net interest expense, as well as investment income, certain other pension costs and income, foreign currency gains and losses, and fees associated with our Accounts Receivable Sales Agreement ("A/R Sales Agreement").

The $855 million increase primarily reflects a $742 million pension charge related to the settlement of our U.S.

qualified defined benefit plan.

Additionally, increased investments led to higher borrowings, contributing to a $67 million increase in net interest expense in 2025.

At the same time, a shift to a more conservative investment

strategy in the months leading up to the settlement of our U.S.

pension plan resulted in a $47 million decrease in other non-operating income.

Our effective income tax rate was (26.4)% as of December 31, 2025, compared to 23.1% in 2024.

For the year ended December 31, 2024, the rate decrease is primarily due to expanded investment and domestic credit benefits.

Net Income and Adjusted Net Income

Net income was $904 million in 2024, a decrease of 31.3% compared to $1.3 billion in 2023.

The rate decrease is primarily due to a change in net income and expanded investment and domestic credit benefits.

The effective tax rate for year ended December 31, 2025 considers the enactment of One Big Beautiful Bill Act ("OBBBA") on July 4, 2025, which did not have a material impact to income tax expense.

Net Income, Adjusted Net Income and Segment EBITDA

Net income was $66 million in 2025, a decrease of 92.7% compared to $904 million in 2024.

Diluted earnings per share ("EPS") was $0.47 in 2025, down $6.00 compared to $6.47 in 2024.

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Adjusted diluted EPS was $7.37, down $0.79 compared to $8.16 in 2024.

The year over year declines in these metrics are primarily due to $221 million in restructuring and other costs, $62 million in inventory liquidation charges, and higher SG&A expenses driven by inflationary pressures and investments in technology.

These impacts were partially offset by improved gross profit and margin from acquisitions and pricing and sourcing initiatives and the benefits from the restructuring program.

Segment EBITDA

2024 EBITDA decreased 4.2% or $56 million from 2023, and EBITDA margin decreased 70 basis points to 8.7% in 2024 compared to 9.4% in 2023, driven by the following factors.

Automotive segment sales grew $522 million or 3.7% due primarily to acquisitions.

Gross profit increased $275 million or 4.9% and gross margin improved 50 basis points primarily due to strategic acquisitions in our U.S.

business, including MPEC and Walker.

The year over year declines in these metrics are primarily due to lower pension income and the settlement of our U.S.

qualified defined benefit plan, discrete charges resulting from First Brand's bankruptcy, adverse asbestos claims trends, higher expenses from ongoing investments, persistent cost inflation and higher interest expense.

This was partially offset by gross margin expansion and benefits from our global restructuring program and cost actions.

Each of these items is explained more fully above.

North America Automotive

North America Automotive EBITDA decreased $43 million, or 6.1%, from 2024, and EBITDA margin decreased 70 basis points to 7.1% from 7.8% in 2024, driven by the following factors.

North America Automotive segment sales grew $308 million, or 3.3%, primarily driven by acquisitions.

Gross profit increased $282 million, or 8.2%, with gross margin expanding 170 basis points, primarily due to our strategic pricing, sourcing initiatives and acquisitions.

However, these gains were more than offset by rising operating expenses.

Operating expenses increased $325 million driven by personnel costs, healthcare costs, rent and freight.

While acquisitions contributed to the rise in expenses, the decline in EBITDA and EBITDA margin was mainly driven by persistent cost inflation, primarily in personnel costs, healthcare costs and rent.

International Automotive

2025 EBITDA decreased $24 million, or 4.2%, from 2024, and EBITDA margin decreased 90 basis points to 9.3% in 2025 compared to 10.2% in 2024, driven by the following factors.

International Automotive segment sales grew $302 million or 5.4% primarily driven by a 3.3% benefit from acquisitions.

Gross profit increased $151 million, or 6.0%, and gross margin improved 20 basis points primarily due to strategic pricing and sourcing initiatives.

Our gross profit improvement was offset by rising operating expenses.

Operating expenses increased $330 million, with approximately 75% of the increase driven by personnel cost increases of $200 million and rent increases of $53 million.

Operating expenses increased partly due to acquisitions, however the EBITDA and EBITDA margin declines largely were driven by persistent cost inflation, primarily in wages and rent, in our existing businesses.

2023 EBITDA was $1.3 billion, a decrease of 2.6% from 2022, and EBITDA margin decreased 70 basis points to 9.4% in 2023 compared to 10.1% in 2022, driven by the following factors.

Automotive segment sales increased 4.2% driven by a 2.8% contribution from acquisitions and 2.1% growth in comparable sales, partially offset by a 0.7% unfavorable impact from foreign currency and other.

Gross profit increased $295 million, or 5.5%, in 2023 due to sales growth.

This improvement was offset by a $330 million increase in operating expenses, including $160 million attributed to higher personnel expenses that were driven by persistent cost inflation and the effects of acquisitions.

2024 EBITDA decreased 2.7% to $1.1 billion from 2023, and EBITDA margin declined 20 basis points to 12.6% in 2024 compared to 12.8% in 2023, driven by the following factors.

Industrial segment sales declined $126 million or 1.4%, primarily driven by a decline of 2.1% in comparable sales due to contractionary market conditions and partially offset by 0.8% benefit from acquisitions.

Gross profit increased $21 million or 0.8% in 2024 due to a 70 basis point improvement in gross margin primarily driven by acquisitions and strategic pricing and sourcing initiatives, partially offset by a decline in sales.

In 2024, operating expenses increased due to continued pressure

from ongoing cost inflation and to a lesser extent acquisitions, particularly personnel costs and rent, which increased $38 million and $15 million, respectively.

2023 EBITDA increased 20.7% to $1.1 billion in 2023, and EBITDA margin improved 170 basis points to 12.8% compared to 11.1% in 2022, driven by the following factors.

Industrial segment sales increased 4.9% driven by 4.8% growth in comparable sales due to sales initiatives and strong market conditions and a 0.6% contribution from acquisitions.

This was slightly offset by a 0.5% unfavorable impact of currency translation.

Gross profit increased $246 million, or 10.3%, in 2023 due to sales growth and our focus on leveraging expenses and executing supply chain initiatives as well as other strategic initiatives in areas such as category management and pricing.

This improvement was partially offset by a $52 million increase in operating expenses, primarily driven by a $32 million increase in personnel expenses due to inflationary pressures and a $15 million increase in technology expense for planned investments.

Operating expenses increased $175 million driven by personnel costs, healthcare costs, rent and freight.

The EBITDA and EBITDA margin declines largely were driven by persistent cost inflation, primarily in personnel costs and rent, in our existing businesses.

2025 EBITDA increased 4.0% to $1.1 billion from 2024, and EBITDA margin increased 30 basis points year over year to 12.9% in 2025 compared to 12.6% in 2024, driven by the following factors.

Industrial segment sales increased by $204 million or 2.3%, primarily driven by a 1.5% increase in comparable sales coupled with a 1.2% contribution from acquisitions .

Gross profit increased $75 million or 2.8% in 2025 despite gross margin remaining flat.

The increase in gross profit was primarily driven by strategic pricing, sourcing initiatives, and acquisitions.

In 2025, operating expenses increased due to continued pressure from ongoing cost inflation and to a lesser extent acquisitions.

Corporate EBITDA and other Segment Reconciling items

Corporate EBITDA primarily reflects costs related to our corporate headquarter's broad support to our business units and other costs that are managed centrally and not allocated to business segments.

Corporate EBITDA primarily reflects costs related to our corporate headquarters' broad support to our business units and other costs that are managed centrally and not allocated to business segments.

These include personnel and other costs for company-wide functions such as executive leadership, human resources, technology, cybersecurity, legal, corporate finance, internal audit, and risk management, as well as asbestos-related product liability costs and A/R Sales Agreement fees.

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Corporate EBITDA amounted to a loss of $357 million, or 1.5% of net sales, in 2025, compared to a loss of $389 million, or 1.7% of net sales, in 2024.

Corporate EBITDA increased primarily due to the impact of a higher asbestos liability costs and ongoing investments in technology, each of which accounted for approximately 30% of the increase.

Other unallocated costs represent restructuring and other costs and acquisition and integration related costs and other.

These increased year-over-year due to the global restructuring initiative that was approved in February 2024 and the significant increase in acquisition activity in 2024.

EBITDA was $1.7 billion in 2024, a decrease of 22.1% from $2.2 billion in 2023.

Adjusted EBITDA was $2.0 billion in 2024, a decrease of 7.5% from $2.2 billion in 2023.

Results were affected by $221 million of costs related to the global restructuring initiative, $33 million of acquisition and integration costs, and a $62 million inventory liquidation charge (described above).

Decreases in adjusted EBITDA margin were primarily driven by an 80 basis point negative impact from inflationary pressures, particularly personnel costs and rent.

Other unallocated costs represent restructuring and other costs, acquisition and integration related costs, and other.

These decreased year-over-year due to the global restructuring initiative that was approved in February 2024 and the significant increase in acquisition activity in 2025.

EBITDA was $754 million in 2025, a decrease of 55.2% from $1.7 billion in 2024.

The decline in EBITDA were primarily related to lower pension income and the settlement of our U.S.

qualified defined benefit plan, discrete charges resulting from First Brand's bankruptcy and adverse asbestos claims trends, and higher expenses from ongoing investments and inflation, partially offset by gross margin expansion and benefits from our global restructuring program and cost actions.

Each of these items is explained more fully above.

Adjusted EBITDA was $2.0 billion in 2025 which was flat compared to 2024.

Adjusted net income, adjusted diluted EPS, EBITDA and adjusted EBITDA are non-GAAP measures (see table below for reconciliations to the most directly comparable GAAP measures).

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We consider these metrics useful to investors because they provide greater transparency into management’s view and assessment of our ongoing operating performance by removing items management believes are not representative of our operations and may distort our longer-term operating trends.

For example, for the year ended December 31, 2024, certain of the non-GAAP metrics contained herein exclude costs relating to our global restructuring initiative and acquisition of Motor Parts & Equipment Corporation, which are one-time events that do not recur in the ordinary course of business.

We believe these measures to be useful to enhance the comparability of our results from period to period and with our competitors, as well as to show ongoing results from operations distinct from items that are infrequent or not associated with our core operations.

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Inventory rebranding strategic initiative (3) — 61,596

Asbestos-related product liability (4) 103,352 —

Pension settlement (5) 741,967 —

First Brands credit loss allowance (6) 150,500 —

Retirement obligation and other (7) 30,111 —

Total adjustments 1,293,926 315,729

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Inventory rebranding strategic initiative (3) — 0.44

Asbestos-related product liability (4) 0.74 —

Pension settlement (5) 5.33 —

First Brands credit loss allowance (6) 1.08 —

Retirement obligation and other (7) 0.22 —

Total adjustments 9.29 2.26

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(1) Adjustment reflects costs related to the global restructuring initiative which includes a voluntary retirement offer in the U.S.

and rationalization and optimization of certain distribution centers, stores and other facilities, including related inventory liquidation costs.

The inventory liquidation costs, recognized in cost of goods sold, total $7 million and arise from facility closures.

(2) Adjustment primarily reflects integration costs related to the completion of the acquisitions of MPEC in April 2024 and Walker in July 2024, including professional services costs, personnel costs, and lease and other exit costs.

in 2024, and rationalization and optimization of certain distribution centers, stores and other facilities.

(2) Adjustment primarily reflects lease and other exit costs related to the ongoing integration of acquired independent automotive stores.

(3) Adjustment reflects a charge to write down certain existing inventory associated with a new global rebranding and relaunch of a key tool and equipment offering.

The existing inventory that will be liquidated is comprised of otherwise saleable inventory, and the liquidation does not arise from our normal, recurring operational activities.

(4) Adjustment reflects a remeasurement of our asbestos-related product liability for a revised estimate of the number of claims to be incurred in future periods based on adverse current year changes in the claims environment, among other assumptions.

(5) Adjustment reflects a pension charge related to the settlement of our U.S.

qualified defined benefit plan (U.S.

pension plan).

(6) Adjustment reflects a charge for expected credit losses on volume purchase rebates and other amounts due from First Brands, a key automotive parts supplier who filed for Chapter 11 bankruptcy.

(7) Adjustment reflects certain nonroutine charges recorded during the quarter ended December 31, 2025, including a charge related to certain asset retirement obligations.

(8) We determine the tax effect of non-GAAP adjustments by considering the tax laws and statutory income tax rates applicable in the tax jurisdictions of the underlying non-GAAP adjustments, including any related valuation allowances.

For the year ended December 31, 2025, we applied the statutory income tax rates to the taxable portion of all of our adjustments, which resulted in a tax impact of $333 million.

A portion of our transaction costs

included in our non-GAAP adjustments for the year ended December 31, 2024 were not deductible for income tax purposes;

A portion of our transaction costs included in our non-GAAP adjustments for the year ended December 31, 2025 were not deductible for income tax purposes;

therefore, no statutory income tax rate was applied to such costs.

The table below clarifies where the adjusted items are presented in the consolidated statement of income:

Year Ended December 31,

(in thousands) 2025 2024

Cost of goods sold $ 160,200 $ 69,083

Selling, administrative and other expenses 95,777 33,126

Depreciation expense 42,021 —

Restructuring and other costs 253,961 213,520

Pension settlement charge 741,967 —

Total adjustments $ 1,293,926 $ 315,729

The table below reconciles GAAP net income to adjusted EBITDA:

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Interest expense, net 163,506 96,827

Income taxes 271,892 425,824

Income tax expense (benefit) (13,777) 271,892

EBITDA 753,697 1,680,773

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(1) Amounts are the same as adjustments included within the adjusted net income table above.

The table below clarifies where the adjusted items are presented in the consolidated statement of income:

Year Ended December 31,

(in thousands) 2024 2023

Cost of goods sold $ 69,083 $ —

Selling, administrative and other expenses 33,126 —

Restructuring and other costs 213,520 —

Total adjustments $ 315,729 $ —

We expect revenue and earnings growth in 2025 to be pressured by weak market conditions, particularly in the first half of the year.

Despite the current macroeconomic conditions, we expect gross margin improvement in 2025 driven by the benefit of acquired businesses and are committed to improving operating leverage through disciplined cost actions and initiatives as evidenced by our ongoing global restructuring.

We will continue to focus on disciplined capital allocation, increasing our dividend as we continue to grow earnings, pursuing strategic bolt-on acquisitions that expand our capabilities and geographic footprint and continuing to invest in technology and supply chain to enhance the customer experience and improve efficiencies in our business.

In 2025, we intend to reduce our net outstanding debt, further strengthening our balance sheet.

We are confident that when the macroeconomic conditions begin to improve that these disciplined cost actions and initiatives will propel our sales and earnings growth.

FINANCIAL CONDITION

Our balance sheet reflects our disciplined financial management and strategic investments to support our growth and operational priorities.

Key changes in cash, working capital, and debt demonstrate our commitment to maintaining financial flexibility while meeting customer demands and driving long-term value creation.

Our cash balance at December 31, 2024 was $480 million compared to cash of $1.1 billion a year ago.

Accounts receivable decreased $41 million, or 1.8%, from December 31, 2023 primarily due to foreign currency translation.

Inventory increased $838 million, or 17.9% from December 31, 2023 as a result of our U.S.

automotive acquisitions and enhanced investment in our product assortment and a more strategic approach to ensuring we have the right products available to meet customer demands.

Accounts payable increased $424 million, or 7.7% from December 31, 2023 due to increased purchases to support higher net sales.

Total debt of $4.3 billion at December 31, 2024 increased $378 million from December 31, 2023 primarily due to the August 7, 2024 Senior Notes offering (as discussed below), partially offset by the repayment of our Series J Senior Unsecured Notes upon their maturity.

LIQUIDITY AND CAPITAL RESOURCES

Our strong financial position and cash flow performance have provided us with the capacity to invest in acquisitions, capital expenditures and technology to support our global growth strategy, as well as return value to

our shareholders through dividends and share repurchases.

Depreciation adjustment of $42,021 in 2025 is reflected in Depreciation and amortization.

As we begin 2026, we have taken a significant step in our commitment to our purpose by announcing our intent to separate Global Automotive and Global Industrial into two independent, industry-leading publicly traded companies.

We believe creating two focused, independent companies sharpens customer and market alignment, increases clarity and speed, simplifies operations and enables disciplined, business-specific investments that will also give investors clear line of sight into each business – unlocking stronger valuation and long-term stakeholder value.

In 2026, we expect revenue and earnings growth despite continued weak market conditions.

We expect gross margin expansion and we will maintain emphasis on cost control, productivity and disciplined capital allocation, which will position us to perform effectively even amid ongoing cost and interest rate pressures.

We will continue to focus on disciplined capital allocation, increasing our dividend, pursuing strategic bolt-on acquisitions that expand our capabilities and footprint, and continuing to invest in technology and supply chain to enhance the customer experience and improve efficiencies in our business.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Our sources of capital consist primarily of cash flows from operations, supplemented as necessary by issuing commercial paper, private and public issuances of debt and bank borrowings.

Sources and Uses of Cash

In 2025, we announced a 3% increase in our regular quarterly cash dividend.

We have paid a cash dividend every year since going public in 1948, and 2025 marks the 69th consecutive year of increased dividends paid to shareholders.

Currently, we believe that our cash on hand and available short-term and long-term sources of capital are sufficient to fund our operations in both the short and long term, including working capital requirements, strategic acquisitions, dividends, share repurchases, capital expenditures, scheduled debt and interest payments, and income tax obligations.

Cash Flow Activity

During 2025, net cash provided by operating activities was $891 million, a decrease of $360 million, or 28.8%, from 2024 that was driven by lower net income, higher interest payments, and changes in working capital.

As noted above, declines in net income were driven by continued soft demand and higher expenses from ongoing investments and inflation.

Our 2025 operating cash performance was also impacted by First Brands failing to remit payments owed to us following its Chapter 11 bankruptcy filing.

Working capital was primarily impacted by payments for strategic inventory investments we made in 2024 with deferred payment terms that did not repeat in 2025.

Changes in working capital can vary significantly period over period depending on factors such as the timing of customer payments, inventory purchases, vendor payments, tax payments, and fluctuations in foreign exchange rates.

During 2025, we continued to invest in our business through strategic acquisitions and capital expenditures to broaden our product and service offerings, improve our business operations and expand our global footprint.

In 2025, we deployed $318 million for acquisitions, $470 million for capital expenditures, and $564 million for dividends.

In addition, we had net proceeds of debt of approximately $394 million, which reflected borrowings of $600 million on our unsecured revolving line of credit and $343 million under our commercial paper program to support these investments.

These proceeds were partially offset by the repayment of the $500 million principal amount of our 1.75% Unsecured Senior Notes due February 1, 2025.

Our cash balance at December 31, 2025 was $477 million compared to cash of $480 million at December 31, 2024.

A summary of our consolidated statements of cash flows is as follows:

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Financing activities $ (209,254) $ (333,936) $ 124,682 37.3 %

Operating Activities

The cash provided by operating activities decreased $184 million compared to 2023.

The decrease is driven by lower net income and changes in working capital, including higher inventory levels compared to prior year as a result of our U.S.

automotive acquisitions and enhanced investment in our product assortment and a more strategic approach to ensuring we have the right products available to meet customer demands.

Investing Activities

We continue to invest in our business through strategic acquisitions and capital expenditures to broaden our product and service offerings, improve our business operations and expand our global footprint.

In 2024, net cash used in investing activities included $1.1 billion used for acquisitions and $567 million used for capital expenditures to improve our supply chain, facilities, and technology environment.

Financing Activities

Cash provided by financing activities reflects $399 million of net proceeds from debt primarily from the August 7, 2024 Senior Notes offering, dividends paid to shareholders of $555 million and repurchases of our common stock of $150 million.

In 2024, we announced a 5% increase in our regular quarterly cash dividend, we have paid a cash dividend every year since going public in 1948, and 2024 marks the 68th consecutive year of increased dividends paid to shareholders.

Planned Pension Plan Termination

On April 29, 2024, our Board of Directors approved the termination of the frozen U.S.

qualified defined benefit plan (pension plan), effective September 30, 2024.

As part of the plan settlement process, pension plan participants not currently receiving payments will have the opportunity to select a single lump sum payment or an annuity from the insurance company that will pay and administer future benefit payments.

We intend to settle the pension plan and transfer the management and delivery of continuing benefits associated with the pension plan to a third-party insurance company by the end of 2025 or early 2026, subject to government approvals.

As of December 31, 2024 the benefit obligation for the pension plan was determined based on the amount expected to be required to settle the obligations.

Assumptions utilized considered the portion of the obligations expected to be settled through participant elections of lump sum payments or annuities and the cost to purchase annuities, which are subject to change upon actual plan settlement.

Upon settlement, we expect to recognize a non-cash, pre-tax pension settlement charge in 2025 or early 2026 equal to the actuarial losses accumulated in accumulated other comprehensive income ("AOCI"), which totaled approximately $735 million ($540 million, net of tax) as of December 31, 2024.

Once settled, we will be fully relieved of all obligations under the pension plan.

Furthermore, in connection with this anticipated transaction, we have adjusted our investment strategy for our plan assets, which will significantly reduce our pension income in 2025.

Notes and Other Borrowings

On August 7, 2024, we issued $750 million of unsecured 4.950% Senior Notes due 2029.

Interest is payable on February 15 and August 15 of each year, beginning February 15, 2025.

On November 29, 2023, we entered into a commercial paper program that allows us to issue unsecured commercial paper notes up to $1.5 billion.

As of December 31, 2024, we had no borrowings outstanding under our commercial paper program.

At December 31, 2024, we had $4.3 billion of unsecured Senior Notes outstanding.

Approximately $1.2 billion of these borrowings contain covenants related to a maximum debt to EBITDA ratio and certain limitations on additional borrowings.

At December 31, 2024, we were in compliance with the covenants under our outstanding unsecured Senior Notes, as well as our covenants under the Syndicated Facility Agreement, dated as of October 30, 2020, as amended (the "Unsecured Revolving Credit Facility").

Any failure to comply with our debt covenants or restrictions could result in a default under our financing arrangements or require us to obtain waivers from our lenders for failure to comply with these restrictions.

The occurrence of a default that remains uncured or the inability to secure a necessary consent or waiver could create cross defaults under other debt arrangements and have a material adverse effect on our business, financial condition, results of operations and cash flows.

We ended the year with $2.0 billion of total liquidity (comprising $1.5 billion availability on the revolving credit facility and $480 million of cash and cash equivalents).

Liquidity & Capital Resources

Our liquidity is supported by cash generated from operating activities and available borrowings.

As of December 31, 2025, total liquidity was $1.5 billion, consisting of $477 million in cash and $1.1 billion of available capacity under the company's $2.0 billion Revolving Credit Agreement.

This reflects $600 million drawn on the revolver and $343 million outstanding under our commercial paper program.

Due to the workers’ compensation and insurance reserve requirements in certain states, we also had unused letters of credit of approximately $79 million outstanding at December 31, 2025.

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From time to time, we may enter into other credit facilities or financing arrangements to provide additional liquidity and to manage against foreign currency risk.

Additionally, we have an A/R Sales Agreement to sell short-term receivables from certain customer trade accounts to the unaffiliated financial institutions on a revolving basis.

We also facilitate a voluntary supply chain finance program to provide certain of our suppliers with the opportunity to sell receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions.

Refer to the AR Sales Agreement Footnote and the Supply Chain Finance Footnote in the Notes to Consolidated Financial Statements for more information.

At December 31, 2025, we had $4.8 billion of total debt outstanding.

Approximately $1.3 billion of this debt includes unsecured Senior Notes which contain covenants related to a maximum debt to EBITDA ratio and certain limitations on additional borrowings.

At December 31, 2025, we were in compliance with the covenants under our outstanding unsecured Senior Notes, as well as our covenants under the Syndicated Facility Agreement, dated as of October 30, 2020, as amended (the "Unsecured Revolving Credit Facility").

Our total average cost of debt was 3.99% at December 31, 2025 and 3.62% at December 31, 2024.

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Refer to the Debt Footnote in the Notes to Consolidated Financial Statements for more information.

We expect to continue to have access to the capital markets on both short-term and long-term bases when needed for liquidity purposes by issuing commercial paper, new long-term debt and our unsecured revolving credit

The availability and the borrowing costs of these funds could be adversely affected, however, by a downgrade of our debt ratings or a deterioration of certain financial ratios.

The table below reflects our debt ratings by Standard & Poor’s ("S&P") and Moody’s as of December 31, 2025, which provide an enhanced understanding of our sources of liquidity and the effect of our ratings on our cost of debt.

Debt Ratings S&P Moody's

Commercial paper A-3 P-2

Long-term debt BBB- Baa1

Outlook Negative Negative

During the first quarter of 2026, we also received ratings from Fitch Ratings (“Fitch”).

Fitch assigned our long-term and senior unsecured notes a rating of BBB- with a stable outlook.

Additionally, Fitch assigned our commercial paper a rating of F3.

A debt rating is not a recommendation by the rating agency to buy, sell, or hold and each rating should be evaluated independently of any other rating.

Credit rating agencies review their ratings periodically and, therefore, the credit ratings assigned to us by each agency may be subject to revision at any time.

Pension Plan Settlement

On December 19, 2025, we settled all future obligations under the U.S.

pension plan through the transfer of the remaining benefit obligations to a third-party insurance company under a group annuity contract.

The remaining surplus plan assets following the U.S.

plan settlement will be used to fund certain contributions associated with our U.S.

defined contribution plan (Qualified Replacement Plan) beginning in 2027, as well as remaining U.S.

pension plan expenses.

As of December 31, 2025, our $446 million of surplus plan assets consisted of $13 million in cash, a $243 million short-term bond fund and $190 million of GPC stock.

Contractual and Other Obligations

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To date, we have had no significant losses in connection with guarantees of independents’ borrowings.

Share Repurchases

In 2024, we repurchased approximately 1.1 million shares of our common stock for an aggregate $150 million, and we had remaining authority to purchase approximately 7.5 million shares of our common stock at December 31, 2024.

We expect to remain active in our share repurchase program and continue to return capital to our shareholders.

There were no other repurchase plans announced as of December 31, 2024.

Capital Resources

Our total debt outstanding at December 31, 2024 increased by $378 million from December 31, 2023, as discussed above.

We expect to continue to have access to the capital markets on both short-term and long-term bases when needed for liquidity purposes by issuing commercial paper or new long-term debt.

The availability and the borrowing costs of these funds could be adversely affected, however, by a downgrade of our debt ratings or a deterioration of certain financial ratios.

The table below reflects our debt ratings by Standard & Poor’s ("S&P") and Moody’s as of December 31, 2024, which provide an enhanced understanding of our sources of liquidity and the effect of our ratings on our cost of debt.

A debt rating is not a recommendation by the rating agency to buy, sell, or

hold and each rating should be evaluated independently of any other rating.

Credit rating agencies review their ratings periodically and, therefore, the credit ratings assigned to us by each agency may be subject to revision at any time.

Debt Ratings S&P Moody's

Commercial paper A-2 P-2

Long-term debt BBB Baa1

Outlook Stable Stable

CRITICAL ACCOUNTING POLICIES

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We describe in this section certain critical accounting policies that require us to make significant estimates, assumptions and judgments.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are uncertain at the time the estimate is made and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements.

An accounting policy is considered critical if it involves making estimates based on assumptions about uncertain matters at the time the estimate is made, and if using different reasonable estimates, or changes in those estimates over time, could have a material impact on the consolidated financial statements.

Management believes the following critical accounting policies reflect its most significant estimates and assumptions used in the preparation of the consolidated financial statements.

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While management believes we will continue to receive consideration from vendors in 2026 and beyond, there can be no assurance that vendors will continue to provide comparable amounts of incentives in the future or that we will be able to achieve the specified volumes necessary to take advantage of such incentives.

Consideration receivable from vendors include rebates receivable for various vendor funding programs.

Consideration receivable from vendors, generally reflected in prepaid expenses and other current assets, was $907 million and $973 million as of December 31, 2025 and December 31, 2024, respectively.

Impairment of Goodwill and Other Intangible Assets

At least annually, we evaluate goodwill and other intangible assets for potential impairment indicators.

Our judgments regarding the existence of impairment indicators are based on market conditions and operational performance, among other factors.

Future events could cause us to conclude that impairment indicators exist and that assets associated with a particular operation are impaired.

Evaluating for impairment also requires us to estimate future operating results and cash flows which requires judgment by management.

Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.

Refer to the Goodwill and Other Intangible Assets Footnote of the Notes to Consolidated Financial Statements for further information on the results of our annual goodwill impairment testing.

Through a long-term supplier agreement with First Brands Group, we earned vendor rebates based on volume purchases across our Automotive business.

First Brands Group filed voluntary petitions for Chapter 11 bankruptcy protection in September 2025.

Given the bankruptcy, the on-going developments related to the supplier’s operations, and the past due status of certain of the receivables, we evaluated our receivables from the supplier to estimate the current expected credit losses and amounts that we deemed uncollectible.

As a result of these events and our on-going assessment of the credit quality of the vendor, we recorded a charge of $151 million to cost of goods sold in 2025.

Employee Benefit Plans

Effective December 31, 2013, our U.S.

pension plan was amended to freeze benefit plan accruals for participants and provide for immediate vesting of accrued benefits.

On April 29, 2024, our Board of Directors approved the termination of the frozen U.S.

plan, effective September 30, 2024.

Refer to the Employee Benefit Plans Footnote of the Notes to Consolidated Financial Statements for further information on the termination of the frozen U.S.

Our benefit plan committees in the U.S.

and Canada establish investment policies and strategies and regularly monitors the performance of our pension plan assets.

plan, our largest pension plan, is well-funded, with a funded status of 128% at December 31, 2024.

The plans in Europe are unfunded and therefore there are no plan assets.

Beginning in 2024, the U.S.

pension plan strategy implemented by our management is to minimize funded status volatility through the plan termination process.

Our investment strategy with respect to U.S.

pension plan assets is to fully hedge plan obligations on a termination basis.

In connection with the planned U.S.

pension plan termination process, we acquired certain annuity contracts from an insurance company using existing plan assets to fund on-going obligations under the U.S.

pension plan prior to termination.

The Canadian pension plan investment strategy implemented by our management is to achieve long-term objectives and invest the pension assets in accordance with the applicable pension legislation in Canada, as well as fiduciary standards.

The long-term primary objectives for the Canadian pension plan is to provide for a reasonable amount of long-term growth of capital without undue exposure to risk, protect the assets from erosion of purchasing power and provide investment results that meet or exceed the pension plans’ actuarially assumed long-term rates of return.

The Company's Investment Strategy with respect to Canadian pension plan assets is to generate a return in excess of the passive portfolio benchmark (50% Equity, 40% Fixed Income, 10% Other).

On April 29, 2024, our Board of Directors approved the termination of our U.S.

qualified defined benefit plan (U.S.

pension plan), effective September 30, 2024.

On December 19, 2025, we settled all future obligations under our U.S.

pension plan through the transfer of the remaining benefit obligations to a third-party insurance company under a group annuity contract.

As a result, we recognized a one-time, non-cash, pre-tax pension settlement charge of $742 million ( $541 million , net of tax), primarily related to the recognition of previously unamortized net actuarial losses in accumulated other comprehensive loss.

Following the settlement, we had no U.S.

pension obligations as of December 31, 2025.

Refer to the Employee Benefit Plans Footnote of the Notes to Consolidated Financial Statements for further information on the termination of the U.S.

The Canadian pension plan is managed to achieve long-term growth with controlled risk, targeting returns above a benchmark of 40% equity, 50% fixed income, and 10% other assets.

European plans are unfunded and have no plan assets.

We make several assumptions in determining our pension plan assets and liabilities and related pension income.

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Refer to the Employee Benefit Plans Footnote of the Notes to Consolidated Financial Statements for more information regarding these assumptions.

Based on the investment policy for the pension plans, as well as an asset study that was performed based on our asset allocations and future expectations, our expected rate of return on plan assets for measuring 2025 pension income is 5.33% for the plans.

Based on the investment policy for the Canadian pension plan, as well as an asset study that was performed based on our asset allocations and future expectations, our expected rate of return on plan assets for measuring 2026 pension income is 6.01% for the Canadian plan.

The asset study forecasted expected rates of return for the approximate duration of our benefit obligations, using capital market data and historical relationships.

The discount rate is chosen as the rate at which pension obligations could be effectively settled and is based on capital market conditions as of the measurement date.

Prior to December 31, 2024, the discount rate for the U.S.

pension plan was calculated using a bond matching approach to select specific bonds that would satisfy the projected benefit payments.

As a result of the of the decision to terminate the U.S.

pension plan, as of December 31, 2024, the benefit obligation for the U.S.

pension plan was determined based on the amount expected to be required to settle the obligations.

Assumptions utilized included the portion of the obligations expected to be settled through elections of lump sum payments or annuities and the cost to purchase annuities, which are subject to change upon actual plan settlement.

We have matched the timing and duration of the expected cash flows of our pension obligations to a yield curve generated from a broad portfolio of high-quality fixed income debt instruments to select our discount rate.

Based upon this cash flow matching analysis, we selected a weighted average discount rate for the plans of 5.15% at December 31, 2024.

Our pension income for 2024 is determined at the December 31, 2023 measurement date.

A 25 basis point increase in discount rate would result in an approximate $38 million decrease on our projected benefit obligation.

A 25 basis point decrease in discount rate would result in approximate $40 million increase on our projected benefit obligation.

A 25 basis point change in discount rate would have an immaterial impact on our pension income.

A 25 basis point change in expected return on asset would have an approximate $6 million impact on our pension income.

These sensitivities reflect the effect of changing one assumption at a time and assume no changes to the design of the pension plans.

Net periodic benefit income for our defined benefit pension plans was $54 million, $44 million, and $27 million for the years ended December 31, 2024, 2023 and 2022, respectively.

The income associated with the pension in 2024, 2023 and 2022 reflects the impact of the U.S.

The termination of our U.S.

plan will significantly reduce pension income prospectively.

Refer to the Employee Benefit Plans Footnote of the Notes to Consolidated Financial Statements for more information regarding employee benefit plans.

The discount rate, reflecting the rate to settle pension obligations, was determined using a bond matching approach.

As of December 31, 2025, the weighted average discount rate was 5.20%.

Net periodic benefit expense for our defined benefit pension plans was $1 million for the year ended December 31, 2025.

Net periodic benefit income for our defined benefit pension plans was $54 million and $44 million for the years ended December 31, 2024 and 2023, respectively.

The 2025 amount reflects the change in strategy related to the expected settlement.

Business Combinations

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In addition, we have estimated the economic lives of certain acquired tangible and intangible assets and these lives are used to calculate depreciation and amortization expense.

If our estimates of the economic lives change, depreciation or amortization expenses could be increased or decreased, or the acquired asset could be impaired.

If our estimates of the economic lives change, depreciation or amortization expenses could increase or decrease, or the acquired asset could be impaired.

Legal and Asbestos Liabilities

We accrue for potential losses related to legal disputes, litigation, asbestos liability, and regulatory matters when it is probable (the future event or events are likely to occur) that we have incurred a loss and the amount of the loss can be reasonably estimated.

To calculate our asbestos liability, we estimate potential losses relating to pending claims and also estimate the likelihood of additional, similar claims being filed against us in the future.

To calculate our asbestos-related product liability, we estimate potential losses relating to pending claims and also estimate the likelihood of additional, similar claims being filed against us in the future.

To estimate potential losses on claims that could be filed in the future, we consider claims pending against us, claim filing rates, the number of codefendants and the extent to which they share in settlements, and the amount of loss by claim type.

The estimated losses for pending and potential future claims are calculated on a discounted basis using risk-free interest rates derived from market data about monetary assets with maturities comparable to those of the projected asbestos liability.

The estimated losses for pending and potential future claims and related adjustments, are calculated on a discounted basis using risk-free interest rates derived from market data about monetary assets with maturities comparable to those of the projected asbestos liability.

We use an actuarial specialist to assist with measuring our asbestos liability.

While we believe our legal and asbestos liability estimates are reasonable in light of all available information, if one or more legal claims were to greatly exceed our estimates, our results of operations and cash flows could be materially and adversely affected.

Refer to the Commitments and Contingencies Footnote of the Notes to Consolidated Financial Statements for additional information regarding our asbestos liability.

Refer to the Commitments and Contingencies Footnote of the Notes to Consolidated Financial Statements for additional information regarding our asbestos-related product liability.

RECENT ACCOUNTING PRONOUNCEMENTS

Changes to U.S.

GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASU”) to the FASB Accounting Standards Codification (“ASC”).

We consider the applicability and impact of all ASUs and any not listed below were assessed and determined to not be applicable or are expected to have an immaterial impact on our Condensed Consolidated Financial Statements.

Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses.

This standard requires disclosure in the notes to financial statements, at each interim and annual reporting period, of specified information about certain costs and expenses including purchases of inventory, employee compensation, depreciation and intangible asset amortization included in each relevant expense caption.

Also required is a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated.

This guidance is effective for all public entities for fiscal years beginning after December 15, 2026, and interim periods beginning after December 15, 2027, and early adoption is permitted.

This guidance should be applied either prospectively to financial statements issued after the effective date of this update or retrospectively to all prior

periods presented in the financial statements.

We are currently evaluating the impact of adopting this standard on our financial statements and disclosures.

Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

This standard requires disclosures of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss, an amount and description of other segment items by reportable segment, and all annual disclosures currently required by Topic 280 to be included in interim periods.

This standard also requires disclosure of the title and position of the CODM.

We adopted this standard effective December 31, 2024.

Income Taxes (Topic 740):

Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

The standard requires disclosure of specific categories in the rate reconciliation and additional information for reconciling items, income before tax expense disaggregated between domestic and foreign, income tax expense disaggregated by federal, state and foreign, as well as further information on income taxes paid.

The guidance is effective for our Annual Report on Form 10-K for the year ended December 31, 2025, with early adoption permitted.

The guidance should be applied on a prospective basis, with retrospective application permitted.

We are currently evaluating the impact of adopting this standard on our financial statements and disclosures.

Refer to the Summary of Significant Accounting Policies Footnote in the Notes to Consolidated Financial Statements for information on recent accounting pronouncements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis